Chandra Tandan is the Managing Director of City Express Money Transfer Pvt Ltd. He is also the president of the Nepal Remitters Association - an industry lobby of remittance companies operating in the country. Sagar Ghimire of New Business Age talked to Tandan on a wide range of issues related to the remittances sector. Excerpts:
The number of migrant workers hasn't fallen significantly, but the flow of remittances is either stagnant or declining. What do you think could be the reason behind this?
The situation that you are referring to is no longer the same. According to recent data from the Nepal Rastra Bank (NRB), remittances in the first six months of the current fiscal year have increased by about 25%. However, before six months, the flow of remittances was either stagnant or falling. During the COVID pandemic, a lot of migrant workers returned home. In the two years since COVID, the number of returning workers has been higher than those going to labour destinations. The number of migrant workers heading to job destinations started to grow about a year ago. However, workers cannot be expected to send money home in the first month as they will have to cover some setup expenses. Generally, they start sending money home from the third month. The recent data from the central bank is very encouraging, and it is expected that remittances will increase further in the coming months.
On what grounds are you making this estimation?
The estimation is based on the fact that the number of workers going to overseas job destinations is increasing. According to recent data from the Department of Foreign Employment, the number of overseas workers is increasing at a healthy rate. Once these workers start sending money back home, remittances will inevitably increase.
Most Nepalis who go to overseas job destinations are semi or low skilled. How do you think this impacts the flow of remittances?
I believe the most important factor is the destination to which the workers are heading and the availability of remittance channels there. If agents or non-banking channels like "Hundi" are active in a given destination, remittance flows will definitely be impacted. Although most Nepali workers in Malaysia and Gulf countries are low or unskilled, they are using formal banking channels to send money. This is not necessarily the case for other destinations such as South Korea, UK, and the US, among others. This suggests that remittance flows are not affected by the skill level of the workers, but rather depend on the availability of formal banking channels in those destinations.
We have noticed that educated people tend to take more risks when remitting money compared to semi or low-skilled workers, relying on informal channels and their friends or relatives to send money home. As a result, remittances from countries like Malaysia and Gulf countries are coming through formal banking channels. Recently, workers in Korea have also begun using formal banking channels to send money. Around two years ago, over 80% of Nepalis in South Korea were using non-banking channels to send money, perhaps due to the easy availability of these channels. However, many are now using formal channels.
Nepal is sending workers to South Korea under a government-to-government agreement, which has resulted in lower employment costs. Therefore, we hope that workers will realise that since the government is taking significant efforts to ensure their employment, they should also help the country by sending money through government channels.
Although remittances through formal banking channels are increasing, the use of Hundi is still prevalent. What do you think are the reasons behind this?
There are many factors behind this. One thing we need to consider is whether there is proper valuation of goods that we are importing. If there is undervaluation of goods, we should understand that importers are using money from Hundi agents to pay their trading partners. Another reason is that the government has instructed employment agents not to charge more than Rs 10,000 as a fee from workers. However, employment agents, knowingly or unknowingly, are bringing quotas for workers by paying a certain fee. Clearly, they are not using banking channels to pay that fee. Some amount collected by Hundi agents is being used for this purpose. It is no secret that gold smuggling is rampant these days, and smugglers are using workers returning home from foreign employment as carriers. They are enticing such workers by offering them money. Money collected by Hundi agents is used to pay for that gold. These are the three main factors that are encouraging the Hundi business.
Some people claim that workers are attracted to Hundi due to the high cost charged by remittance companies and the lack of hassle-free remittance processes. What is your opinion on this?
I do not believe that the high cost is the reason for workers' preference for Hundi. Our remittance costs are lower than those in neighbouring countries. In the Sustainable Development Goals (SDGs), the United Nations has set a target for remittance costs to be reduced to 3%. Currently, the cost of sending money to Nepal from anywhere in the world is at 4%, which is below the average rate. We should also note that countries such as Sri Lanka, Pakistan, and Bangladesh are providing incentives to workers who use formal banking channels to send money. This incentive is similar to the export subsidy that Nepal provides to exporters. We have been urging the government to introduce a similar policy for our migrant workers. This is necessary because remittances are keeping our economy afloat despite a widening trade deficit. There should be a mechanism to subsidise some of their remittance costs. Alternatively, incentives can be deposited into their bank accounts in Nepal once they send remittances. This will, on the one hand, mean that the state is honouring the workers, and on the other hand, bring down their remittance costs.
Although the government has not yet provided cash incentives, it has implemented some facilities such as giving an extra one percentage point interest while opening a fixed deposit account and preference while filling up an IPO. How effective are these measures?
After I became president of the Nepal Remitters Association, we made some suggestions to the government and the central bank, and the government has announced some measures to encourage migrant workers to use formal banking channels for remitting money. The government has introduced a 10% quota in initial public offerings (IPOs) for migrant workers, which will definitely encourage migrant workers, as many are already attracted to the share market. The one percent additional interest on fixed deposit accounts for migrant workers is also a welcome move. Moreover, the government has introduced some new measures through the budget of the current fiscal year, such as a 50% discount on passport renewal fees and re-entry labour approval fees for workers who remit money using formal banking channels. However, these new provisions have not been implemented yet. It will be beneficial if these new provisions are implemented.
