Nepal ’s Remittance Economy
By Bikendra Shamsher Thapa
Remittances refer to that portion of migrants’ earnings sent from migration destination to the place of origin. Even though they can also be sent in kind, the term “remittances” is normally limited to denote monetary and other cash transfers transmitted by migrant workers to their families and communities.
Human beings have practiced migration since time immemorial. Much of the early migrations in Nepal were due to excessive tax burden, exploitative agricultural relations and political instability. The Sugauli Treaty signed on December 2, 1815 between British India and Nepal helped systematize and formalize migration. The First and Second World Wars created huge demand for young army men from Nepal . The recent decades witnessed increasing number of Nepalese migrating for other types of jobs to military services. Globalization opened avenues to common people for moving to distant countries to work. The late 1980s opened new horizons of working abroad with new probabilities in newly rising economies seeking cheap labor from Nepal , Bangladesh , India and Sri Lanka . The census of 2001 shows that 762,181 Nepalese live and work abroad, out of which, 509,000 Nepalese work in India and over a lakh in the Mid-East. However, it is estimated that around 10 lakhs Nepalese are in the Gulf now.
International migrant remittances are perhaps the largest source of external finance in developing nations. Remittance flows into developing countries exceeded USD 125 billion in 2004, making them the second largest source of development finance after FDI. The major part of remittances to developing countries from 2001 to 2004 went to South Asia , Latin America and Caribbean , and to a lesser degree – East Asia and the Pacific. The rise in remittance flow has been strong in China , India , Pakistan and the Philippines . The increase in remittance flow in the recent years can mainly be due to noticeable decrease in remittance sending costs in some countries.
The migrants remit money contributing significantly to the national GDP. Remittance in Nepal is growing at an average rate of 8% in the recent few years. The Nepal Rastra Bank figures of remittance show that our country received Rs 58.5 billion in 2003/04, Rs 65.5 billion in 2004/05 and Rs 97.53 billion in 2005/06.The remittance inflow from India does not come from banking channel whereas remittance from informal work abroad also comes from informal channel only. The large part of remittance money goes to rural areas that have helped reduce poverty in Nepal . The Nepal Living Standard Survey (2003/04) showed that, in less than a decade, remittance has been responsible for an 11% reduction in the number of people living below the poverty line. The growing remittances have led to a surplus in the current account, thereby strengthening the overall balance of payment position. Remittances have also relaxed the foreign exchange constraints of the country.
Remittances are likely to rise when migrants leave for economic rather than social or political reasons, where they have temporary rather than permanent resident status, where they are young, but married with family left behind at home and that remittances will rise as emigrant wages increase – although at a certain point, further increase in wage levels do not seem to translate into higher remittances.
Nepalese household features on economic side include seasonal employment in case of unskilled workers, unemployment of educated youth, low and subsistence income level, indebtedness, lack of access to quality education and health services and poor housing. Most of the migrant workers have economic imperative and moral obligation to remit money home to repay debt, build own house, spend on basic amities and children’s education and invest to buy house or land in town/city. The bulk of foreign remittance is used for consumption and to repay loans.
There is unequal participation from all parts of Nepal in the migrant work force living in the Gulf. The western and eastern regions contribute 70% of the migrant labor in the Middle East . People, from the mid-western and far-western regions that lag far behind in sending their people abroad as workers, generally go to India where income is low. Thus, remittance has failed to improve the economic status of these regions. Jhapa, Syangya and Kaski are the top three districts from where Nepalese migrate to the Gulf.
The mechanism through which migrants send money to Nepal is of high importance. Both informal (including personal delivery and hundi) and formal (involving money transfer companies and financial institutions) channels of remitting money are in operation. An estimated 69% of foreign remittances come through informal channel – usually family and friends – even among household with bank accounts. Just 6% of remittances are saved in financial institutions. Since 2001, when money transfer companies were allowed to enter remittance market, formal remittance payment from countries other than India has gone up – with formal remittances being delivered in a day or two at relatively low cost and even in remote areas. But, due to legal and regulatory constraints in the Indo-Nepal corridor for money transfer operations, informal channel has not decreased for India – Nepal transfers. Furthermore, use of informal remittance services is high because of limited presence of the formal channels and low-income and rural households have limited familiarity with the financial sector.
Remittances will grow if legislative barriers and fiscal costs of transfers can be decreased, the latter is likely to be facilitated by introducing more market players and transmission modes, better provision of reliable information to migrants on the cost of transfer and benefits of formal modes and generally better and more credible supervision of the sector to ensure transparency and reliability of transfers. To make the remittance more effective, the government could enhance financial literacy of the migrants and tackle legal and regulatory obstacles and promote viable loan scheme for migrants that reduces share of remittance to repay loans.
Remittance has been alternative source of livelihood to one third of the Nepalese households. It has generated positive effect on the economy through savings, investment, consumption, poverty reduction and income distribution. The government should formulate policies conducive to the remittance inflow to further boost the inflow of remittance through formal channel that reduces the risk of money laundering and financing illegal activities, and present benefits for migrants and their families as they can gain access to other financial services and eventually save.
