In March 2015, Suresh Kunwar landed a job in Kuwait as a carpenter. The employment agency wanted Rs100,000 but Kunwar wasn’t too worried about borrowing money since the job guaranteed him a monthly salary of 90 Kuwaiti Dinar—around Rs33,000 at current exchange rates. The interest rate, however, was an exorbitant 36 percent per year.

But Kunwar got a cruel surprise just as he was about to leave.

“On flight day, I was to sign an agreement letter that said that my salary would be only 70 Kuwaiti Dinar [about Rs 25,700],” said Kunwar. “I had no option but to sign the contract as I had to take the job and I was told to sign the document before I could go to the airport.”

Kunwar left for Kuwait, but he never got the carpenter’s job. Instead, he was put to work as a storekeeper’s assistant, making Rs22,000 a month. Even though it was difficult to make ends meet, Kunwar managed to save enough money to send back home to his family.

“I struggled to save around Rs15,000 every month, which I would send home,” said Kunwar. It took him nearly nine months to pay back the loan he’d taken.

Like thousands of Nepali migrants, when Kunwar came home in December 2017, he had no savings, and neither did his family, who’d spent the money he’d remitted back to meet household expenses.

Remittance has been the lifeblood of Nepal’s economy, with the money sent back by nearly 500,000 migrant workers equivalent to 28 percent of last year’s Gross Domestic Product, according to an April report from the World Bank. In 2018 alone, Nepali migrants sent home $8.1 billion, making it the 19th largest receiver of remittance in the world. The amount of remittance had gone up by 16.39 percent year-on-year, despite a drop in the number of departures, said the report.

Where does the money go?

As Kunwar’s experience shows, this money is neither saved nor invested; a vast majority goes into consumption, meeting expenses and purchasing goods for a higher standard of living, say labour migration analysts and economists.

“If we look at various studies, a general conclusion shows that most of the money is spent on daily consumption like food, clothes, medicines and other day-to-day expenses,” said Swarna Kumar Jha, coordinator of the National Network for Safe Migration.

“For example, the nearly decade-old Nepal Living Standards Survey 2011 reported that among migrant families, 79 percent of remittance was spent on daily consumption and seven percent on repaying loans,” said Jha. “That trend more or less continues.

Findings from a more recent nationwide survey, conducted by Sharecast Initiative Nepal, a not-for-profit new media organisation, support Jha’s conclusion. While the survey has yet to be released, raw data shared with the Post showed that migrant households are still using remittance primarily to meet daily expenses while also paying back loans and purchasing immovable assets like land. The survey, which is part of the Nepal Media Survey 2019, was conducted with 4,129 individuals in 42 sample districts across all seven provinces.

“Everyone talks about GDP, but no one knows where the remittance is going,” said Madhu Acharya, co-founder and CEO of Sharecast Initiative Nepal. “So while conducting our national media survey, we tried to discover where migrant families invest their money. We wanted to understand the financial behaviour of migrant households.”

According to the survey results, 60.2 percent of respondent families said that their income is spent on food, followed by clothes (42.1 percent), health and treatment (36.4 percent), education (35.6 percent), repairing or buying home (15.4 percent) and buying new land to build homes or for agriculture (9.5 percent).

Respondents also said that they purchased luxury goods like motorbikes, laptops, mobile phones and gold. Only a small number of respondents—2.1 percent—said they had invested in a new business whereas 1.3 percent had invested in farming. Just 6.5 percent of migrant households had savings from remittances.  

“Remittance has undoubtedly improved the quality of lives for migrant families by providing better food, access to health facilities, and education to their children. But we need another study if we really want to learn about its contribution to the national economy,” said Acharya.  

Spending patterns and remittance benefits also differ across regions, castes, and social strata. A separate study—Labour Migration and the Remittance Economy: The Socio-Political Impact—by the Centre for the Study of Labour and Mobility (CESLAM) at Social Science Baha says that the costs and benefits of migration vary by caste/ethnicity, class, and region. The report concluded that Hill Dalit and Tarai Dalit migrants, and those from the lowest wealth quartile, earn relatively less than other groups.

