Illegal remittance in Nepal

By – Anmol Purbey

Remittance has been an integral part of Nepal’s economy over the years. Nepal’s Economy is worth USD thirty-three billion. The amount of remittance is equal to twenty-two percent of the GDP and more than sixty percent of foreign reserves comes from remittance. Over the last twenty years, remittance has increased from USD hundred million to USD eight billion. According to NRB, Nepal received more than USD seven billion through remittance in the financial year 2021/22. However, there could be more, which has not been possible because of Hundi.  Hundis are an informal/illegal form of remittance made through illegal channels. Hundis affect the foreign reserve of our country severely. A 2017 study from Centre for the Study of Labor and Mobility found that NRB misses out on foreign currencies worth around USD three hundred and eighty-four million every year from Korea alone. Additionally, Nepal government data suggests that an estimated four billion rupees should ideally be received in remittance from Australia, however, the experts claim only two percent of this expected remittance enters Nepal through the legal channel. To limit this illegal remittance, government has introduced a scheme where if a sum of money, which comes through remittance, is put into fixed deposit, it will get an extra percent on that, nevertheless, that does not seem to be working effectively. Let us get into the details as why do people opt for hundis, why should one not opt for hundis, and what could government do to limit these hundis?

Why do people opt for Hundis?

Hundis promise to be faster than the legal channels. For instance if legal channels take four to five days for the remittance from United States to Nepal, the illegal ones make the same transfer within couple of hours.

They offer remittance services at almost three times less charges. For a transfer of sum of $50,000, the banks take $100 (i.e. 0.2%) plus charges, whereas the hundi dealers are said to take around $40 for the same. 

They appear much more convenient as many of them assure picking up the money from the sender and even deliver the amount to sender’s family.

Government has not taken much consequential step to make people aware of the repercussions illegal remittance carries with it.

What could be done?

When making cooperation agreements such as with Saudi Arabia, in which they discussed about the ways and means of further strengthening economic partnership and cooperation between the two countries, including the interests and wellbeing of Nepali migrant workers, authorities could also propose an idea of making the legal remittance channels more convenient for the senders like the companies that hire the workers, arranging the remittance process. This protects the workers from both physical and financial dangers. 

The law mandates only category A licensed banks and financial institutions to remit or transmit money within or outside Nepal, the lower categories of banks, which have a mandate to focus on a broader market basis, are currently unable to provide remittance services.  So, consider allowing lower categories of bank to provide remittance services, especially for terminating cross-border remittances.

Remittance could be made more convenient. There are many things that one has to go through, to go with the process of remittance, some of which could be eased off. One instance would be the procedure of KYC (Know Your Customers), which is a process of verifying the identity of customer. And the process of opening an account requires physical KYC process to be done. Rastra Bank could relax the requirement for a physical KYC process, where possible, and also consider a risk-based approach and electronic-KYC.