For many years, money sent by Nepalis working abroad has been central to both household livelihood and national financial stability. Remittances provide foreign exchange that strengthens the balance of payments, support consumption in households across the country, and help reduce poverty. In recent decades, these cash inflows have steadily outpaced traditional export earnings such as tourism, merchandise sales, and foreign investment. As recent data from Nepal Rastra Bank (NRB) show, total remittance inflows in Fiscal Year (FY) 2024-25 reached about Rs1,723.27 billion (approximately $12.64 billion). It marks a strong 19.2 percent increase over the previous year. Monthly remittance figures have crossed milestones, exceeding Rs200 billion in one month for the first time in history. It reflects the deepening reliance of Nepali families on these funds. International data confirms that Nepal is one of the most remittance-dependent countries in the world, with remittances accounting for a substantial share of its economy. In 2023, internationally reported figures indicated that remittances represented about 26.6 percent of the GDP.

Foreign remittances have always constituted the dominant share of total remittance inflows due to the large number of Nepali migrants working in foreign countries. By contrast, domestic remittances include money transferred within Nepal. These transfers involve payments for services, wages paid to workers in other parts of the country, informal support to relatives, and commercial transactions. Before recent regulatory changes, domestic remittance channels helped bridge formal banking limitations by offering cheaper and more accessible ways to transfer money.

In recent years, regulatory concerns about anti-money laundering (AML) compliance and informal money transfers known locally as Hundi prompted Nepal Rastra Bank to tighten oversight of domestic remittance services. Beginning around 2022, the central bank started restricting how domestic remittance services could operate. The NRB reduced the allowable transfer limit within Nepal from Rs100,000 to Rs25,000 per person, per transaction, per day. Subsequently, in early 2023, the central bank issued an Integrated Directive of Payment Systems, which removed specific provisions for domestic remittance services. As a result, many licensed remittance operators and small financial service providers were forced to stop domestic transfer services. Despite the central bank’s rationale that these actions were aimed at controlling illegal financial flows, the abrupt shutdown has had wide-ranging consequences for communities and service providers across the country.

Before the closures, domestic remittance channels served as key financial infrastructure. Domestic remittance services allowed families to send and receive money locally in ways that were quick, relatively low-cost, and easy to use, even for people with limited formal education.

Domestic remittance channels also supported financial inclusion by connecting rural and remote populations to more formal financial systems, and often acted as entry points for these communities to begin using additional financial products. Furthermore, local remittance services created employment opportunities. In towns and secondary cities where banks were scarce, these agents provided financial services. In addition to employment creation, domestic remittance providers helped diversify payment options in Nepal’s financial market.

The regulatory shuttering of domestic remittance services has led to multiple adverse effects. First, many rural households lost access to affordable and convenient ways to receive money within Nepal. Second, the closure has hurt small-scale remittance service providers and entrepreneurs. Many local agents who depended on domestic remittance commissions found their revenue streams disappearing almost overnight. In towns and villages across Nepal, agents who once handled 80-90 transactions per day now report handling as few as 10-15 transactions. Third, the closure has triggered financial exclusion for people without sufficient access to digital payment tools or bank accounts. Fourth, reducing formal domestic remittance channels may inadvertently encourage informal alternatives such as Hundi, the very activity regulators intended to discourage. Finally, the closure of domestic remittance services has also impacted the distribution of foreign remittance payments at the local level.

It has been argued that outright closure of domestic remittance services without offering viable alternatives undermines multiple national policy goals. First, it contradicts financial inclusion initiatives. Second, it weakens the local economy by shrinking the market for small businesses and fintech startups that were building financial services infrastructure. Third, halting domestic remittances reduces the natural progression toward digital financial services adoption.

Rather than shutting down domestic remittance services entirely, the central bank should consider constructive reforms. Introducing tiered licensing frameworks that allow smaller service providers to operate under proportional compliance requirements can promote competition and expand access in underserved regions.

Investing in digital infrastructure and financial literacy programs will help make digital payments genuinely accessible to rural populations. Similarly, risk-based supervision rather than blanket bans should allow authorities to monitor and control genuinely suspicious transactions while enabling everyday domestic remittance flows to continue.

Finally, strengthening public-private collaboration between Nepal Rastra Bank, banks and private fintech innovators can lead to pilot projects of secure, scalable domestic transfer systems that are cost-effective and user-friendly.

Nepal’s economic reliance on remittances, both foreign and domestic, is undeniable. These financial flows have sustained household consumption, strengthened foreign exchange reserves, and helped millions of families manage economic uncertainties. Rather than restricting essential payment systems, Nepal Rastra Bank should focus on crafting secure, inclusive and modern remittance frameworks. Reopening and reforming domestic remittance services with appropriate measures and enhancing digital infrastructure and literacy can ensure that remittances continue to empower economic growth.