--By TC Correspondent 

 

Hundi, the money transfer business through informal channels, has been a dominant mode of payment in trade between Nepal and China. 

 

Chinese traders have adopted Hundi as a mode of payment because it helps reduce cost in comparison with trade in dollar, experts say. The Tibet Autonomous Region of China has not made it mandatory to trade through formal channels, providing freedom to traders to adopt Hundi as a mode of payment. 

 

Chinese businessmen directly contact Nepali firms and import goods to their country, according to traders. The trade volume with China has been expanding but the official figure suggests extremely low export from Nepal. Traders say the reason behind static export figure is the use of Hundi as a mode of payment. 

 

Anup Bahadur Malla, chairman of Export Promotion Committee, Federation of Nepalese Chambers of Commerce and Industry (FNCCI), estimates that Nepal’s trade with China through the informal channel is more than ten folds than that through the formal channel. Nepal’s 

export to China stood at Rs 2.53 billion in the last fiscal year.

 

“Trade of goods worth Rs 20 billion took place via illegal channels,” Malla claims. Nepal exports around 40 per cent carpet to China, he said. “But the official data is very low than this figure.”

 

Nepal exports carpet, handicrafts, agro products, metal, Thanka and Yarchagumba to China. Tibetans want trade in RMB (Tibetan currency) rather than in dollar, Malla said. “Now the solution to end Hundi is the Nepal Rastra Bank should allow traders to open bank accounts in RMB.” China has been providing zero-tariff facility while exporting 7,787 goods to China from Nepal. 

 

According to experts, the government should take immediate measures to control Hundi. Hundi has emerged as a serious threat to national economy after fake Value Added Tax (VAT) bill and fake customs declaration form scam, a Finance Ministry source said. Hundi — an underground banking system that allows money transfer without leaving any paper record because there is no contract, bank statements or transaction record — is posing serious threat to the formal economy, the source added.

 

Hundi hits economy because:

• It is an illegal underground banking channel

• It increases capital flight

• It is main channel for terrorist financing 

• It poses threats to formalise national economy

• It encourage the import of under-invoiced goods 

• It increases chances of foreign currency misappropriation