There should be a provision of recognition and reward to the top inward remittance collectors, namely banks and MTOs, from overseas. Such recognition from the government or the central bank of the banks on a yearly basis will motivate them, and they will work hard to collect more remittances from abroad
Remittance, the backbone of our country's economy, is the major source of the foreign currency reserve. Of late, however, remittance inflows have been declining by 2.20 per cent on a year on year basis (9 months of FY 2077/78 BS vs. FY 2078/79) in dollar terms, which is quite alarming. Currently, Nepal has foreign currency reserves to cover imports of goods for not more than six-and-a-half months, causing the government to restrict the import of certain goods for the time being.
The government and Nepal Rastra Bank (NRB) should work towards bringing in the earnings of the young labour force working in different countries through the legal channels.
To increase remittance inflows in the coming days, we need to look into the prevailing directives that directly impact remittance inflow.
Nepal Rastra Bank had issued directives on the FEDAN (Foreign Exchange Dealers Association of Nepal) Rate policy while offering the customer rate in overseas marketplaces. But it has been observed that most of the market players (licensed financial institutions and money transfer operators (MTOs) of Nepal) are not abiding by the directives in their true spirit, causing the correspondent partners to raise serious concern over the FEDAN rate policy of Nepal Rastra Bank. In this regard, a strong monitoring mechanism and punitive action for not complying with the directives of the central bank are called for.
Nepal Rastra Bank had issued directives on pre-funding mechanism for remittance transactions.
The intention of the directives was to protect licensed companies' financial risks when exposed to remittance transactions.
But it has been observed that most of the market players, including licensed financial institutions, MTOs of Nepal, third party product outside Nepal and their paying agent in Nepal, are not complying with the pre-funding directive of NRB and offering credit lines in foreign currencies with the remittance correspondent partners.
For strong monitoring of the pre-funding mechanism, financial institutions and money transfer companies should implement changes or configure their remittance system with the pre-funding mechanism, so that online available balances of correspondent remittance partners are shown in their remittance system prior to making any remittance payments.
Further, when a remittance payment settlement is made by a company (banks/MTO), it should debit this available balance of the correspondent partner and an overdrawn account should strictly not be allowed. Also, the practice of making remittance payment by debiting the receivable account of the correspondent remittance partner should be stopped, which will reduce the financial risk of the companies in Nepal and will give a level playing field to all the market players in overseas marketplaces. In this way, the inbuilt configuration in the remittance system itself will control the pre-funding requirement on an automated basis.
The digitisation drive in the country is moving rapidly in recent times. In this context, the penetration of mobile wallets will increase in the coming days. Thus, Nepal Rastra Bank has allowed remittances from overseas markets to be sent by wallet, too. Considering the scenario, interoperability of the wallet needs to be implemented at the earliest.
Similarly, cash out service from the wallet needs to be discouraged completely since wallets are not allowed to offer services globally.
The recent NRB directive from the Payment Service Department on the Domestic Money Transaction (DMT) threshold limit of Rs 25,000 has led to significant growth in inward remittances, and it should be continued without allowing any loopholes (Account credit function from Domestic Money Transfer is still prevalent in the market).
However, the DMT platform is utilised by illegal operators/hundi operators to transfer money legally from one place to another.
Similarly, in recent times, with the curb on Domestic Money Transfer, hundi operators are moving towards NCHL/F1 Soft payment gateway to transfer funds from overseas marketplaces.
It would be wise to offer such service by categorising it into individual user threshold limit and corporate user threshold limit for better monitoring. It will continue the digital drive of the country.
Anti-money laundering (AML) and combating the financing of terrorism (CFT) are the major concerns in cross-border payment dealings. In this regard, the configuration of universally accepted screening software in the remittance systems of all financial institutions and MTOs of Nepal is suggested.
And, all reporting of AML and CFT-related data should be centralised on remittance transactions to be applied to all related stakeholders, and all such data should be uniform.
Recognition and reward: There should be a provision of recognition and reward to the top inward remittance collectors, namely banks and MTOs, from overseas. Such recognition from the government or the central bank of the banks on a yearly basis will motivate them, and they will work hard to collect more remittances from abroad.
Incentives on inward remittance: Incentive on each and every inward remittance sent from the overseas market will play a crucial role to get more remittances from abroad.
Such an incentive programme has been successful in countries like Pakistan, Bangladesh and Sri Lanka. It's the right time to brainstorm on such an incentive package by the government and Nepal Rastra Bank to attract more remittances to the country by evaluating the success story of some south Asian economies and to derive a mechanism to implement it in Nepal.
In conclusion, if the concerned bodies and officials were to show interest and competency in understanding, considering and implementing the possible solutions and rewards/ punishment systems as presented above, then there is little doubt that legal channels will be used to remit one's earnings home. This would swell the country's foreign exchange earnings and reserves, which, in turn, would boost the country's economy.
A version of this article appears in the print on June 8, 2022, of The Himalayan Times.
