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CAPITALIZATION OF REMITTANCE FOR PRODUCTIVE USE:
A CASE OF RAGHUNATHPUR VDC OF DHANUSA DISTRICT
MILAN REGMI
PROJECT WORK
SUBMITTED TO THE
KATHMANDU UNIVERSITY
NATIONAL COLLEGE
CENTER FOR DEVELOPMENT STUDIES
BALUWATAR, KATHMANDU, NEPAL
IN PARTIAL FULFILLMENT FOR THE
DEGREE OF
BACHELOR IN DEVELOPMENT FINANCE
(BDFin)
AUGUST 2014
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14
CAPITALIZATION OF REMITTANCE FOR PRODUCTIVE USE:
A CASE OF RAGHUNATHPUR VDC OF DHANUSA DISTRICT
MILAN REGMI
PROJECT WORK
SUBMITTED TO THE
KATHMANDU UNIVERSITY
NATIONAL COLLEGE
CENTER FOR DEVELOPMENT STUDIES
BALUWATAR, KATHMANDU, NEPAL
IN PARTIAL FULFILLMENT FOR THE
DEGREE OF
BACHELOR IN DEVELOPMENT FINANCE
(BDFin)
AUGUST 2014
CAPITALIZATION OF REMITTANCE FOR PRODUCTIVE USE:
A CASE OF RAGHUNATHPUR VDC OF DHANUSA DISTRICT
MILAN REGMI
AUGUST 2014
Certificate
This is to certify that the Project Work entitled “Capitalization of Remittance for
Productive Use: A Case of Raghunathpur VDC of Dhanusa District, submitted in
the partial fulfillment of the requirement for the degree of Bachelor in Development
Finance (BDFin) under Kathmandu University is a record of Original research/study
carried out by Mr. Milan Regmi under my supervision, and no part of the work has
been submitted for any other degree or diploma of this or any other University.
Signed : Mr. Naresh Nepal
Designation: Supervisior
Date: 18th August, 2014
III
Acknowledgement
We all remain a bud all our lives , with a hope of embracing one day, what the
world has to offer , and may be most of us end likewise. The enthusiasm to explore
new horizon in whatsoever undertaken, is what makes us blossom. The successful
completion of this project work entitled “Capitalization of Remittance for
productive Use: A Case of Raghunathpur VDC of Dhanusa District”, is the result
of the challenge undertaken accompanied by the enthusiasm to explore the
Remittance based economy of Nepal. It has really been a good piece of experience
for me, which I will mesmerize for rest of my life.
I wish to express my gratitude and thanks to Mr. Indresh M Sharma, R&D Officer and
Mr.Ujjwal Upadhyay (APC), National College for having faith in my work and for
their constant motivation, without which preparation of this project work could not be
possible. With due respect and deepest regards, I would like to extend my sincerity
and heartily thanks to Mr.Himalaya Samsher JBR for awarding me the prestigious
“Himalay SJB Rana Research Grant-2014”.
I am highly indebted to my Project work supervisors, Mr. Naresh Nepal (Deputy
C.E.O, Centre for Micro-Finance) and Mr. Binod Shrestha (Senior Economist at
IIDS), for their valuable time, support and guidance without which the study would
just be a mess. I feel blessed to have Mr. Mukesh Khanal (Program Officer at The
Asia Foundation) by my side to suggest me and to correct me whenever I was
deviated during the course of this study. All in all, it would be a shame if I forgot to
express my heartily thanks to all the respondents for their valuable time and for
answering the questionnaires with utmost good faith.
Sincere thanks to, my pal Sarthak Dhakal for being there with me at my odds and
Bibek Kafle, with whom I shared a memorable part of my journey at Eastern Nepal.
Similarly, I wish to express my heartily thanks to all NCHE friends and staffs for their
help during the preparation of the study, Namely Urmila Dahal and Hira Moktan.
Words in my acknowledgement are inadequate to express my deep sense of gratitude
and indebtedness to my family, specially my brother Raju for his affection and
inspiration.
REGMI, Milan
18th August, 2014
IV
Abstract
Remittances contribute largely to the national economy. The remittances sent home by
the migrants affect development at both the household and national levels. At, the
household levels, remittances help to reduce poverty, improve standard of living and
attain higher educational levels. At the macro level, remittances could be used for
entrepreneurship and productive investment which in turn increases job opportunities
and income of the people. At the same time, remittance inflows help to augment
foreign exchange reserves and improve the current account position.
This study was carried out in Raghunathpur VDC, of Dhanusa District. The findings
are miserable. As said earlier, the living standard of the household receiving
remittance has certainly increased, but most of the amount is filtered away on
wasteful consumption. Land purchase is the variable that is significantly increased
followed by a huge consumption on Socialization. The Dowry system is still persistent
in this area. As a result of which huge amount of money is filtered away on dowry
during daughter’s marriage. Talking about the investment pattern, the respondents
were found likely to invest in livestock only. They lack financial literacy. They lack
skills and trainings to invest in other sectors. The study revealed that, only few
portion of the remittance is being utilized in the productive sector.
The earning of emigrants of this area is not sufficient to meet the consumption needs
of the households. And moreover, there have no habit of saving developed for their
future. Thus, there is huge pressure on the emigrants to earn more, for that they are
working under drastic conditions as a result of which, some of the emigrant worker
die an unusual death. But the best part is that, every household is sending their
children to school. This reflects their level of consciousness towards attainment of
education.
This paper suggests that workable policies and programs need to be developed by
Nepal's policy makers for encouraging the utilization of remittances for productive
use in order to promote longer-term growth.
Key Words: Remittance, Saving, Productive Use, Investment, Raghunathpur, Dowry
V
LIST OF ACCRONYMS
BEA-Bureau of Economic Analysis
CMF- Center for Microfinance
CECI- Canadian Centre for International Studies
MFIs- Microfinance Institutions
DoFE-Department of Foreign Employment
DFID- Department for International Development
GDP-Gross Domestic Product
G: B-Girl: Boy
HBL-Himalayan Bank Limited
IMF-International Monetary Fund
IIDS-Institute for Integrated Development Studies
FI-Financial Institution
HH: Household
INGO- International Non Government Organization
MDG-Millennium Development Goal
NGO- Non Government Organization
NRB- Nepal Rastra Bank
OECD- Organization for Economic Cooperation and Development
USAID- United States Agency for International Development
VDC-Village development Committee
WB- World Bank
VI
Table of Contents
CERTIFICATE ............................................................................................. II
ACKNOWLEDGEMENT ............................................................................ III
ABSTRACT ................................................................................................... IV
ACRONYMS ................................................................................................. V
TABLE OF CONTENTS ............................................................................. VI-VIII
LIST OF FIGURES ...................................................................................... IX
CHAPTER-1 INTRODUCTION ................................................................. Pg 1-6
1. Background ................................................................................................. 1
1.1Present Scenario of Migration and Remittance Inflow .............................. 2
1.2 Economic Benefits of Remittance ............................................................ .3
1.3 Productive Use .......................................................................................... 4
1.4 Statement of the Problem .......................................................................... 4
1.5 Rationale of the Research ......................................................................... 5
1.6 Objectives of the Research ........................................................................ 5
1.6.1 General Objectives
1.6.2 Specific Objectives
1.7 Scope of the Research ............................................................................... 5
1.8 Limitations of the Study............................................................................ 6
CHAPTER-2 REVIEW OF THE LITERATURE .................................... Pg 7-15
2.1 Remittance to Nepal .................................................................................. 7
2.2 Remittance and Millennium Development Goals ..................................... 7
2.2.1 Remittance for Development
2.3Determinants of Money Remittance .......................................................... 8
2.4 Modes and Instruments Used In Remittance Business ............................. 8
2.5 Migrants: Destination Country and Remittance ....................................... 9
2.6 Labor Migration: Flows and Trends ......................................................... 10
VII
2.7 Remittance to India from Migrant Lebanon Workers: A case of Punjab and Tamil
Nadu ................................................................................................................ 10