What suggestions do you have for the government in terms of providing cash incentives for migrant workers?
We have been urging the government to provide incentives directly to workers sending money, rather than to remittance companies. We believe that this approach will encourage workers to use formal banking channels when remitting money. Even if cash incentives are not feasible, the government can still provide facilities that eliminate discrimination against migrant workers. For example, the government has abolished the provision of separate queues for migrant workers at departure points, and this should be extended to arrival points as well. The government should also make foreign workers using formal banking channels feel proud. The contribution of migrant workers to our economy is much higher than that of foreign tourists, so they should be given similar respect at our arrival points. By providing extra privileges to migrant workers, the government can show them that they are being honoured. This will incentivize them through non-financial means.
The government seems to be cracking down on Hundi players in recent times. How is it helping in remittance flow through formal channels?
Looking at the trade scenario, we have found that more remittances come to formal channels when imports are tightened. During the COVID times, everybody predicted that remittances flow to Nepal would decline. It actually increased. At that time, import was down and people’s movement was also limited. So, people used formal banking channels to send money. When the government prohibited imports of certain goods in April last year, this resulted in an increase in remittances flow through the formal banking channels. Therefore, if the government wants remittances to come through formal banking channels, it should look at other sectors as well. For example, it should see whether there is undervaluation in imports. It should control smuggling of gold. Likewise, it should facilitate manpower agencies to pay for quota that they bring through formal banking channels.
Remittance companies seem to have low presence in major job destinations. They seem to be doing business through their agents. Don’t you think companies should branch out?
Recently, the government made changes to regulations governing remittances, allowing Nepali companies to open branches outside the country. However, the practical implementation of these changes remains to be seen. Even if our regulator permits us to branch out, we will still need to obtain approval from the central bank in the relevant country and adhere to other procedures. While we sort out these issues, we have formed partnerships with banks and money transfer companies there to bring remittances to Nepal.
In recent times, we have witnessed many technological advances such as bitcoin and instant transfers. How are Nepali remitting companies incorporating these innovations? Our companies are not lagging behind their international counterparts when it comes to innovation. For instance, we offer instant account credit, which means we deposit money in the sender's account immediately after it is sent from anywhere in the world. Additionally, our companies are ahead of companies in many other countries in terms of digital innovation.
As the President of Nepal Remitters Association, what is your opinion on the rules and regulations introduced by the central bank for the remittance sector?
The central bank has been implementing some of the association's suggestions. For instance, it recently removed the provision that required remittance companies to renew their licence every year. Now, they can do so every five years. Additionally, NRB has allowed remittance companies to apply for payment service provider licences by establishing a subsidiary company. However, some decisions seem to have been made without conducting proper research. For example, the central bank instructed remittance companies to stop domestic remittance services without studying the potential implications of this decision. It has affected our distribution channels. Instead of instructing us to stop domestic remittance service altogether, the central bank could have made KYC (know your customer) mandatory or implemented a mechanism that sends real-time transaction data to the central bank. This decision has impacted around 30,000 agents who have now lost an important share of their revenue.
Many people claim that remittance earnings are being used in unproductive sectors. How feasible is it to utilise them in the productive sector?
Remittance earnings are not being utilised in productive sectors as expected. A significant portion of this income is being used for consumption. The only positive aspect is that children are receiving a good education, as families are using remittances earned for their children's education. Many people can now access healthcare facilities, and remittances have aided numerous families in escaping poverty.
The government needs to bring programs to redirect remittances into the productive sector. Otherwise, the hard-earned money may leave the country again in the name of higher education, creating a shortage of skilled workers in the country. It is natural for someone working in, say, Saudi Arabia, to send their children to the US or Australia if he has good savings. As a result, the government should take the necessary steps to use remittances in the productive sector, creating jobs and supporting the country's economy.
What are the challenges that the remittance business is facing at the moment?
As previously mentioned, the instruction to stop the domestic remittance business is a significant concern for us. Businesses cannot thrive in the face of policy instability. Unstable policies can harm the remittance industry as a whole. The remittance sector will continue to thrive as long as people continue to seek employment abroad. I don't believe that foreign employment will cease for at least another one or two decades. We must innovate and adopt new technologies to enhance our service delivery.
Investigations have shown the involvement of staffers of remittance companies in Hundi transactions. How true is this?
There are approximately 30,000 remittance sub-agents and around 40 remittance companies in Nepal. I cannot claim that all of them are clean. However, the involvement of one or two individuals in such activities can harm the entire remittance industry. Some people may desire to engage in other questionable activities, but strong monitoring and supervision can help keep them in check. The central bank is already providing such oversight.
If there is a need to broaden our business's scope, we can approach the central bank. We have already received permission to start wallet service, and we can explore the potential of branchless banking or begin an insurance business with the regulator's permission. In five or ten years, we will have to adopt the concept of digital banks, as other countries have done. We can adjust our focus accordingly.
Before we wrap up, could you share with us how the journey of City Express has been so far?
We launched City Express in July 2007, and we have been in regular operation for 16-17 years. We are extremely pleased with City Express's progress thus far. Our objective is to become a digital bank, a goal that may take another five or ten years. We are optimistic that we can accomplish much more in this field by introducing innovative products and ideas. We have already established ourselves as a successful brand in the remittance industry, and we anticipate achieving much more in the future.