The Three “Musts” of an OFW Bank

After listing down the lessons we can learn on the OFW bank fiasco on the last post, it looks natural and even incumbent upon us now to figure out what an OFW bank should be.

If we are to set up an OFW bank – given that this is an idea that never really dies -  how should it look like? How do we make sure that the bank survives? What should be its strongest selling point?

What should be its main features? Should it look like a commercial bank? A savings bank? Or should it be more like a rural bank or a cooperative bank?,

Well, frankly, nobody can claim to have all the answers.

But I can cite three basic features that an OFW bank must have. I call these the three “musts” of an OFW bank.

Here the three “musts” are:

1.   It must be the main depositary bank of OWWA funds.

This is an absolute pre-requisite for an OFW bank to have at least a fighting chance for survival. Any charter for the formation of an OFW bank should contain this provision as an “absolute prerequisite” or, a “conditio sine qua non” (to use a legal jargon) for an OFW bank.

An OFW bank should not depend on the public at large for deposits. In fact it should not even depend on OFWs as a source of deposits. It should have a built-in mechanism that provides cheap sources of funds and there is no better way than to have the bulk of OWWA funds deposited in it.

The mandatory deposit of at least, the bulk of billions of OWWA funds will ensure that the bank will always have available cheap or low-cost sources of funds for the bank’s lending operations.

The availability of low-cost sources of funds is a very crucial factor for any bank to be able to survive. This is particularly so in the face of the highly cartelized situation of the local banking industry (It’s not just the local banking industry but the whole global banking industry that is moving towards cartelization).

You will be facing giants in an extremely competitive, even brutal banking environment where spreads (the margin between source and use of funds or simplistically, deposits as against loans) are getting thinner and thinner. The thrust nowadays has been in the retail sector in which you have no choice but to play and compete toe-to-toe.

You lack cheap sources of funds, you will not stay long in the banking game. Any banker knows that.

Without this condition of being the depositary of OWWA funds, I don’t think an OFW bank will have any chance of surviving.

2.   It must primarily serve the OFW sector

By its very name, an OFW bank should primarily serve the OFW sector which includes, of course the dependents of OFWs, and by necessary extension, the overseas Filipinos.

This means that, on the sources of funds side, it should be able to offer the OFWs preferential deposit rates or interest rates (for savings and time deposits) at least equal to better than those offered by savings banks, development banks and even cooperative banks.

How the OFW bank should be able to do this without jacking up its lending rates? That is definitely a challenge, but the presence of the captive OWWA deposits should make this possible if the OFW bank management is creative enough.

On the use of funds or lending side, it should be able to have a lending window, again with preferential rates, for every category of lending need by OFWs, dependents and returning/reintegrating OFWs.

This means that OFWs who run out of funds for returning abroad to worksites should easily obtain loans at preferential rates. The same should be true for distressed OFWs or those who suffered dislocations at troubled worksites like Libya and Syria.

Of course, lending relating to distressed OFWs should be closely coordinated with OWWA which upon creation of the OFW bank, should be stripped of whatever lending function it has.

More importantly, the OFW bank should be able to provide preferential lending rates to reintegrating OFWs – those who want to start businesses after years of toil abroad. Apart from preferential rates it should be able to provide advisory services to reintegrating OFWs.

This brings us to the next “must”.

3.  The bank must have a developmental character and orientation.

Any OFW bank should be developmental in character and orientation. It should serve to uplift the lot of OFWs, overseas Filipinos, their dependents and the greater society in general.

By “developmental”, this does not just mean it should look and behave like a development bank (like Development Bank of the Philippines or Planters Development Bank), although that should be included in it.

This means that it is not enough that it caters to the needs of OFWs; it should help the OFW sector develop and graduate from a “consumer sector” to an “investment and entrepreneurial sector.”

It should help wean the OFW sector from a “consumer mentality” to an “investment or entrepreneurial mentality.” It should help OFWs become investors and entrepreneurs rather than just mere consumers.

Easier said than done? Of course it is, but the OFW bank can be a potent force towards this end. It should have a program along this line.

I mean, it should be part and parcel of the whole program for the comprehensive economic reintegration of OFWs which I have been talking about in this blog.

It should not just be a bank; it should be a force in society. It should not just be a lender; it should also be a molder of minds of OFWS.

This is what I mean by being “developmental” in character and orientation.