2.8 Impact evaluation of Remittance: A case of DhanusaDistrict .................. 11
2.9 Major Source of Remittance to Nepal ...................................................... 12
2.10 The “GHOST-TOWN” Phenomenon ..................................................... 13
2.11 Remittance: Easy Money, Can it negatively affect the Economic Development?
......................................................................................................................... 13
2.12 Indicators and Investment Theories used in the study ............................ 14
2.12.1 Consumption Indicators
2.12.2 Investment Theory and Indicators
2.13 Research Question .................................................................................. 15
CHAPTER-3 RESEARCH METHODOLOGY ........................................ Pg 16-18
3.1 Introduction to Research Methodology .................................................... 16
3.2 Research Design........................................................................................ 16
3.3 Data Collection Procedures....................................................................... 17
3.4 Data Presentation and tools used for Analysis .......................................... 17
3.4.1 Tools used for Analysis ............................................................. 18
CHAPTER-4 PRESENTATION AND ANALYSIS OF DATA ............... Pg 19-41
4. Results and Discussion ............................................................................... 19
4.1 Sex of the Respondents ............................................................................. 19
4.2 Age group of the Respondents .................................................................. 20
4.3 Education Level of the Respondents......................................................... 20
4.4 Religion of the Respondents ..................................................................... 21
4.5 Occupation of the Respondents ................................................................ 22
4.6 Sex Composition of School going Children’s .......................................... 22
4.7 Number of senior Citizens ........................................................................ 23
4.8 Family size of the Respondents ................................................................ 24
VIII
4.9 Did the Remitter go abroad on his own Investment? ............................... Pg 24-26
4.10 Sex of the Emigrants27
4.11 Age Group of the Emigrants ................................................................... 27
4.12 Reasons For Foreign Employment.......................................................... 28
4.13 Education level of the Emigrants ............................................................ 28
4.14 Destination Country of Emigrants .......................................................... 29
4.15 Type of Employment .............................................................................. 30
4.16 Channels used while Sending Money ..................................................... 32
4.17 Yearly Remitted Money on an Average ................................................. 32
4.18 Consumption Pattern of the Emigrants House Hold ............................... 34
4.19 Investments Made by Respondents: Utilization of Remittance .............. 36
4.20 Regression Analysis ................................................................................ Pg 38-41
CHAPTER-5 CONCLUSIONS AND RECOMMENDATIONS .............. Pg 42-43
BIBLIOGRAPHY ......................................................................................... Pg44-45
ANNEX .......................................................................................................... Pg46-49
IX
List of Figures
Fig-1Remittance Recipient Matrix, Nepal
Fig-2 Investment Model: Remittances-Development Linkages
Fig-3 Sex of the Respondents
Fig-4 Age Group of the Respondents
Fig-5 Education Level of the Respondents
Fig-6 Religion of the Respondents
Fig-7 Occupation of the Respondents
Fig-8 Sex Composition: Number of School Going children’s
Fig-9 Number of Senior Citizens in the Household
Fig-10 Family Size of the Respondents
Fig-11 Did the Remitter go abroad on his own Investment?
Fig-12 Loan Obtained From
Fig-13 Rate of Interest Charged
Fig-14 Sex of the Emigrants
Fig-15 Age Group of the emigrants
Fig-16 Reasons for Foreign Employment
Fig-17 Education of the Emigrants
Fig-18 Destination Country of Emigrants
Fig-19 Type of Employment
Fig-20 Duration of stay
Fig-21 Channels Used while Sending Money
Fig-22 Yearly Remitted Money on an Average
Fig-23 Consumption Pattern of the emigrants Household
Fig-24 Investments Made by Respondents Household: Utilizing Remittance
1
CHAPTER-1
INTRODUCTION
1. Background
Remittance is the transfer of Money by a foreign worker to his/her home country. It can
also be referred as the money transferred by an individual (usually a person who has
emigrated from country of origin) to another individual usually a relative who
remains at home. Basically, there are two categories of remittance transfers: domestic
and international transfers. Domestic transfer occurs when funds are transferred from
one location to another within the same country, i.e. mostly urban to rural.
Whereas international remittance involves an immigrant sending money to the
country of origin, i.e., cross border transfer. But mostly remittance refers to an
international remittance. Remittances are the expression of profound emotional
bonds between relatives separated by geography borders, and they are the
manifestation of a profound and constant interaction among these relatives regardless
of the distances between them (Kunz, 2011). Inward remittances are basically foreign
exchange, which is remitted by people who are living abroad to their own countries.
The earning of a country by remittances is shown in the Balance of Payments
statistics of each country and the accounting is prepared according to the
guidelines prepared by the International Monetary Fund. The International
Monetary Fund separates remittances into three categories; The International Monetary
Fund separates remittance into three categories: 1) from workers who have lived
abroad more than one year, 2) from workers who have lived abroad for less than one
year, and 3) from migrant transfers or the net worth of migrants who move from one
country to another; workers’ remittances from workers who have lived abroad for
more than one year (Anderson, 2006). It is recorded under the headings of Current
Transfers in the current account of the balance of payments. The wage salaries and
other compensation received by border , seasonal and other workers ,who have lived
abroad less than a year are recorded under the income subcategory of the current
account. Migrant transfers are reported under the capital transfers in the capital account.
The above definition does not include transfers through informal channels-such as
remittances send through friends, family members, Hundi or remittances send in
kind such as jewelry and other consumer goods. Although the headings migrant
remittances goes only to the workers who lived abroad more than one year but other
2
heading captures the extent of workers‘ remittances better than the data reported
under the headings of workers‘ remittances alone.
1.1 PRESENT SCENARIO OF MIGRATION & REMITTANCE INFLOW
The migration of Nepalese workers has been taking place for centuries, particularly to
India, with which Nepal shares deep cultural and historical ties. In 19th century, a very
specifically skilled subset of Nepalese – the Gurkhas – earned their country fame in the
ranks of the British and Indian armies. However, a massive shift happened much later,
starting in 2000, driven by both push (the Maoist insurgency in Nepal) and pull
(economic boom in the Middle East and East Asia) factors. In 1996, 6 workers left
legally each day. By 2013 that number was multiplied by a factor of 200 (Kruse, 2013).
Nepal is third among the countries receiving the highest proportion of remittance in
terms of gross domestic product (GDP) with the country receiving remittance worth 25
percent of GDP in 2012, according to a report made public by the World Bank (WB).
African country Lesotho had also received remittance of 25 percent of GDP in 2012.
Nepal was fifth in the list in 2011.Nepal received remittance worth 23.1 percent of GDP
in the fiscal year 2068/69 and 22.1 percent in 2069/70, according to the economic
survey. The country had received Rs 359.60 billion of remittance in 2068/69 when GDP
was Rs 1.53 trillion while the figure was Rs 434.58 billion in 2069/70 when the
estimated GDP was Rs 1.71 trillion (Chapagain, 2013)
With more of the active population going abroad for employment, Nepal’s receipt of
daily remittance income is equivalent to one-fourth of the average daily gross domestic
product (GDP) of the nation. The average monthly income of these workers range
between Rs 10,000 to Rs 50,000, while the government fixed minimum wage for a
Nepali industrial laborer is Rs 8000. Due to the obvious difference in wage in Nepali
jobs and income abroad, a large number of Nepalese are choosing to join the
workforce of foreign countries. The domestic wage-rate might look less in comparison
to what the same unskilled worker could earn in foreign countries, but the other side of
the story is that, the work load and expenses are lower here in Nepal (Singh Dekshya,
Himalayan Times, 2013).
3
The total remittance income of the developing and developed countries reached US$
550 billion in 2012. The remittance income of developing countries and that of
developed countries will grow by nine percent on an average annually and reach US$
540 billion and US$ 707 billion respectively, according to WB. India received
remittance income of US$ 71 billion, China US$ 60 billion, Philippines US$ 26 billion,
Mexico US$ 22 billion, Nigeria US$ 21 billion and Egypt US$ 20 billion in 2012.
