Supportive Research Evidence

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Despite high growth, unemployment and underemployment is creating ever-increasing flow of Filipinos moving abroad

Remittances to the Philippines have been growing at 12% a year over the past decade and expected to grow at a 6% yearly rate over the coming years (BSP). While the current economic growth has given new opportunities, it still remains small given the level of unemployment and underemployment, feeding a ever growing flow of Filipinos leaving the Philippines.

With almost 10 million unemployed or underemployed Filipinos as of end-2012, around 1.1 million potential entrants to the labor market each year, and poverty incidence that hardly declined between 2009 and 2012, the country faces the enormous challenge of providing good jobs to 14.4 million Filipinos through 2016. Sustaining high GDP growth of above 5 percent will be able to provide good jobs to around 2.2 million Filipinos between 2013 and 2016. However, by 2016, that still leaves 12.4 million Filipinos who will have no other option but to work abroad, work in the informal sector, or create jobs for themselves. — Philippine Economic Update, World Bank, May 2013

But where is all this money going? 24.35 billion dollars in 2013. PhilSmile actively engaged all stakeholders on the issue and, with Wimler Foundation, Ateneo de Davao and MinCode, PhilSmile is co-organizing a conference on the "Role of Migrants and their Remittances in Sustainable Development" in Davao on January 24, 2015.

While remittances have been growing at 12% per year for the last decade (2003-2013) and the growth prospect is now seen at 6% a year over next decade, it will still mean $32.5 billion in 2018 (in 5 years), or which $1.63b will be spent on education, an increased annual spending of $410m (about PhP18 billion at current market rate). Only capturing new transactions could create massive impact.

Direct school payment works

Professor Dean Yang of University of Michigan has years of research experience on remittance behavior patterns. Following on the new rigorous approach of randomized controlled trials and focus on remittances as a new leverage for development, aside from traditional Official Development Assistance, he was granted funding (US$96,409) from USAID to test a simple idea between 2011 and 2013: education direct payment from Overseas Filipinos in Rome (Italy), mainly to schools in Luzon. The operations on the ground were sub-contracted toInnovation for Poverty Action (IPA) with the support of Dr. Jose Campos (PAPSCU President and then Chairman of COCOPEA) to help the coordination with schools. The group of investigators (researchers) was composed of Dean Yang, David McKenzie, Erwin Tiongson and Giuseppe de Arcangelis.

The key findings from Edupay was that more than a third of OFW wanted to make the spending decisions on their hard-earned money sent back to the Philippines and when OFW had the ability to send remittances for education, they were increasing their remittances by 15%. This would mean an extra PhP 8 billion for education in the Philippines.

Commitment savings: You save more when you know what you save for

Directing fund for a purpose enhances trust and bridges new bonding. It also acts as a commitment savings for the senders. Commitment savings has proved to be a powerful incentive. An experimentation done in Caraga in 2006 led by Nava Ashraf (Harvard), Dean Karlan (Yale) and Yin (University of Chicago) resulted in a whopping increase of 81% in savings of the sample.

Given that education financing (or the lack of affordability of colleges and universities) is the key reason why Filipinos migrate, it ends up being the first reason why a lot of Filipinos are saving (or should do so). It provides also a first reason to start saving, setting aside money for their children.

Commitment saving is especially important for Overseas Filipinos.  Seafarers only stay overseas for a short period of time (9-10 months on average). When they often come back to the Philippines, with no money left, the family has spent it all. They need to incur debt from loan sharks before going back abroad. 

K-12 : Perfect storm to implement new efficient process

Basic education in the Philippines used to only last 10 years, bringing students to universities at 16, where they can graduate from a bachelor degree at 20. The school year traditionally runs from June to March, with April and May as summer break.

To bring the Philippine education system in line with international standard, K-12 reform was enacted on May 15, 2013 to lengthen basic education from 10 to 12 years. Graduates will benefit from 2 more years of education and Philippine degree may be better recognized worldwide. This is an area of key importance for the 12m Filipinos seeking opportunities abroad. At the same time, Commission of Higher Education (CHED) introduced the outcome-based education pushing even more changes to the curriculum that will already have to change to accommodate for those 2 more years of basic education.

K-12 reform will create 2 more years of senior high school from 2016-17 and 17-18. In effect, higher education institutions (HEI) will not receive any freshmen for 2 years with missing class age for an additional 3 years. For private HEIs that compose nearly 3/4 of the total number of HEIs, tuition fees are the key to sustainability and some of the most fragile face the prospect of bankruptcy. HEIs have started to become active to find solutions, venturing into senior high school, obtaining a student voucher from the government.  

HEIs can save 8.5m pesos today with PhilSmile

This period of education reform is the perfect storm to implement new efficient processes to improve collection of tuition fees. Collectible (promissory notes) often reaches 15 to 25% of total tuition. PhilSmile is the perfect way to improve it by reconnecting with the parents far away. 27% of children under 18 grow up with one or both parents overseas. This proportion 10 to 45% of enrollees being supported by relatives overseas is commonly observed at schools we visit. For a large HEI with 5,000 students and average tuition fees of 50,000 pesos, this represents about 8.5m pesos of potential new collections that may be enough to pay for 30-40 professors' salary for example and fewer expenses in going after delinquent payers. 

Addressing alarming drop-out rate from OFW children

Overseas Filipino (OFW) Parents have left 9m children behind, or 27% of all children under 18 in the Philippines, according to the UNICEF (Migration and Filipino Children Left-Behind: A Literature Review, Melanie Reyes, 2009). OFW Parents would love to see their children grow and children left behind are often distressed by not knowing whether their tuition payment is coming. This leads too often to drop-out even before finishing high school.  In some high schools in Davao, the drop-out rate among OFW children is of 36% for instance compared to the nationwide one of 25%.

PhilSmile helps parents reconnect with their children, by giving them a new way to follow-up on their education (school choice, payment , receiving back the grades, update of school activities). But we believe in enhancing guidance chancellors' programs to prevent drop-out (or transferring) by focusing on value of education,  peer counseling  and financial literacy.

How many from those 27% are in your institution?

1.2m children are directly supported, while 9m children under 18 are left behind. Why ?  Some students go to free public schools. Many students do not receive the money intended for them or drop-out.

Now that OFW parents know where their money goes, they have new opportunities to choose your school. Let’s stop the leakage and increase the number of supported children from 1.2m to 2m.

Read more about how PhilSmile strengthens remittance regulation.

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