Karishma Wasti

The fright of not being able to pay back loans has pushed female migrants to years of harassments as domestic workers

With the massive increase in the flow of remittance to both urban and rural areas, the migrant worker phenomenon has caught on, prompting the unemployed to increasingly seek their fortunes abroad. Along with international migration’s shift away from traditional destinations like India to the Middle East and South East Asia, the government and non-governmental organisations both credit remittances for the decline in headcount poverty, now down to 25 percent.

According to the World Bank, remittances make up 20 percent of Nepal’s GDP, placing it sixth on the 2011 list of top remittance receiving countries. The Central Bureau of Statistics revealed that 56 percent of total households in Nepal receive remittances, 48 percent of which comes from international labour.

However, a story yet to be told is about the use of the remittances; where exactly dœs the money go? In rural, mountainous villages, an average household spends 50 percent of the annual remittance to repay loans borrowed to cover migration costs. In 90 percent of these cases, the loans are borrowed from local businessmen at high annual interest rates of up to 36 percent. Although there is no collateral involved, the high interest rate and social obligation pushes the households to invest more than half of their annual remittance into paying back these loans. The amount and nature of these loans vary with the migration destination and the nature of job, both of which are controlled by overseas employment companies that charge fees and are responsible for supplying labour.

Furthermore, the costs of going abroad are compounded by the involvement of local brokers and middlemen. These costs, rather commissions, are sometimes four to five times higher than those determined by the Foreign Employment Promotion Board. This exceptionally high cost of leaving is one of the reasons why migrant workers tolerate the physical, mental and occupational abuses they suffer abroad. The fright of not being able to pay back loans has pushed female migrants, especially single mothers and those abandoned by their husbands, to years of harassments as domestic workers.

It might be assumed that this expenditure can be justified if the initial years of migration are able to pay back the loans. Surprisingly, this happens only in a few cases. It should not be forgotten that a remarkable proportion of international labour migrants are unskilled with little knowledge of their rights and employment benefits, provided they are not illegally smuggled. Unfortunately, the favoured destinations of the Middle East and East Asia yield the least remittances.

Most of these migrants have two to three year contracts, most of which is spent working to pay back loans. On average, depending on the amount of loan and the amount of remittances received, it takes households between one to two years to pay back the total loan, including the interest amount. However, when remittances are low, or if the costs were exceptionally high, it takes the households more than three years to pay back the loan amount. Given such a situation, there is little scope for investment.

In the absence of investments back home, the only alternative for income generation for these households is remigration. For unskilled migrants with low salaries, these situations can get increasingly more difficult. As they do not save enough, they will once again have to take out loans at high interest rates every time they migrate. Eventually, the remittances will make little differences to the lives of the households as they will always be bound with heavy loans to be repaid.

So, has remittances from international migration helped reduce poverty in the country? Yes, definitely. Remittances have prevented the receiving households from severe poverty due to rising market prices, skyrocketing living costs and unreliable income sources from agriculture and transitory occupations. In the absence of remittances, these households could have easily been victims to insolvency, leading to malnutrition and diseases. But it is not time to celebrate yet.

The call for much needed government interference to create a safer and just migration process, beyond legal formalities limited to paperwork, cannot long be ignored. However, immediate attention also needs to be paid towards increased financial access for aspiring migrants.

The government needs to promote its loan scheme that came in response to the Foreign Employment Act-2007, with necessary amendments to increase poor migrants’ access to finances. Savings banks, under guidelines from the Central Bank, can lend the required cost of migration to aspiring migrants, under agreement with employers and recruiting agencies. The loans can be provided to migrants at low interest rates and later, deducted from their salaries.

There is also a need for the government to work on strengthening the capacities of local cooperatives and microfinance to expand their outreach and establish a network to generate and invest collective savings from low income households.

These solutions might be too much to ask, considering the current chaos in the country. However, when an alarming proportion of the most productive age group is seeking opportunities abroad, it would be irrational to rejoice in tiny perks while ignoring the tragedy that lies ahead. 

The article is based on the findings of Masters’ thesis on Regional and Rural Development Planning in Asian Institute of Technology, Thailand

Published on: 6 November 2012 | The Kathmandu Post