Pakistan, Bangladesh, Vietnam and Ukraine also received a large amount in remittance.
WB revealed that remittance income grew everywhere across the world in 2012 except
the Caribbean and Latin American regions where it fell due to the economic slowdown
in the United States of America (Chapagain, 2013).
1 . 2 E C O N O M I C B E N E F I T S O F R E M I T T A N C E
Remittances promote access to financial services for the sender and recipient, as
remittance receivers often have a higher propensity to own a bank account. The
continued inflow of remittance provides a reliable financial resource for developing
countries, specifically at financial crises and economic downturns. Remittances are
often sent by migrant workers who move back and forth to their home and host
countries in a temporary and repetitive manner. These workers normally are highly
benefitted financially as they work in a high-income country compared to their home
country.
At the state level, countries with diversified migration destinations are likely to have
more sustainable remittance flows. From a macroeconomic perspective, remittances
can boost aggregate demand and thereby increases GDP as well as spur economic
growth if it is used in productive Investments domestically. However, some research
indicates that remittances may also have adverse macroeconomic impacts by
increasing income inequality and reducing labor supply (increasing dependency to
foreign country, increased consumption of luxury/foreign products etc.) in the home
country.
4
1.3 PRODUCTIVE USE
The word productive often describes a person's capability to do a lot of work, but is
can refer to anything that produces a lot. The land in your area might be the most
productive in the state, meaning crops grow very well there. Productive can be used
more broadly to describe something that produces a positive result. For example, you
might have a productive conversation with your mom about your college plans, or you
might make a productive investment.
(http://www.vocabulary.com/dictionary/productive)
In this study the term “Productive use” refers to the return generating investments that
are made by using the remittance money. Investment in Sectors like: Manufacturing
Business, Tourism Business, Money lent to other are only considered as the
Productive Investment as they generate return on a regular basis. Many scholars have
argued that, Money spent on Education is regarded as Investment in the long –run, but
this study incorporates money spent on education under the consumption Category.
1.4 STATEMENT OF THE PROBLEM
Though, foreign employment and remittance is not new, but the practice of
remittance is recently burgeoning. It is making important effect on the economies of
developing countries. Money used to be transferred through informal channels, so its
effect could not be ascertained in past years. However now through the formal
process, records are kept and its effect could be assessed without doubt. According
to Department of Foreign Employment (DoFE) almost 400,000 workers have got
approval to work in foreign nations. Every day 1200 (including male and female)
Nepalese are migrating to other foreign countries either -to earn a living for their
family in order to increase/uplift their standard of living.
Despite increasing migration and remittance inflow, there is high consumption and
poor investment in productive sector. Remittance is not properly utilized to increase
income and employment within the country. The huge amount of remittance inflow
that Nepal is experiencing at the moment, if properly channeled to the productive
sector, it can create employment opportunities, build new infrastructure and services
and can very well reduce poverty in years to come.
5
1.5 RATIONALE OF THE RESEARCH Dhanusha district has been one of the largest migrant-sending districts in the country.
Despite of the fact that, the billions of dollars flowing into the country annually,
capitalizing the remittance to productive investment has posed a challenge.
Remittance money is spent widely on the import of non-durable consumer goods than
on capital formation, widening the trade deficit year after year. In this regard, the
rationale of this research is to assess the current scenario of capitalization of
remittance for the productive use in the context of Raghunathpur VDC-5 of Dhanusa
District, Nepal.
1.6 OBJECTIVES OF THE RESEARCH
In order to attain the main objective that is to assess the status of utilization of
remittance for productive use, the following objectives have been set up:
1.6.1 General Objectives:
To assess the status of remittance capitalization in Raghunathpur VDC, Dhanusa
district.
1.6.2 Specific Objectives:
To ascertain the situation of migration and foreign employment in Raghunathpur,
VDC.
To assess the trend of utilization of remittance amount for productive use.
To know the consumption and saving pattern of the migrant workers’ household.
1.7 SCOPE OF THE RESEARCH
The research was carried out in the central Terai of Dhanusa district in Raghunathpur
VDC, ward no 5. This VDC has 2732 households and its area is 25.4 sq Km. From
this VDC 30 household will be included in the sample. The site can be accessed
through roads.
6
1.8 LIMITATIONS OF THE STUDY
The sample size undertaken for this study is 3o only i.e. n=30.
This study does not focus on skill transfer from the migrant workers.
Only 30 household from Ward no.5 of Raghunathpur VDC were included
in the study. Thus, obtained data doesn’t necessarily dictate the scenario of
whole VDC.
The interpretations and analysis presented in this study are that of authors
only. It doesn’t necessarily represent any Organizational point of view.
The accuracy of the finding depends on the reliability of the responses
from the respondents as the study is more based on the primary data
obtained from the Household Survey.
The non-availability of various resources also acts as constraints; time
constraints, limited budget, lack of experience, lack of up-to-date
information.
Difficulty in finding the up to date secondary data required for the
Review of Literature. However, available latest data are included in the
study.
This study is focused on only remittance receiving households, thus it
ignores the consumption, saving and Investment made by other
households.
Despite very low correlation between the variables, the regression
analysis is run under severe limitations, just for the sake of analysis only.
The total number of sample, n=26 is used while running a regression
analysis. This is because 4 respondents denied providing the detail of
their consumption and Investment made by them.
Natural logarithm was imposed on the variables: consumption,
investment and remittance amount so as to bring symmetry in the data as
the data were highly skewed.
Investment made in Livestock and poultry are not considered as
productive investments as they do not generate return in regular time
interval.(usually require longer period to generate return)
This study should not be taken as conclusive, just indicative.
7
CHAPTER-2
REVIEW OF LITERATURE
2.1 REMITTANCE TO NEPAL
Migrant workers’ remittance is a strong source of foreign exchange earnings for Nepal.
It is estimated that in 2004 money transferred from migrant Nepalese have crossed Rs
100 billion—making it a bigger source of foreign exchange than tourism and all exports
combined. Workers remittance is now consider as a backbone of our economy.
According to a study by David Seddon for the DFID, the value of foreign remittance
from migrant laborers could be equivalent to 25 percent of official gross domestic
product (GDP).
Since last few years remittance income is playing a vital role for the foreign currency
earnings and favorable impact on balance of payment situation, to reduce the number of
people in the country below poverty line and ultimately to the economic growth of the
nation. The upsurge in remittances had led to a surplus in the current account, thereby
strengthening the overall BoP position. According to the Third Nepal Living Standard
Survey 2010-11, 55.8 percent of households receive remittance (ekantipur.com, 2013) ,
with each household receiving an average Rs 80,436 per year.
2.2 Remittance and Millennium Development Goal: Remittance has emerged as one
of the biggest factors in poverty reduction. If the individuals that are currently
receiving remittance had the payments cut, their poverty level would be at 35.3 percent,
compared to 19.3 percent currently, according to the Nepal Millennium Development
Goal Report (The Kathmandu Post, 6th Oct, 2013).
2.2.1 Remittance for Development: In any country, remittance contributes
significantly to economic development, and Nepal is no exception. For millions
of people worldwide where there are no sources of a livelihood in their home
countries, remittances provide the poor households the basis for survival. Money
sent home to the families have not only provided them the basic needs of life but
also helped to empower them economically. It is a reality that remittances will
continue to play a significant role in improving the life standards of millions of
Nepalese for many years to come (The Rising Nepal, 2013).
8
However, the government and policymakers must understand that this does not
bode well for the country in the long run. While in the short term, the remittances
they send might seem beneficial for the country and their families. Thus, there is a
need for developing appropriate policies and strategies to use the remittance in
positive growth so as to create employment opportunities, income generation and
new entrepreneurship. So, it is urgent that the government work seriously to use
remittance money to accelerate the development activities within the country itself
so that the youths can find employment in the country and are retained here.
