Indonesia: A More Transparent and Efficient Remittance System Helps Migrant Workers and their Families

September 20, 2016

  • Many migrant worker families in Indonesia are reliant on remittances for their income.
  • Unfamiliar with banks and international money transfers, they turn to intermediaries to get their money home, which often leads to partial or total money loss.
  • In Lombok Timur in eastern Indonesia, the Greenback 2.0 project is making the remittances market more transparent, efficient and inclusive

Lombok Timur, Indonesia, September 20, 2016 - For many families in East Lombok, an impoverished district in eastern Indonesia, remittances from relatives working overseas are often the only source of income.

 “When it’s not harvest time, remittances money is all we have,” says Radiah, a farmer whose husband works in Malaysia.

Yet despite its importance, many migrant workers use risky channels to send back money. Unfamiliar with financial services and remittance service providers, they turn to account mediators – holders of bank accounts who, for a fee, help with remittance transfers.

Account mediator Herman Fauzi keeps close track of the funds going through his bank account – and the withdrawals. Why do migrant workers turn to him? “Sometimes,” explains Fauzi, “people use my services because they don’t trust their families.”

However, cases of funds disappearing through risky channels are not uncommon – and risky channels can include account mediators as well as families.  Tanwir worked in Malaysia for several years at a palm plantation before sending money back home through his sister. He has since lost all of his hard-earned income.

Tanwir first sent the funds to his sister, who used it to start a business. Then she died, and her daughter controlled her money. “When I asked for (the money), she said that she doesn’t know, even though she was the one who went to the bank,” said Tanwir, full of regret. 


Challenges in managing remittances: limited financial services and low awareness

East Lombok is home to the largest number of Indonesian migrant workers, yet formal financial services remain scarce. Services are limited, and public awareness of existing services, including banking, is lacking.

“Our remote location makes it difficult for financial services to reach our villages,” said Gunanto, head of Tetebatu Selatan village. “Apart from that, the majority of the people here are only elementary school graduates and they are afraid to save too much money.”

“For ordinary people, banks are something unusual,” said Marjan, a micro finance practitioner. “People dress up when they go to the bank. To use the ATM they need help from someone else.”

Gunanto adds that his village has started awareness campaigns on how to use financial services and manage finances. He hopes that better management of remittances can help local entrepreneurs thrive.

“When migrant workers send their remittances usually it’s for something like house renovations and not for business capital,” said Gunanto.

" Our remote location makes it difficult for financial services to reach our villages. Apart from that, the majority of the people here are only elementary school graduates and they are afraid to save too much money. "


Head of Tetebatu Selatan village

Project Greenback 2.0 for more transparent, efficient and inclusive remittances

To improve the remittance market and the impact of remittances in Indonesia, the World Bank initiated Project Greenback 2.0.The project is implemented in collaboration with Indonesia’s Central Bank, the Indonesian Financial Service Authority (OJK), the Agency of Placement and Protection of Indonesian Migrant Workers (BNP2TKI), and the local governments of East Lombok and West Nusa Tenggara.

The project will promote efficiency and transparency in the remittance market through financial education and by including more people in the financial system. Project Greenback 2.0 will also facilitate digital payments, and work with the government’s social assistance programs in sending cash transfers as well as the private sector in order to expand the network of payment services.

Response from the private sector has been positive, with their participation beginning in villages in East Lombok. In the long run, Project Greenback 2.0 aims to spur economic growth by transforming remittances into productive investments and creating jobs. These new options could help remittance senders to choose safer options.

Greenback 2.0 has been implemented in Turin, Italy, and Montreuil, France, targeting migrant workers living in those cities. In 2015 the project was launched in Johor Bahru, Malaysia, where many migrants from Lombok work. The project in Indonesia – part of the Financial Inclusion Support Framework (FISF), a World Bank Group (WBG) technical assistance initiative supported by the Government of the Netherlands and the Bill and Melinda Gates Foundation -- is the first to have been implemented in a remittance-receiving country.


Remittances are a big deal because they bring in big sums

Between 2013 until 2015, the number of Indonesian migrant workers dropped from 512,000 to 275,000, due to a government moratorium barring migrant workers to the Middle East.

Despite the drop in the number of migrant workers, the total amount of remittances grew from $7.4 billion to $9.4 billion during the same period. In 2014, the amount of remittances sent to Indonesia was equivalent to 1% of the country’s GDP.

“There has been a shift from unskilled to semi-skilled Indonesian migrant workers, as well as a salary increase in destination countries,” explained Lisna Yoeliani Poeloengan from the Agency of Placement and Protection of Indonesian Migrant Workers (BNP2TKI).

Increasing transparency, efficiency and inclusiveness in the market for remittances will help the needs of the ultimate beneficiaries of international money transfer: the migrant workers and their families back home.