“Much small-scale research has found that remittance is spent on children’s education, health, buying land, adding floors to homes and paying back loans. The remittance is also used on loans for dowries and weddings of daughters or sisters, and more loans for other occasions,” Jeevan Baniya, a labour migration expert with the CESLAM told the Post.

The 2017 CESLAM study, conducted in five districts, concluded that migrant families were doing better than non-migrant families, especially in terms of land purchase. According to the study, 36 percent of migrant households surveyed had invested in the land after migration.

“The spending pattern is also different in rural and urban areas,” said Baniya. “Families that can afford to buy land have moved to nearby cities whereas land plots left behind during the insurgency or by families that moved to urban areas are being bought by other migrant families.”

Are purchases helping in the long term?

Migrant families also tend to buy luxury goods like mobile phones and vehicles, which, like land, are non-productive sectors, which don’t guarantee a return and do little to stimulate the economy, say analysts.

“Gadgets, land and buildings are stagnant investment. Buying land can only be a fruitful investment if it generates jobs,” said Jha.

But analysts warn against labelling investments in health, nutrition, education and communication as unproductive, as the outcomes aren’t seen immediately.

“Staying in touch with family members through mobile phones contributes to social and psychological gratification, and to eroding the digital divide,” said Baniya. “These instruments can also be utilised to make important family decisions like choosing schools for children or where to deposit money.”

That migrant workers and families spend their remittance income on ‘unproductive’ sectors is not wholly their responsibility, say labour migration analysts. Channelling investment into productive sectors is the responsibility of the government, which has so far not done enough towards this end, they say.

Utilising the incomes of migrant workers by investing in productive sectors, like hydropower, development projects and encouraging them to hold savings in banks, has long dominated the country’s political economy discourse. But little of substance has been done to help channel investments towards these sectors.

The Foreign Employment Policy 2012 and other relevant statutes talk of the productive usage of remittance in the national economy, but solutions are limited to increasing formal remittance flow through banking channels.   

“Some of the government interventions for promoting formal remittance transfers include:  reimbursement of the remittance fee charged to migrant workers for remitting money through formal channels; financial literacy education for foreign employees and their family members; and allowing migrant Nepali workers to invest in the capital market, and in national priority projects,” says a 2018 report ‘Approaches to the Productive Use of Remittances in Nepal’ produced by The International Centre for Integrated Mountain Development (ICIMOD).

A recent Labour and Employment Ministry task force recommended a number of measures to formalise remittance and utilise migrant incomes in productive sectors, including lowering remittance fees in banks.

The task force had also recommended setting up a ‘remittance fund’ with workers’ income, reserving 5 percent primary share for migrant workers and their families in various companies, and encouraging them to buy foreign employment bonds.

In 2010, Nepal Rastra Bank, the country’s central bank, had also decided to float foreign employment saving bonds, specifically targeting Nepali migrant workers. These bonds were exclusively sold to Nepalis working abroad, Non-Resident Nepalis or those who had returned from foreign employment destinations less than four months ago. The government had hoped to use the money collected to finance its deficit and to fund various development projects.

However, these bonds failed to attract migrant workers, many of whom are not even aware that such bonds exist. When the bonds were first introduced, only 0.40 percent of the securities up for grabs were sold.

The vicious cycle

With migrant workers not putting their incomes into productive sectors, it has given rise to another problem—the vicious cycle of labour migration, where workers need to go abroad over and over since they run out of money and have no capital to start a business of their own, say analysts. Without an enabling or supportive environment in the local community and by government entities, migrant workers have few options other than to leave the country again.

“Imagine a worker comes up with a plan and some capital to start a venture, but the environment is not receptive,” said Baniya. “Unable to find an environment that facilitates their investment, and without linkages to the bureaucracy or political parties, workers start feeling frustrated and once the money is finished, they migrate again.”

Furthermore, no plans exist at any level to reintegrate migrants into society, even though they return with experience, skills and money, said Baniya.

The government thus needs to overhaul its pre-departure orientation training, which is mandatory for those going abroad for foreign employment, and embed financial literacy, say analysts. The current model of training, where a few hours that only touch lightly n finance, is not enough, they say.

“Orientation training should provide detailed information on how to save money and where to invest, with the training extended up to a few days,” said Baniya. “Similar awareness programmes can be started by local units at the school levels itself.”