2.3 Determinants of money remittances: The level of migrant’s remittance
flows depends on both the migrants’ ability, i.e. their income and the savings from
income and their motivation to remit savings back to the home country. Of course,
the willingness to remit is also determined by the duration of migration (how long
do migrants intend to stay abroad, temporarily or permanently?), the family
situation of migrants (single, married, with or without children?), and network
effects (do migrants move alone, with family members and do they keep
attachments to those left behind?).One way of looking at the determinants of
remittance flows is by analyzing the motives that migrants have to remit money
(OECD, International Migration outlook, pg-145, 2006).
2.4 Modes and Instruments used in Remittance Business
A) SWIFT
Society for the Worldwide Interbank Financial Telecommunication (SWIFT) is a
co-operative organization dedicated to the promotion and development of
standardized global interactivity for financial transactions. SWIFT's original
mandate was to establish a global communications link for data processing and a
common language for international financial transactions. The Society operates a
messaging service for financial messages, such as letters of credit, payments, and
securities transactions, between member banks worldwide. SWIFT's essential
function is to deliver these messages quickly and securely -- both of which are
prime considerations for financial matters. Member organizations create formatted
messages that are then forwarded to SWIFT for delivery to the recipient member
organization. (searchcio.techtarget.com/definition/SWIFT)
9
B) Demand Drafts
A method used by individuals to make transfer payments from one bank account
to another. Demand drafts are marketed as a relatively secure method for cashing
checks. The major difference between demand drafts and normal checks is that
demand drafts do not require a signature in order to be cashed. Also known as
"remotely created checks". (www.investopedia.com/terms/d/demanddraft.asp)
C) Telex
It refers to international telegraphic message-transfer service consisting of a
network of teleprinters. Subscribers to a telex service can exchange textual
communications and data directly with one another. Telex systems originated in
Europe in the early 1930s and were widely used for several decades. The ability to
conduct high-speed digital communication over regular telephone lines led to a
decline in the use of telex, but it is still used as a data transmission service for
applications in which high transmission speeds are not necessary or in areas where
more modern data equipment is not available.(http://www.merriam-
webster.com/dictionary/telex)
And some other modes are:
Fax Transfer
Tested Email
Online Remittance
2.5 MIGRANTS: Destination Country’s & Remittance
Nepal has a long tradition of overseas employment with India. India has been a
traditional destination for Nepalese migrants. The main reasons for this are
geographical proximity and a large and open border. These migrants hold semi-skilled
and unskilled jobs in restaurants and factories or are employed as domestic workers,
security guards, and maids. An increasingly larger share of remittances now comes
from countries, other than India, which thus reflects the changing migration patterns.
The composition of skills of the labor force, flow is different among these destination
countries. While migrants to the Middle East are employed mostly as security
personnel, chauffeurs, and construction workers, the demand from South East Asian
countries is more for employment in industrial enterprises. And the interesting fact is
10
that, the monthly earnings for these workers are higher than those in India. (IMF, Nepal:
Selected Issues & Statistical appendix, 2006 pg-11)
In the context of Nepal, there has been a positive impact of remittances on poverty as
illustrated by the Nepal Living Standards Survey (2003-2004) that showed that the
poverty level, decreased from 42% in 1995/96 to 31% in 2003/04. Despite of the fact
that, the billions of dollars flowing into the country annually, capitalizing the remittance
to productive investment has posed a challenge. According to the Living Standard
Survey, a significant portion (78.9 percent) of the remittance is being used in daily
consumption, followed by loan repayments. Only 2.9% of the total remittance is used
for capital formation. Remittance money is spent widely on the import of non-durable
consumer goods rather than on capital formation. (Federal Reserve Bulletin, Vol-69,
1983)
2.6 LABOR MIGRATION FLOWS AND TRENDS
In 2004, one million Nepalese worked abroad (World Bank 2004); between 1996 and
2004 remittance inflows increased from 3% of GDP (US$203 million) to 12% of GDP
(US$794 million), mainly driven by labor migration to the Gulf and Southeast Asia,
where earnings are much higher than in India. The proportion of households receiving
remittances also increased from 24% to 32%. According to the Nepal Rastra Bank,
remittances rose by 42.5% in 2007/08, and the ratio of remittances to GDP increased to
17.4%.
The highest inflow of remittances were to the Eastern Development Region, followed
by the Central, Western, and, finally, Far Western, and Mid Western Development
Regions. The Far Western and Mid Western Development Regions, where migration is
a major source of livelihood that has been practiced for generations, received the
largest amount of remittances from India (ICIMOD Case Study).
2.7 REMITTANCE TO INDIA FROM MIGRANT LEBANON WORKERS :A
case study of Punjab and Tamil Nadu
In this study the primary data were collected from a sample of 402 (201 each from the
States of Punjab and Tamil Nadu in India) semiskilled and unskilled migrant laborers,
working in Lebanon. The study provides a comparison of remittance utilization patterns
of Punjab and Tamil Nadu households, the two states located in extreme northern and
11
southern parts of India, with a contrast in their socio-economic and cultural
backgrounds
There was evidence that, remittances was being frittered away on wasteful
consumption. Remittances were mainly utilized for living expenses, debt repayment,
marriage expenses, and improvement in housing /purchase of land for house or buying a
new house and furthering emigration of other family members. In a few cases, however,
part of remittances was invested in agricultural land and equipments as well as small
business ventures to augment the family income. The remittance use pattern was mainly
dependent upon three factors, namely; i) Socio-economic background of the migrants;
ii) mode of financing the emigration; and iii) duration of stay in host country.
It was found that economic status and living standards of migrant’s families at the
origin had positive impact on remittance utilization patterns as better status implied
greater availability of resources from elsewhere to meet living expenses, leaving
remittances to be utilized for investments(Iussp2005.princeton.edu/papers/52493).
2.8 IMPACT EVALUATION OF REMITTANCES: A Case Study of Dhanusha
District
Dhanusha district has been one of the largest migrant-sending districts in the country.
The impact evaluation of remittances in Dhanusha district revealed that the land
purchase was most significantly affected variable from remittance income. Similarly, the
agricultural income was also substantially affected by remittances. Remittance recipient
households experienced a substantial rise in agricultural income after they started
receiving remittances. The households of migrant workers were also found to be
allocating a significant amount of their income in educational expenses. The positive
effects were also observed in the access of communication means such as radio, TV, and
telephone.
Besides, the remittance-recipient households were found to be less conscious on their
health conditions. The tendency of using open toilet in bushes and fields, for example,
was higher in remittance-recipient households than in non-recipient households. The
analysis with only treatment households demonstrated that there was no female worker
among those who went abroad for foreign employment. Middle East was the most
favorite destination of the migrants in the study area followed by Malaysia. The income
12
from migration per migrant worker stood NRs 169,000 resulting in income of NRs
14,000 per month, indicating that the income of migrant workers is relatively low. Most
of migration expenditure was financed by borrowing. In borrowing, the average interest
rates these households paid were 28.3 percent per annum. Only 14 percent of total
borrowings of these households were from formal bank and financial institutions at the
average interest rates of 16.6% p.a. (OP, NRB, 2013).
2.9 MAJOR SOURCE OF REMITTANCE TO NEPAL
Fig-1: Remittance Recipient Matrix, Nepal
Nepal receives millions of dollars in the form of remittance from across the globe. The
above figure clearly indicates that, Qatar ($1987 million) and India ($1634 million)
followed by the United States ($325 million) largely contribute to the Remittance that is
experienced here in Nepal. Besides this, other countries like United Kingdom ($223
million), Thailand ($132 million) and Saudi Arabia ($105 million) are the major source
of the Remittance to Nepal. Cambodia, Denmark, Finland, Ireland, Northern Maria
Island and Georgia has equally comprised US $ 1 million whereas, Belgium, Bhutan,
Remittance Recepient Matrix,Nepal
Australia
Brunei Darussalam
Canada
India
Japan
Korea, Rep.
Qatar
Saudi Arabia
Thailand
United Kingdom
United States
Germany
13
Philippines, and Sweden has comprised US $2 million each, to Nepal in the form of
Remittance (Bilateral remittance matrix, 2012, may 2013 version, WB).
