According to the World Bank, Nepal ranked 6th in the world among top remittance-receiving countries in 2011, with remittances making up 20 percent of its GDP. The Central Bureau of Statistics recently revealed that 56 percent of the total households in Nepal receive remittances; 48 percent of which comes from international labor migration.
The rising international migration trend in the country is gradually shifting from the traditional destination (India) to the Middle East and South-East Asia. This phenomenon has caught attention in the last decade, mainly due to the massive inflow of remittance to both rural and urban Nepal. The government and a few non-government organizations working on poverty reduction credit the decline in head count poverty (down to 25 percent) to the inflow of remittances.
However, the story of how remittance is actually used often goes untold. Where does the money actually go?
A study conducted in two of the rural VDCs of Dolakha district with high international migration rates reveals that a household spends more than 50 percent of the annual remittance in repaying loans borrowed to cover the cost of migration. In 90 percent of the cases, these loans are borrowed from local businessmen at the high annual interest rate of 36 percent. The cost (or commissions to the manpower supplying companies, local broker and middlemen) varies with the destination of migration and nature of job. These costs are sometimes four to five times higher than those determined by the Foreign Employment Promotion Board.
These loans at high annual interest are one of the reasons why migrant workers (especially single mothers as domestic workers) are forced to stand years of physical, mental, sexual and occupational abuse, and sometimes even untimely death, abroad.
Shanti(name changed), an elderly woman with a migrant daughter, says: “My daughter’s husband left her for another woman; she had few choices left in life. Promised a job in a hotel in Dubai by a manpower company, she was sent to Lebanon instead to work as a domestic helper for NRs 10,000 per month. They have not raised her salary for four years. She cannot negotiate because her documents are with her employer, who threatens to send her to jail if she tries to complain or negotiate. I think they make her work hard, and maybe even beat her. She cannot come back, as she still has to pay back a loan of Rs 100,000 with 36 percent interest. Every day, I am scared that one day I will receive her dead body!”
It might be assumed that expenditure turns towards consumption and investment once the loans have been paid. Surprisingly, that happens only in a few cases. It should not be forgotten that a remarkable proportion of international labor migrants are unskilled or semi-skilled with little knowledge of their migration rights and employment benefits (provided they are not illegally smuggled). Most of these migrants have contracts for about two to three years: mostly spent working to pay back the initial loans. Unfortunately, the most favored destinations like the Middle East and East Asia are not very competitive when it comes to salary. It is not uncommon for migrants to re-migrate to higher paying destinations like Iraq and Afghanistan.
A returnee migrant worker says: “I knew about the risks in Iraq, but I needed pay off the cost of my first migration to Malaysia. It cost me another Rs. 300,000 to go to Iraq, which was again borrowed from a local businessman. I worked for more than 14 hours a day in a stone mine, because now I had two loans to pay back. My work-site was constantly bombarded, and there were firings throughout the night. You were never sure if you would wake up alive the next morning”.
On average, depending on the amount of loan, interest, and remittance received, it takes the households between one to two years to pay back the loan. However, when the remittances are low, or costs exceptionally high, it may take more than three years. This hinders the scope for investment. Besides, if the contracts were longer, perhaps the migrants could earn enough to repay the loan, but a hasty return prevents such an outcome.
In the absence of investments back home, the only other way to generate income would be remigration. This causes more difficulties for unskilled migrants with low salary scales. As they do not save enough, they have to borrow loans at high interest rates every time they migrate. Eventually, remittances will make little differences in their lives, because they will always be burdened with concurrent heavy loans.
So, have remittances helped reduce poverty in the country? Yes, definitely. Remittances have rescued receiving households from severe poverty in the face of rising market prices, mounting living costs, and unreliable income from agriculture and transitory occupations. In absence of remittances, these households could have easily become victims of malnutrition, diseases and ignorance. But is that the reason enough to celebrate?
The answer would be “No”, at least for those of us who are not foolish enough to ignore the perils of migration in the last decade. The call for much-needed government interference to create a safe and just migration process, beyond legal formalities limited to paperwork, cannot be ignored now. It is necessary to pay immediate attention to increased financial access for aspiring migrants. There is a need to promote the government’s loan scheme, created in response to the Foreign Employment Act (2007), with necessary amendments.
Lessons can be learnt from similar schemes that have been successful in other developing countries. Saving banks, under guidelines from the Central Bank, lend the required cost of migration to aspiring migrants under agreements with employers and recruiting agencies. The loans are provided to migrants at low monthly interest rates. The loan amounts are later deducted from the salaries of migrants and paid to the agencies by the employers. These recruiting agencies are insured against default by a national insurance company.
There is a need for the government to work on strengthening the capacities of local co-operatives and microfinance to expand their outreach, and establish networks for generating and investing collective savings from low income households as loans.
These solutions might be too much to ask for, considering the chaos the country is in now. However, when an alarming proportion of the most productive age group is seeking opportunities abroad, it would be irrational to rejoice in tiny perks while ignoring the bigger tragedy.