Remittances have become a significant source of foreign exchange as well as funds for small business start-ups and expansion and consumption spending of recipient households in developing countries like Nepal. Accordingly, it is expected that remittances would contribute to economic development. Recent data suggests that remittances has contributed around 28%. in Nepal’s annual GDP.
Remittance in Nepal have been generating a positive effect on the economy by boosting household savings, investment, growth, consumption, and income distribution. By promoting productive use at the local level, remittances can potentially generate income and employment opportunities, and spur new economic and social infrastructure and services in the country.
There are approximately three million Nepalese migrants. The top five countries for Nepalese migrants are Malaysia, Qatar, United Arab Emirates, Saudi Arabia and Kuwait which holds over 92 percent of the migrants.
Migrants from Nepal send back approximately US$8.1 billion, accounting for 28 percent of the country’s gross domestic product (GDP). In 2018, Nepal was the fifth-highest recipient of remittances in terms of equivalence to GDP, after Tonga, Kyrgyzstan, Tajikistan and Haiti. Remittances are the main form of foreign exchange earnings for Nepal; in 2018, remittances accounted for 68 percent of the total foreign exchange earnings.
The informal market is still popular, however, and most remittances are received in cash. Nepal is a country of emigration history, with migrants who support their families playing a pivotal role in society. About 55.8 percent of all households in Nepal receive remittances.
Most Nepalese workers moving abroad are low-skilled migrants to Malaysia or temporary work contractors in sectors such as construction and domestic work in Gulf countries. Nepal prioritizes bilateral labour agreements with destination countries to advance safer migration.
Nepal has bilateral agreements with Bahrain, Qatar, the United Arab Emirates, the Republic of Korea, Jordan, Japan, Malaysia and Mauritius to enhance the availability and flexibility of pathways for regular migration.
The Foreign Employment Information Management System (FEIMS) has been established in Nepal to help address issues in recruitment, employment and repatriation of workers, and to manage all legal migrants in one platform. Recruitment agencies have joint liability with their employers; if there is malpractice in the destination country, recruitment agencies are held responsible.
The Government of Nepal has also established the Foreign Employment Welfare Fund (FEWF) to assist migrant workers and their family members in case of loss of life or injuries sustained while abroad.
The Government of Nepal has introduced a scheme to encourage recently returned migrant entrepreneurs by subsidizing interest rates for loans of up to 1 million Nepalese rupees (NPR)
Banks and financial institutions (BFI):
There are three major MNOs in Nepal: Nepal Telecom (state owned), Ncell (owned by Axiata) and SmartCell (owned by Smart Telecom; limited coverage on 2G, 4G/LTE, with no 3G).
Remittance service providers (RSPs):
There are 56 registered RSPs sending remittances to Nepal. Banks are the unique institutions mandated to manage foreign exchange and provide international remittance services. All non-bank RSPs, such as international and local RSPs, need to enter into partnerships with banks to conduct cross-border remittance services.
Payment services providers (PSPs):
There are 23 non-bank institutions licensed to operate as payment institutions; 14 are PSPs and 9 are payment system operators. As of mid-July 2020, all commercial banks (27), 12 development banks and 7 finance companies were operating as PSPs.
Automated teller machines (ATMs):
As of July 2020, there were 4,106 ATMs. In 2018, there were approximately 19.8 ATMs per 100,000 adults across the country. Given the predominantly rural population, access to ATMs outside big cities is a challenge. ATMs are interoperable, but banks can charge a fee for taking cash out at other banks’ ATMs.
Bank cards:
As of July 2020, there were 7.32 million bank debit cards, 160,297 credit cards, and 63,755 prepaid cards in circulation.
Payment system:
The country’s payment system is the Real Time Gross Settlement System, which facilitates real-time settlement of high value time-critical payments. Retail payment systems are typically low value payment systems catering for consumers’, businesses’ and the government’s payment requirements. Retail payment systems in Nepal are mainly operated by Nepal Clearing House Limited (NCHL), which provides an image-based cheque-clearing solution and electronic fund transfers.
ID:
Implementation of a national identity card of Nepal is underway. Roughly 117,000 citizens of Nepal received ID cards during a pilot programme. The card features a unique number, photo, personal Information and 10 fingerprints of the bearer. Upon full implementation, the card will replace the current Nepalese citizenship document and will be used for confirming national identity, personal identity, as a voter ID card and as a social security card through its unique number.
Most transfers are cash to cash. Aside from a handful of large commercial banks, banks are insignificant in the remittances market. Fewer than half of Nepalese people (45 percent) have a bank account.29 The majority – as much as 90 percent, according to one survey – seem to prefer money transfer operators when sending formally, as they are both quick and efficient.
Sending informally is still very popular for a large proportion of Nepalese, partly due to high fees for formal transfers and a lack of competition between money transfer operators. Mobile money services are used in Nepal but require further development. As an example of the progress being made, Western Union has partnered with Nabil Bank and Phone Pay to provide money transfer services to migrant workers via the eSewa mobile wallet. Senders can almost instantly transfer money using this technology, and receivers may make purchases or take cash out at around 1,200 locations attached to Nabil Bank.
While evolving digital remittance models are gradually being rolled out, significant efforts are still required to expand the adoption of digital channels in order to reduce the costs of receiving remittances and increase the use cases and the digital and financial skills of beneficiaries.
There is a need to incentivize a greater proportion of Nepalese to switch from the informal to the formal system, either by reducing fees or offering other incentives. Mobile money services should be supported and promoted, both to encourage more people to use formal digital channels and to reduce costs by increasing competition.
It is essential to enhance the financial skills of both receivers and senders with the knowledge and skills to evaluate their options (including how to send and use remittances through formal channels, and how remittances can be used to meet the financial goals of both parties) and choose the most suitable financial products, to understand how product features differ, to calculate and compare costs, and to determine what they can afford and what products are best suited to their requirements. However, reaching the individual migrants and remittance recipients and improving their financial literacy is a daunting task, and it is important to build the capacities of the financial institutions that provide services to them, such as Microfinance Institutions.