2.10 THE “GHOST-TOWN” PHENOMENON
One negative effect that remittance flows can have on a developing economy is
sometimes referred to as the "ghost-town" phenomenon. It essentially refers to an
exodus from or abandonment of localized areas, typically small villages in rural
regions, whose economies had grown dependent on the inflow of remittances. The
result is a collapse of these local economies when the inflow decreases significantly
or suddenly stops. Central Mexico has been hit notably hard by this phenomenon over
the past ten years. Before they used to migrate to the U.S. only temporarily but later
due to increased U.S. law enforcement along the border made seasonal trips more
risky, migrant stationing in the U.S. permanently and bringing their families. Once
these families left, so did their remittances. Without the inflow of remittance money,
such places experience an economic collapse and further abandonment (Nakarmi,
Sameer 2011).
2.11 REMITTANCE: EASY MONEY, Can it negatively affect the Economic
Development?
Another negative aspect of remittances was revealed by a study done on twenty-two
migrant communities in Mexico in 2001. It reported that only about 10% of
remittance funds were invested or saved. Instead, the bulk of the money went to
raising the standard of living for the receiving family—i.e. a new house, a car, a
bigger T.V., etc. The study also theorized that remittances created an "easy money"
cycle where the receivers of remittances treated the money like allowances and, thus,
had little incentive to work. This resulted in significant social costs, such as a
reduction in the labor supply, which hinders economic development. Thus, many
developing countries are watching their best and brightest leave to put their valuable
human capital to use elsewhere—the "brain drain"— while the money they earn and
send home contribute little to the home country’s economic growth, despite the
resulting increased consumption. But this phenomenon is not usual. The use of
remittance may vary from country to country or place to place. In some places, the
remittances earning are been utilized into saving or towards investment, rather than
spending it on consumption (Singh Abhay B., 2013)
14
2.12 INDICATORS AND INVESTMENT THEORIES USED IN THE STUDY
2.12.1 Consumption Indicators
The indicators taken into consideration in the course of this study are Consumption on:
Food Items, Health and Clothing Expenses, Consumption on Education, Money
consumed for the purpose of Infrastructure Development followed by consumption on
Socialization and Luxury. Consumption on Food items includes all the expenses that
took place while buying all edible food items (like: rice, pulse and cereals, beans, edible
oil, wheat and flour). Health expenses include those expenses that occurred during the
medical attention and treatment of the family members. Clothing expenses include all
those expenses occurred while buying clothing’s for family members. Similarly the
consumption on Infrastructure development includes all the expenses occurred in the
development of physical infrastructures like installation of bio-gas plant, solar plant
installation, building of new house or even toilets/bathrooms, and money used while
buying land. The money consumed on religious purpose like: Marriage Ceremony,
Bratabandha are covered under the category of Socialization. Whereas the money spent
on buying Motorcycles, Air Condition Installment in House are covered under the
category of Luxury. These indicators of consumption for this study are set in
accordance with the National Income and Product Account of the United States (US
Bureau of Economic Analysis, BEA).
2.12.2 Investment theory and Indicators
Fig-2 Investment Model: Remittances-Development Linkage
15
The model tries to interlink the use of current remittance for future perspective by
means of saving and investment. If, remittances received today are just spent on
consumption, future consumption needs to be financed by future remittances (or other
sources of income). However, if remittances are saved or used for investment, this
could assist in financing future consumption. Collective investment in development
projects will not result in direct future returns to the individual investors; however,
this would directly benefit the community. When remittances are saved in financial
institutions, this augments credit availability and can enable entrepreneurs to realize
investments that have a positive impact on development. This could be a more
realistic way of stimulating investment by the utilization of inward remitted money.
This is Carlings Model of Remittances-Development Linkages.
The investment indicators in this study are further divided into sub categories like:
Investment in Livestock, Poultry Business, Agriculture, Hotel Business, Service
Sector Business, Manufacturing Business, and Tourism Business. I have also included
Money lent to others (if any) under the investment category, because people can
receive a constant return from the money lent to others in the form of Interest.
2.13 RESEARCH QUESTION
The main aim of this study is to find out whether or not the inward remitted money is
being capitalized on investments or not. The study also focuses to see if the total
investment depends on the total Remittance amount or not. The study also aims to
examine the relationship between the total remittance and total consumption of the
household receiving the remittance money. By aligning with the preset objectives of
the study following Research methodology has been applied. Chapter 3 will deal in
brief about the Research Methodologies applied in this study.
16
CHAPTER-3
RESEARCH METHODOLOGY
3.1 INTRODUCTION TO RESEARCH METHODOLOGY
The main aim of this study is to assess the status of remittance capitalization by
the people experiencing remittance inflow in Raghunathpur VDC ward no.5,
Dhanusa district. To achieve these objectives, the study requires an appropriate
research methodology. Research methodology is a set of rules and procedures
that are considered while conducting the research. It refers to the aggregate of the
research design used, data collection technique used, sampling design
implemented, statistical tools and techniques employed and so on. Therefore,
this chapter highlights about the methodology adopted in the process of this
present study.
Research is the process of a systematic and in depth study of any subject
backed by the collection, compilation, presentation and interpretation of
relevant details or data. It gives a detailed investigation of the existing
problems, practices or processes. Basically, there are four methods of research-
Policy Research, Action Research, Evaluation Research, and Managerial
Research. This study deals with the evaluation of impact of remittance on the
economy. Thus, this study has used the evaluation research method which
includes research design, population and sample, nature and sources of data,
data collection etc. which will be further dealt in detail.
3.2 RESEARCH DESIGN
Research Design defines the task of a research from identifying a managerial
problem and problem area to report writing with help of collection,
tabulation, analysis and interpretation of data. A basic aspect of research
design, therefore, is to set up the research so as to draw logical conclusions
at the end. (Goode & Hatt, 1952: 74) According to Kerlinger ―A research
design is the plan, structure and strategy of investigation conceived so as to
obtain answers to research questions and to control variance .The research
design is thus an integrated frame that guides the researcher in planning and
executing the research works and to provide a maximum amount of information
17
relevant to the problem under investigation at a minimum cost. Research design
may include different forms such as historical research, descriptive research,
development research, correlation research, case study research, casual
comparative research, true experimental research, quasi experimental research,
action research and explorative research. In this paper, Judgment sampling
(Non-probability sampling) is used to conduct the research. Descriptive and
Regression analysis have been conducted. Both qualitative and Quantitative
analyses are drawn on the basis of the information obtained from various sources
including the primary source. Many past data are used to identify the trends of
remittance in the past years. Many search and investigation has been done
focusing on the present scenario in the remittance field. For this study, data
from field survey, online articles on remittance, different theories on
remittance and different journals with arguments for and against remittance are
analyzed. All the information obtained from these materials is used in this study
and it has led to the successful completion of this study.
3.3 Data Collection Procedures
The data required for this study is both primary and secondary, but mostly primary
data is the basic foundation for conducting the analysis part. Thus required
primary data are collected by conducting a household survey. The sampling frame
for this study will be 40 household of Raghunathpur VDC who are receiving
remittance from abroad. 30 Households are surveyed in order to obtain the data.
Simple random Sampling is used. The secondary data required for this study are
obtained from Nepal living standard Survey, Economic Survey, Statistical year
book of Nepal, Various publications of Central Bank, Dissertation, Previous
Studies, Articles and Daily Newspapers. Other relevant and impor tant
information has been collected from online journals via Internet as well.
3.4 Data presentation and tools used for analysis
The beauty of the research undertaken lies within the presentation of the data and
the analysis drawn from it .Collecting data is the connecting link to the world of
reality for the researcher. The data collection activity consists of taking ordered
information from reality and transferring it into some recording system so that it
can later be examined and analyzed for pattern.
