Migrant remittances refer to that portion of migrants’ earnings sent from the migration destination to the place of origin. Today, remittance constitutes a significant portion of the GDP in many countries. The UN projects that between 2015 and 2030, an estimated US$ 6.5 trillion in remittances will be sent to low and middle-income countries.

 

The World Bank data indicate that the top five remittance recipients worldwide in 2016 were India, China, the Philippines, Mexico, and Pakistan whereas as a share of gross domestic product (GDP), however, the top five recipients were Kyrgyz Republic, Nepal, Liberia, Haiti, and Tonga.

 

Studies corroborate the fact that remittances can generate a positive effect on the economy through various channels such as savings, investment, growth, consumption, and poverty reduction and income distribution.

 

Remittances have been crucial in development financing. Nepal Rastra Bank research makes a positive assessment of remittance on the economy in Nepal and also points out that remittances have left adverse impact on socio-economic fabrics. Central Bureau of Statistics (2011) shows that the percentage of all households receiving remittances increased from 23.4 per cent in 1995/96 to 55.8 per cent in 2010/11.

 

World Bank (2016) argues that the most reported uses of remittances were for daily needs and repaying loans. This argument is further consolidated by National Living Standard Survey of CBS (2011) revealing that about 79 per cent of the total remittances received by households were used for daily consumption while 7 per cent was used to repay loans.

 

Recruitment and transactions costs are the major bottlenecks of remittance regime. The World Bank concludes that recruitment costs paid by low-skilled workers are often more than a year’s worth of income.

 

This happens to be true in Nepal’s case too in major remittance corridors. Despite the “free-visa-and-free-ticket” provision of government of Nepal, the unscrupulous manpower agencies in Nepal are taking the money of poor migrant workers, mostly from rural communities.

 

Another problem is the high transfer cost. The global average cost of sending money has stood at 7.21 per cent which is far above the SDG target. The UN SDG has also envisaged no any remittance corridor with remittance transfer cost above 5 per cent.

 

The high transfer cost has adverse repercussions: Migrants choose informal remittance transfer channels like hundi or hawala. For example, Korea-Nepal remittance corridor experiences the vogue of hundi.