Considering ever increasing role of remittance for economic growth, development and improved livelihood of the poor and disadvantaged groups and in view of the relatively wide spread geographical outreach of Nepalese microfinance institutions (MFIs), this study has been conducted to investigate their potentials to leverage overseas migrant’s remittances for their improved operational management. Information required for this research was used from secondary and primary sources. Primary information was gathered through focus group discussion conducted in five different sites in Kavre (Nashik, Keraghari and Panchkhal) and Chitwan (Khairaheni and Ratnagar) districts.
Remittance is a complex operation and involves systematic approaches and strategies. Of the two types of business model that co-exist in different parts of the universe, partnership approach is prevalent in remittance operation in Nepal. Nepal received remittance from India and other countries. Trend in remittance flow is increasing in Nepal and it is more from other countries than India. Growth in remittance is fluctuating both in India and other countries. Potential partners of remittance operations are either remittance companies or bank and financial institutions. Wire-based remittance companies reporting in Nepal Rastra Bank is fluctuating between 2009 and 2011. International Money Express is a leading remittance service providers followed by Prabhu Money Transfer companies. Commission in case of Nepalese Remittance Company is Rs. 75/- per transaction (irrespective of volume of transaction) inclusive of applicable taxes. After deducting tax, they receive commission of Rs. 62/- per transaction. In contrast, commission provided by international MTCs such as Western Union money transfer agent ranging from Rs.200/- to 300/- depending upon volume of transaction and country from which money has been remitted. Current commission rate is relatively low to attain sustainability on the absence of scale economy on operation.
Remittance operation is a systematic approaches consisting of chains encompassing steps such as marketing and selling remittance; originating and funding; sending, clearing and settlement of transfer orders; receiving a remittance order; paying a remittance order, and customer services. Thus most of the activities on remittance operation are not directly observable. Prior to deciding to be the part in remittance operation, MFI need to undertake through external and internal assessment.
Findings of this study revealed that 69.5 percent remittance is used for consumption and only 30.5 percent is used for productive purpose. Further, over 45% of remittance income is used for the repayment of loan borrowed for financing migration. This implies that migrant families have yet to use remittance for productive purposes. Challenges for proper use of remittance include inability of banks and financial institutions to retain remittance money under banking system; and pressing need of families to repay pre-migration loan received from informal sector. Productive use of remittance requires systematic approaches encompassing access to financial literacy, enterprise development and BDS among others.
There are both opportunities and challenges related to the entry of MFIs into the remittance market. Opportunities exist in aspects such as delivery of cost effective quality services, support on building safety nets, attracting new clients and cross-selling of other microfinance products, increasing loyalty among existing clients, generating income from fee based product, and mobilizing savings and strengthening lending capacity. There are however challenges prevails in areas of regulatory and licensing requirement, readiness and institutional capacity, identification and penetration of an appropriate market niche, high entry cost, partnership identification and agreement and operational challenges on liquidity management, money management, information management, client’s services, medium of payment and compliance. External support on policy changes in legal and regulatory environment, capacity development and technology support is required to ease entry of MFIs in remittance operation.
Contrary to the conventional notion that migrants require support during migration, FGD conducted in this research revealed that migrants expect external assistance during entire migration cycle. Further, it is evident that they require both financial and non-finance services from government and non-government organizations. Migrants expectations during the pre-migration phase is related to access to information on migration opportunities, remittance led lending and support to migration process. Besides remittance services, migrants are expecting other services such as access to finance to their family members, savings and cash management services, technical advice for productive use of remittance and BDS during their stay abroad. Returnee migrants were found quite concern regarding their future. Most of them are not willing to go back for overseas migration again. In order to uplift their quality of life, migrants are expecting support in aspects related to access to finance, enterprise development, access to non-financial services and training/capacity development. This implies that there exist tremendous possibilities of leveraging remittance on microfinance operation and such an effort should focus at meeting expectations of the migrants at different cycle of migration.
Findings of this study revealed that Nepalese MFIs are not adequately sensitization towards leveraging remittance services in their overall operation and they have yet to realize remittance services as one of the viable product for their operation and management. Since Nepalese MFIs already have enough products and services to justify viability of their operation, they have not yet thought the need to invest on research and development on different dimension of their operation. Some MFIs have experienced difficulties to obtain permission for remittance operation and unhealthy competition among remittance service providers has eventually affected overall operation and management of those MFIs that have already ventured into remittance market.
There is a need to leverage remittance services among microfinance operation to realize full potential of remittance for local economic development and growth. In view of this, future work in remittance sector should focus at sensitizing MFIs, market penetration, packaging of services (full-fledged packages), liquidity management, ensuring economy of remittance operation, devising effective partnership model, technology support, providing effective savings and cash management support, promoting remittance linked lending, creating an enabling environment for business development and extending non-financial support services for migrants and their families. This study has recommended actions to be undertaken by agency, government/regulators, MFIs and clients in order to facilitate effective leverage of remittance on microfinance operations.
It has been recommended to ensure the productive use of remittance by integrating remittance services into their operation, promoting remittance linked lending to migrants’ families, ensuring access to finance to migrants’ family members, savings and cash management services, supporting to enterprise development, accessing to non-financial services and support to ensure productive use of remittances. Enabling migrants’ families to use remittance services on productive purposes requires package of services encompassing technology, skills, raw materials (input) management, market linkages and networking, business plan preparation and business consultancy services. Finally, it has been recommended to design and implement an enterprise development program especially for migrant’s families to create enabling environment to ensure use of remittance on productive purposes.