The United Nations has estimated that globally three-quarters of remittances are used to cover essential things: put food on the table and cover medical expenses, school fees or housing expenses.

The rest, about 25 percent of remittances—representing over $100 billion per year—can be either saved or invested in asset building or activities that generate income and jobs and transform local economies, particularly in rural areas.

But Nepal’s case is different. Nepal’s central bank reports say that a significant portion of remittances are primarily spent on consumption, housing and land, and are not utilised for productive investment that would contribute to long-run development.

Remittance income has become a lifeline for Nepal’s import-driven economy. That is, the growth in remittance has fueled imports and is hardly used for activities that generate jobs.

Experts on Thursday stressed the need for utilising remittance in the productive sector.

“There is a need to provide incentives for migrant workers who have returned home with skills. Nepal’s policies and programmes need to focus on properly utilising their skills and money,” said Udaya Shumsher Rana, a lawmaker.

He was speaking at a session titled ‘Remittance for Assets Building and Investment in Production’, a day-long Employment, Migration and Remit Summit organised by Kantipur Media Group on Thursday.

He said that remittance has covered the trade deficit as the country’s import to export ratio stands at 93:7.

That is if we import products worth Rs93, we export products worth Rs7 only, which causes a staggering economic imbalance.

“If there was no remittance, it would have hit Nepal’s economy badly,” he said.

Tourism, which is one of the pillars of the country’s economy, is growing, but it’s not enough to sustain the economy, experts say.

“We currently have a foreign currency reserve of $14 billion, which is a historic high,” he said, “This is because of the remittances.”

In the last fiscal year, Nepal received a historic high remittance totalling Rs1.22 trillion, which supported Nepal’s annual import bills of Rs1.61 trillion.

In the last two decades, remittance inflows have swelled nearly 25-fold from Rs47 billion in 2000-01.

Chandra Prasad Dhakal, president of the Federation of Nepalese Chambers of Commerce and Industry, said if skilled manpower is sent for foreign employment, remittances would rise more.

“And at home, to create employment through the money sent by the migrant workers, the government should promote industrial and business activities,” Dhakal said.

At home, returnee migrant workers complained of insufficient funding support to start business.

“Migrant workers who have returned have not benefited from the subsidised loans launched for them specially, due to hassles in the banking process,” said Kausalya Kushwaha, past president of the Migrant Workers Network.

“The people who have access to people in the authorities are especially benefitting from the subsidised loan scheme of the government, not the migrant workers.”

“The banking process is full of hassles. The migrant workers are not eligible for the subsidised loan scheme,” Kushwaha said. “The migrant workers are duped. They are forced to take loans at high-interest rates to go abroad.”

Upendra Prasad Poudel, president of the Confederation of Banks and Financial Institutions Nepal, said sending remittances through formal channels hasn't always been so convenient.

Informal channels, such as hundi, operate discreetly through unrecorded routes and rely on acquaintances, travellers, or agents.

In many developing countries, governments have often offered incentives to increase remittance flows and to channel them to productive uses.

However, such policies are more problematic than efforts to expand access to financial services or reduce transaction costs. Tax incentives may attract remittances, but they may also encourage tax evasion.

“We have not been able to connect the financial system with migrant workers,” said Poudel.

He said that migrant workers need to be provided with the orientation [regarding the disadvantages and risks associated with using hundi].

The banking system needs to provide financial literacy for migrant workers, Poudel said.

Poudel said it is important to engage the migrant workers' returnees in economic activities, and to some extent, banks could do this. “But the government needs to provide some kind of guarantee.”

Maha Prasad Adhikari, governor of Nepal Rastra Bank, said remittances have been increasing, now growing by more than Rs100 billion a month.

The number of youth leaving the country is also increasing, he said.

In the last fiscal year, 774,976 migrant workers were issued foreign work permits and the trend has continued in the current fiscal year too.

The number of students going abroad for studies has also increased, as around Rs60 billion has been invested for abroad studies in the first six months of the current fiscal year, he said. “The remittance we receive today is contributed both by students and migrant workers,” he said.

The central bank has issued licenses to 41 remit companies and banks to channalise the remittances.

According to Adhikari, a 1 percent additional interest rate provided to migrant workers' accounts and the new rule requiring public limited companies to allocate 10 percent of their initial public offerings (IPO) to migrant workers has encouraged the workers to use legal channels to send money home.