18
In this paper, one of the popular techniques of data presentation: tabulation is
used. Tabulation is the process of arranging the data in an orderly manner into
rows and columns. The purpose of tabulation is to simplify the presentation of
data to facilitate comprising between related information. In this study, each of
the variable are coded with a specific code and are presented in the tabulated
form. After that, thus coded data are decoded and transformed into different
diagrams. Statistical data are diagrammatically presented in the form of
geometrical figures like bar graph and p i e charts .After the collection of data
and presentation, another important step is to analyze it.
As this study is based on quantitative data, the Primary data gathered from
various sources are categorized, tabulated, coded and processed. The frequency
of repetition of each variable is determined and is presented in a frequency table.
After that, the mathematical averages are calculated and the data are analyzed
using different geometrical figures.
3.4.1 Tools used for analysis
The study doesn’t require much complicated calculation. Simple calculation like
ratio, percentage and average are carried out using the MS Excel Program. The
regression and correlation calculation are performed by using SPSS and MS
Excel as well.
19
CHAPTER-4
PRESENTATION AND ANALYSIS OF DATA
This chapter will deal with the presentation and analysis of relevant primary
data that has been collected from the household survey in the field. Thus
obtained results and information are discussed in the sub headings below:
4. RESULTS AND DISCUSSION
The summary of the socio-economic characteristics of the household have been
discussed in this chapter. It presents an overview of different household
level variables which are studied and used in the analysis.
4.1 Sex of the Respondent
Fig-3 Sex of the Respondents
Among the 30 households that were surveyed in order to conduct the study, the
proportion of Male (53%) and female (47%) were approximately the same so as
to make it more inclusive in terms of gender. At first it was very difficult to
convince women’s to answer the list of questions. However, Men seemed
comfortable answering the questions but it was difficult to manage time to
interview them because of their engagement in the agricultural field activity and
household chores.
Male
53%
Female
47%
Sex of the Respondents
20
4.2 AGE GROUP OF THE RESPONDENT
Fig-4 Age Group of the Respondents
The age group of the respondent varied from 15 years of age to fifty and above.
In order to maintain the reliability of the data matured respondents of the age
group 30-50 were surveyed the most.37% of the respondents belong to the age
group of 30-40.similarly, 33% of the respondents were in the age group of 40-
50.As it is difficult for the teenagers to answer the household consumption and
Investment, none of the teenagers were interviewed.
4.3 EDUCATION LEVEL OF THE RESPONDENTS
For the numerical accuracy of the data, it is equally important for the
respondent to be literate. But illiterate also can give proper figures that are
accurate and reliable. In this study, 34% of the interviewed responds were
illiterate, but they were efficient enough to calculate their expenditure so as to
provide the exact data needed for the survey. I believe that the illiterate
respondents were answering on the basis of their experience. Having said that,
33% of the respondents have completed their Pre-Primary Schooling and 20%
of the respondents have completed their Secondary level Education, Thus, it can
assumed that the data obtained from respondents are reliable since 63% of the
total respondents were well educated.
0% 3%
10%
37% 33%
17%
Age Group of the Respondents
15-20 20-25 25-30 30-40 40-50 50+
21
Fig-5 Education Level of the Respondents
4.4 Religion of the Respondents
The religion of the respondents is clearly stated in the diagram below. Majority
of them follow the Hindu religion (93%). In our Nepalese society, different
festivals are celebrated on the basis of religion as well. In this regard, their
religion also determines the consumption level as per the festival that the
respondents celebrate. In a single year there seven mainly celebrated festivals of
Hindus, which are accompanied by high level of consumption and expenditure
on various items. Whereas, the Muslim society there are 5 main festivals that
they celebrate. Thus it can be concluded that, the consumption of Hindus during
festivals as that of compared to the Muslims is high over a year. And the money
for consumption is obtained from the inward remitted money i.e. the remittance
received by the Household.
Fig-6 Religion of the Respondents
34%
33%
7%
20%
3% 3%
Education level of the Respondents
Illiterate Pre-primary primary
Secondary Higher Secondary Bachelors & above
93%
7%
Religion of the Respondents Hindu Muslim
22
4.5 Occupation of the Respondents
Fig-7 Occupation of the Respondents
Among the 30 respondents who were interviewed for this study, 58% of
them were engaged in household Chores and 42% answered their primary
occupation as Farming. In this area, there is no other employment
opportunity that’s why people are engaged in farming. And they perform
only subsistence type of farming. One of the respondent added “We do not
have irrigation facilities, neither subsidy on the fertilizer. Moreover, when
there is demand for fertilizers in the rice plantation season, there is no
reliable supplier. That’s why the agricultural productivity is low”.
4.6 Number of School Going Children’s
Fig-8 Ratio of School Going Children’s
Farming
42% Household
Chores
58%
Occupation of the Respondents
75%
25%
Ratio of School Going Childrens
Male Female
23
The ration of school going children’s in the study site is 1:4 (G: B).The
above figure depicts the fact that, very less no of girls are attending school.
Upon discussion with local respondents, I came to know that the local
people have just started to send their girls to school. The level of
awareness among them is very low. Under this type of Circumstances, the
local authorities must conduct awareness programs so as to increase the
number of school going children’s, specially their daughters.
4.7 Number of Senior Citizens
Fig-9 Number of Senior citizens in HH
The above figure shows the Sex wise composition of Senior citizens in
the Respondents households. Either Male or Female both of them are
economically dependent. The only work they can do is look after the
children when their parents are in the field. As per the observation made
by the researcher it can be assumed that, when there are old- aged people
to look after in the household, health expenses rises simultaneously.
Because, old aged people get sick easily and other members can’t just sit
and let them die. So when they are taken to hospital, health related
expenses occur in huge amount. Similar is the case with Infant Children’s
if they get sick. Medical treatment in this area is very costly since there
are very few local hospitals.
48%
52%
Number of Senior Citizens
Male
Female
24
4.8 Family size of the Respondents
Fig-10 Family size of the Respondents
The above pie-chart shows the family size of the respondents. Majority
(83%) of the household size ranges from 5-10 members. The family size
has a direct effect on the consumption of the Household. Though there are
more than 5 members in the family, only one of them is economically
active and the rest are dependent. There is extreme pressure on the single
person to fulfill the consumption needs of his family. Since there are
limited employment opportunities in their locality, they prefer to go abroad
in the hope of earning bread for their family. As a result of which they
migrate to different countries.
4.9 Did the Remitter go abroad on his Investment?
Fig-11 Did the remitter go abroad on his own Investment?
10%
83%
4% 3%
Family Size of the Respondents
0-5 mem 5-10 mem 10-15 mem 15+ mem
yes
6%
No
94%
Did the remitter go abroad on his own
Investment?
25
Well, the answer to the Question is “NO”. The remitter goes to abroad by
taking loans from others. The respondents of this area have access to
Cooperative. Majority of them, take loans from the cooperative and the
rest of them take loan from the local moneylenders. However, very few
respondents (only 6%) went to abroad on their own Investment.
Fig-12 Sources of Loan
The above figure clearly shows that majority of the
respondents (81%) had obtained their loan from the nearby cooperative
(Sanakisan Bachat Tatha Rin Sahakari Sanstha) at 16% rate of interest
annually. Whereas the rest of the 19% had obtained their loan from the
local Landlords at an interest rate of 36% annually
Fig-13 Rate of Interest on Loan
Cooperatives
81%
landlords
19%
Sources of Loan
16%; 22
36%; 8
0
10
20
30
0% 10% 20% 30% 40% 50%
Fre
qu
en
cy
Rate of Interest
Rate of interest on Loan
f
26
As said above in the Fig.11, this Fig-13 tries to demonstrate the number of
respondents who obtain their loans at different rates of Interest. We can
see that, 22 respondents went to cooperative asking the loan and were
provided the loan at 16% and 8 respondents went to landlords asking for
the loan, and they were charged 36% interest by the landlords. I asked one
the respondent, though there is cooperative why did you ask landlords for
the loan? He replied, “Though landlords charge more interest rate than the
cooperative, loan from landlords is easily available. No formalities are
required with the landlords and we can ask for the loan any time we need.
It’s fast and easy to get loans from the landlords”.
