Remittance income from the formal sector dropped by four per cent to Rs 84.48 billion in the first two months of the current fiscal year. This is the first time the flow of money sent by Nepalis working abroad has fallen in years. If this trend continues, imports are likely to drop this fiscal as the country’s capacity to bring in merchandise goods from abroad is closely linked to remittance income.

Theoretically, decline in imports should be good news for the economy. But, not so here, because the government generates most of its income by imposing taxes on various imports. So, the fall in imports may hit government’s revenue. In this regard, Rupak D Sharma of The Himalayan Times spoke to Devi Bhattachan, President of Nepal Remitters Association and Chairman of Prabhu Bank, on the reasons behind the fall in remittance income. Excerpts:

The number of people leaving the country for employment has continued to rise and so is the salary of those recruited abroad. Despite this why did remittance income from the formal sector drop?

We recently held talks with Nepal Rastra Bank (NRB) officials on the matter. The central bank was expecting at least 15-20 per cent growth in remittance income in the first two months of the current fiscal. However, that did not happen. But NRB is yet to release figures on remittance income for the third month of this fiscal. We need to get those figures prior to conducting further analysis. This is because Dashain (the biggest Hindu festival) had fallen in the third month of this fiscal. Generally, remittance income grows exponentially during the festive season. So, we need to see whether there was some change in that trend.

It is said workers generally keep the savings of Shrawan and Bhadra — first two months of the fiscal — with themselves, and send them all together in Asoj — the third month of the fiscal — when Dashain falls. Workers are said to be doing this for years, yet remittance income had never shrunk in the previous years. What went wrong this year?

Workers who return home from abroad generally bring in items like television and blankets with them. Lately, they appear to be bringing in gold as well because of relatively higher profit margin. So, instead of sending money home they may have used it to buy gold. This may also have affected the flow of remittance from the formal channel. But this is only our assumption and we are conducting further investigation into the matter. To get the exact picture, we need to see the data of the third month of this fiscal.

NRB also suspects growing dependency on informal channels, such as hundi, to send money home. What is your take on this?

It is known that a part of the remittance income enters the country through informal channels. We have been trying to control it for years, yet we haven’t been able to put a full stop to it. You must be aware that manpower agencies here need to purchase job demand letters from foreign agents prior to sending Nepali workers abroad. Most of such payments are made using informal channels. NRB has tried to ease rules in this regard, but foreign exchange facility provided by the central bank is not enough. Because of this, funds that should have been sent home by Nepalis may have been used by manpower agencies to settle payments abroad. In return, manpower agencies must be recompensing the family members of workers by extending cash here. This may have also affected remittance flow.

What percentage of remittance income enters the country through informal channels?

We do not have data on it.

It is said it is difficult to conduct remittance business these days, as banks in many countries have prevented money transfer companies from opening accounts because of strict anti-money laundering rules. Is it so?

Yes, opening bank accounts even in countries like the United Arab Emirates, Singapore and Hong Kong has become difficult. In countries like the US and the UK, it is even difficult to acquire licences to operate remittance companies. These measures have been taken to control money laundering and terror financing. However, our system incorporates the list of people blacklisted by the US Treasury Department and automatically detects suspicious fund transfers. 

Many say because of these tough rules, remittance companies that have received money transfer orders have started sending money to Nepal through informal channels. Is it true?

We have not come across such cases so far. But I believe money transfer companies are not engaged in such acts.

It is said banks and money transfer companies are currently engaged in unhealthy competition. Because of this, banks and remittance companies are said to be fixing different exchange rates for Nepali clients based here and overseas.

Before answering this question let me explain how remittance companies emerged here. Previously, TTs and drafts were used to remit money. But it used to take days to convert those instruments into cash. And at times, these instruments could never be converted into cash because of glitches. Then some of the remittance companies like ours started offering service that enabled beneficiaries to receive cash right after the money was deposited abroad. As the business started growing, banks started eyeing this sector. Although the core business of banks is not remittance, they found a readymade market where they could play. This triggered competition. 

You are the chairman of a commercial bank and operate a remittance company as well. Do you think commercial banks should engage in remittance business in the long run, as remittance is a risky business, involving threats like money laundering? 

Most of the American banks do not prefer to conduct remittance business. They do transfer funds, but their size is generally big and for business purposes. However, they do not transfer small funds like our banks do. But the trend is quite different in South Asia, especially in countries like Bangladesh and Pakistan. And we have followed that trend.

But should Nepali commercial banks engage in this business in the long run?

Well you can’t prevent banks from conducting this business. But the question is whether they can deliver fast and reliable service like money transfer companies. What banks need to know is that the money that enters the country through the formal channel will ultimately find its way to the vaults of banks and financial institutions. 

There are talks that NRB is mulling over bringing banks conducting remittance business within the ambit of the Remittance Bylaw 2067 BS, isn’t it?

Since the bylaw was enforced, we have been calling on banks engaged in remittance business to come under our umbrella body. NRB has also been saying that banks conducting this business should acquire a separate licence, specifically to carry out remittance business. But banks are saying that they do not need a separate licence, as the banking licence that they have acquired is enough to conduct remittance business as well.

Lastly, do you want to add anything?

We’ll soon introduce a pre-paid remittance card, called ‘Rupaiya’, as per the announcement made through last fiscal year’s monetary policy. Through this system, we’ll be issuing pre-paid cards to workers based abroad and supplementary cards to their family members here. Using this card, beneficiaries of workers can withdraw money here as soon as cash is deposited abroad.

Published on: 3 November 2014 | The Himalayan Times