Remittances to Nepal

Remittances in developing countries have become an important part of economic development. In some countries, they are considered a lifeline for the economy. This source of foreign income has been rapidly growing each year. Migrants have been transferring money for years in Nepal often times through unofficial channels. Today with the many different options available, the flow of remittances has seen a steady upward incline. It is believed that in 2005, unrecorded remittances accounted for 50 percent of transfers to Nepal.

Formal remittances between the agents are monitored periodically in Nepal. Informal remittances are often settled through goods trading. This barter method of transferring money makes it convenient and eliminates the fees charged by the sending and receiving agents. It is difficult to determine the actual number of remittance transactions done in this barter method since most do not keep accurate or any records of the transactions.

How do remittances help?

Remittances provide direct aid to families from the migrants who send them. Families are able to increase their standard of living and, for some families, this may be their only means of support. Remittances may also be used to provide loans to individuals or fund businesses.

Minimizing the transaction costs would put more money in the households of the recipients, and into the economy. The cost of remittance service does not depend on the amount being sent. Often times it includes labor charges, house rent, technology network charges, etc. The underground or unofficial agents can charge whatever they like.

There has been greater competition among the banks and money transfer operators (MTOs), which is bringing down the cost of a transaction. Because of the increased competition, the unofficial agents have been forced to lower their rates in order to stay competitive.

Diminishing export markets and difficult economic situations have labeled Nepal one of the poorest countries in South Asia, but between 1995 and 2004, poverty declined from 42 to 31 percent. This is mainly because of increased work migration resulting in increased remittances. In fact, the proportion of households receiving remittances has increased from 24 percent in 1995 to 32 percent in 2004. Remittances have grown at 30% per year from 3 percent in 1995 to 15% in 2004. Official statistics show that $1 billion dollars comes into Nepal from remittances each year and this does not include remittances sent using unofficial agents.