In early days, landlords used to charge 60% rate of interest on the loan.
But now why has the interest rate came down to 36%? After the
restoration of the democracy in Nepal, a major reform in the financial
sector took place which has put more focus on strengthening and
empowering financial sector. As a result of which Semi Formal and
Formal Market economy emerged. This resulted in an increase in public
access to financial institutions like Cooperatives and Micro-Finance
Institutions. The Cooperatives are providing loan at cheaper rate of interest
than the landlords. As a result of which the landlords reduced their rate of
interest to 36% from 60%.If we compare this 36% rate of interest with
other countries like Ghana, Ethiopia, and Zimbabwe where interest rate are
around 68%, then there is little room for satisfaction regarding the peoples
access to financial institutions and the financial Institutions outreach to the
general public, in the context of Nepal. A recent economic survey of Nepal
showed that 45 Lakh people (Economic Survey, 2014) across Nepal has
access to Cooperatives, which indicates that the peoples access to FI’s is
increasing in Nepal. And this is the main reason for the drop in the
landlord’s interest rate.
27
4.10 Sex of the Emigrants
Fig-14 Sex of the Emigrants
The above chart clearly shows that the entire people who have migrated
from their household were male. Normally, males are active in economic
activities while female are engaged in the household chores. Women are
generally responsible to look after the children and the senior citizens in
the Household. It also provides us a picture of patriarchal society
prevailing in Nepalese Society restricting women’s within the four walls of
a Household.
4.11 Age group of the Emigrants
Fig-15 Age Group of the Emigrants
In this area, most of the emigrants belong to the age group of 30-50 years
of age. The people of this age group are also known as economically active
male
100%
female
0%
Sex of the Emigrant
12%
18%
9%
37%
21%
3%
Age group of the Emigrants
15-20 20-25 25-30 30-40 40-50 50+
28
age group people. The diagram above shows us that majority of the
emigrants belong to the age group of 30-40 (37%) accompanied by the
emigrants of 40-50 (21%) years of age.
4.12 Reasons for Foreign Employment/Migration
When the respondents were further interviewed to know about the reasons
for their foreign Employment, Most of them (67%) said that, it was their
necessity to go abroad because of the Unemployment in Nepal (Push
Factor).Whereas there were other bunch of respondents (24%) who were
arguing that, there are more Employment opportunities abroad (Pull
Factor), that’s why they prefer to go abroad for work. On the other hand
there were few respondents (3%) who prefer foreign employment because
of the Terai Insurgency. Other reasons for their foreign Employment
include, peer pressure and spillover Effect.
Fig-16 Reasons for Foreign Employment
4.13 Education Qualification of the Emigrants
The Number of emigrants with education level of Secondary level
education have migrated to abroad, the most (52%).The secondary level
education in this study refers to the education in between Class 5-10.Most
of them have not completed their SLC. Once they fail in SLC they prefer
to go abroad and start earning for their family. As they grow more older
and began to feel more pressure from the family to fulfill the consumption
needs, eventually they go abroad at their early 30’s.The study showed that,
Push
Factor
67%
Pull
Factor
24%
Terai insurgency
3%
other
6%
Andere
9%
Reasons For Foreign Employment
29
12% of the emigrants can simply read and write their names (Pre-
Primary).Whereas 15% of the have completed their primary Schooling (up
to class-3).And the most interesting fact is that 21% of them are illiterate
i.e. neither they can read nor can write. It’s the amazing adaptation
capacity of Nepalese people to work abroad even though they can’t read or
write. One of the Respondents added, “We know it is very risky and
difficult for us; especially for the illiterates to work abroad, but we are
ready to undertake that risk for the sake of our family members. We have
no other option”. Just after the moment he said that, tears began to roll
from his eyes. That was a dreadful moment.
Fig-17 Education Level of the Emigrants
4.14 Destination Country of the Emigrants
The study shows that, the destination countries of most of the Nepali
emigrants of this area are the Gulf countries(76%).They have migrated to
different gulf countries like Qatar and Kuwait, where they have to work
under extreme high temperatures (40 Degree+).After Gulf, the Asian
Countries (18%) are the other attractive destination for Nepali Migrant
Workers (Like Malaysia).To be specific on the South Asian Perspective
3% of the Nepali Migrants from this area have gone to India for
Employment. And similar is the case with the European country
(3%).This study doesn’t account for the seasonal or cross-border
migration between Nepal and India. Emigrants who have stayed for at
least one year in foreign land are counted as emigrants during the course
of this Study.
21%
12%
15%
52%
Education Level of the Emigrants Illiterate Pre-primary primary Secondary
30
Fig-18 Destination Country of the Emigrants
4.15 Type of Employment
The dream of every Emigrant is to earn bread for their Family. They are
the bread winner for their family. In this course, they have to work under
different and difficult circumstances. Though they get paid less, they keep
on working. Most of the emigrants of this area are working as labor
(61%) and cleaner (27%) in the course of their Foreign Employment.
Only 9% of them perform table work and merely 3% of them work as a
driver.
When it comes to type of employment or work, skill is associated with it.
You have to have good skills if you want to have a good job. That’s the
simple basic formulae. Nepali Migrant workers in one hand do not have
enough education; on the other hand they don’t have technical know-how.
As a result of which, they can only do labor work easily. If we deal in
Macro level Economy, we have to look after, what can our Nation really
benefit from these migrant workers, besides relying on them for
Remittance? The answer to the question is “Skill Transfer”. But this is not
happening in the case of this area, because there is no skill that can be
learned from a labor. Besides these, few emigrants perform table work
and few are drivers. There is possibility that, we can learn something
Gulf
76%
India
3%
Asian
18%
European
3%
Desination Country of the Emigrants
31
from them (table worker & Drivers) and we can utilize that knowledge for
our own benefits, herein Nepal.
Fig-19 Type of Employment
In the course of their foreign employment Most of the emigrants have
spent years in foreign land. Majority (58%) of them came back to Nepal
within 1-2 years. The main reasons for that are either, Frustration with
their work or End of the Work permit (Visa).There are 18% people among
the respondents who have stayed 3-5 years in abroad. After 3 years every
migrant worker has to renew his work permit if he wants to continue to
work at the same place. The main reason behind the extension of the work
permit might be to work more so as to earn more and to support their
family.
Fig-20 Duration of Stay of the Emigrants
61%
3%
9%
27%
Type of Employment
Labour Driver Table work Cleaner
58%
12%
18%
12%
Duration Of Stay 1-2 years 2-3 years 3-5 years 5 +
32
4.16 Channels Used While Sending/Remitting Money
Fig-21 Channels Used while Sending/Remitting Money
The study site has a centrally located Commercial Bank Operating in its
area (HBL).All the remittance received/sent are carried out via this Bank.
That’s why the 100% use of Formal channel in this study site can be
assured. People use Himal Remit in this locality to receive money from
abroad. They said, we just go to the bank and get our money because it’s
very easy and real quick than other informal channels.
4.17 Yearly Remitted Money on an Average
The yearly remitted Money on an average refers to the average amount of
Remittance sent by an individual Emigrant Nepali Worker in a year.12
workers (37%) out of the total respondents send remittance worth 100-150
(‘000) each year. Similarly, 7 respondents i.e. 21% of the total respondents
send remittance worth 50-100 (‘000) annually.15% of the respondents (5)
send remittance worth 200-250(‘000) every year. On the basis of this data it
can be concluded that, the average amount of money that a Nepali migrant
worker send to this area annually is around 1, 20,000.00.(One Lakh Twenty
Thousand).But it’s still not being sufficient to meet the consumption needs
of the family and they have their head backed up with extra burden of
loans.
formal
100%
informal
0%
Channels Used While Sending Money
33
Fig- 22 Graphical Representation of Yearly Remitted Money
Fig-22.1 Representation of Yearly Remitted Money in Pie-chart
0 2 4 6 8 10 12
50-100
100-150
150-200
200-250
250-300
300-350
350+ Datenreihen1; 2
Frequency
Ye
arl
y R
em
itte
d M
on
ey
in
'0
00
Yearly Remitted Money
50-100
21%
100-150
37%
150-200
12% 200-250
15%
250-300
3%
300-350
6%
350+
6%
Andere
15%
Yearly Remitted Money in'000 (Average Value)
34
4.18 Consumption Pattern of the Emigrants Household
Fig-23 Consumption Pattern of the Emigrants Household
The indicators of consumption taken into consideration in the course of
this study are Consumption expenses on: Food Items, Health and Clothing
Expenses, Consumption on Education, Money consumed for the purpose
of Infrastructure Development followed by consumption on Socialization
and Luxury These indicators of consumption for this study are set in
accordance with the National Income and Product Account of the United
States (US Bureau of Economic Analysis, BEA).
Consumption on Food items includes all the expenses that took place
while buying all edible food items (like: rice, pulse and cereals, beans,
edible oil, wheat and flour). Health expenses include those expenses that
occurred during the medical attention and treatment of the family
members. Clothing expenses include all those expenses occurred while
buying clothing’s for family members. Similarly the consumption on
Infrastructure development includes all the expenses occurred in the
development of physical infrastructures like installation of bio-gas plant,
solar plant installation, building of new house or even toilets/bathrooms,
and money used while buying land. The money consumed on religious
purpose like: Marriage Ceremony, Bratabandha are covered under the
category of Socialization. Whereas the money spent on buying
Food
18%
Health
5%
Clothing
2%
Education
8%
Infrastructure
Development
31%
Religious
purpose
11%
Facilities/luxur
y
25%
Consumption Pattern of the Emigrants
House Hold
35
Motorcycles, Tractors, Air Condition Installment in House are covered
under the category of Luxury.
The above picture portrays the clear picture of the consumption pattern of
the Emigrants Household. Huge chunk of Remitted money (31%) is used
in the development of physical infrastructures. Development of physical
infrastructures includes all the expenses occurred while: Buying Land,
Building House, Bio gas plant installation and solar plant Installation.
Majority of the people invest their money in Land in this area. Thus,
acquisition of land (buying of land) is the significantly affected variable by
the remittance inflow.
Though, this area is situated in very rural setting. It was quite surprising to
know that, almost all of the respondents have Motorcycles at their Home
though there is no use of motorcycles in their daily life except for
wandering here and there. Buying of such vehicle falls under
luxury/facility category of consumption. The level of consumption under
this category in this area is approximately 25%, which is more than the
consumption on food items which is only 18% of the total Remittance
Amount. The consumption of Religious activity is comparatively higher in
this area because the cost associated with marriage ceremony is
excessively high because of the dowry system. Consumption on Religious
matters comprises 11% to the total consumption. The consumption of the
people in health sector is relatively low i.e. 5%, which indicates that,
people are healthier in the study site. Similarly, the consumption on
education in this area tends to be only 8% of the remittance Amount. Out
of the 33 HH surveyed, all of them have at least 1 school going children.
This indicates that, the people in the study site are aware about the need of
Education. But the consumption on education seems to be less because the
children’s are now studying at primary level in their nearby schools.
The people in this area conscious enough t send their son and daughters to
nearby school. One of the respondents added, “My daughter just loves
reading her text books. She finishes her household work fast and start
reading her books. How could I not let her study? After all, she is the only
36
one child I have got.” She burst into tears saying that and she believes that
educating the children is the best gift from parents to their Children.
4.19 Investment Made by the Respondents: Utilizing Remittance
Fig-24 Investment Portfolio of the Emigrants Household
In the course of this study, Carlings Model of Investment linking
Remittance with development is used as reference. The model tries to
interlink the use of current remittance for future perspective by means of
saving and investment. If, remittances received today are just spent on
consumption, future consumption needs to be financed by future
remittances (or other sources of income). However, if remittances are saved
or used for investment, this could assist in financing future consumption.
Collective investment in development projects will not result in direct
future returns to the individual investors; however, this would directly
benefit the community. When remittances are saved in financial
institutions, this augments credit availability and can enable entrepreneurs
to realize investments that have a positive impact on development. This
could be a more realistic way of stimulating investment by the utilization of
inward remitted money. This is Carlings Model of Remittances-
53%
27%
5% 1%
4% 10%
Investment Portfolio of the Emigrants
Household
Livestock polutry
Cashcrop Shops/Hotels
Business/Service Sector Money lended to others
37
Development Linkages. The investment indicators in this study are further
divided into sub categories like: Investment in Livestock, Poultry Business,
Agriculture, Hotel Business, Service Sector Business, Manufacturing
Business, and Tourism Business. The study also includes Money lent to
others (if any) under the investment category, because people can receive a
constant return from the money lent to others in the form of Interest.
The above diagram shows us that 53% of the investment is made in the
livestock sector. As mentioned earlier, this study site is located in a rural
setting, where it’s easy to look after the livestock’s. There’s enough grass,
where the livestock’s can be feed upon. The people of this area mainly
invest on Ox, cow and Buffalo since their market price is high these days.
Until they sell their livestock’s, they harvest milk from cows and buffaloes
and they use Ox to plough their fields.27% of the investment is made on
Poultry farming. Similarly, the money lend to others by the local
respondents comprise of 10% of the total investment portfolio. They lend
money to others at 36% rate of interest. 5% of the investment is made on
cash crops whereas only 4% is made on the service sector and the rest of
the 1% is made on small shops.
If the productive sectors like Investment in: Livestock, Cash crops and
service sector receive more investment from the respondents, then there is
possibility that they can certainly benefit from it. Since, the demand for
livestock’s is always increasing in Nepal; people can make good money out
of the investment in this sector. Similarly, cash crops also have a very high
demand in the market. If they can increase the investment in this sector,
their production and sale can rise up and simultaneously optimum profit to
the investor can be achieved.
38
4.20 REGRESSION ANALYSIS
CASE-I
To see whether the total investment depends on the total remitted amount or
not following log linear regression model is used considering natural log of
investment as the dependent variable and natural log of remittance amount
as the independent variable.
Here …………………(i)
Where,
is the error term.
The regression is run using the MS Excel and following output is
obtained.
SUMMARY
OUTPUT
Regression Statistics
Multiple R 0.053032429
R Square 0.002812439
Adjusted R Square -0.037075064
Standard Error 1.365297067
Observations 27
Coefficients Standard
Error
t Stat P-value
Intercept 9.492460254 5.947849136 1.595948 0.123065
X Variable 1 0.132070158 0.497372308 0.265536 0.792774
Thus our fitted log linear model is as follows: The above model suggests positive relation between the total remitted
amount and the total investment. As the remitted amount increases by 1
percent, the investment increases by 0.13%.
39
Now to test the significance of our model we develop the following null
and alternate hypothesis: Two tailed t-test is used for the purpose of the significance test with 5%
level of significance. From the above output we have, 0.265536
The table value of t at α=5% and df=n-1=26-1=25, is t = 2.060.
Since, the test statistics t = 0.265536 is less than ⁄ , we fail to reject the
null hypothesis and conclude that the remitted amount has no significant
effect on the investment amount. This result suggests that investment made
by the migrant's family is not dependent only on the remitted amount. There
are many other factors such as political situation of Nepal, business climate
to name few that may affect the amount of investment made by household
which is not accounted by the model that we have used.
Analysis on “R”
From the above output, R2 = 0.002812 i.e only 0.2% of the variance in
investment is explained by the model. Also as our R is very less, it indicates
that, there is very low correlation between the dependent and independent
variables
40
CASE-II
To see whether the total consumption depends on the total remitted amount
or not following log linear regression model is used considering natural log
of consumption as the dependent variable and natural log of remittance
amount as the independent variable.
Here
………………(i)
Where,
is the error term.
Coefficients
Standard
Error t Stat P-value
Intercept 10.96988214 4.883085786 2.246506127 0.033748423
X Variable 1 0.141764284 0.40833444 0.347176897 0.731364108
Thus our fitted log linear model is as follows: The above model suggests positive relation between the total remitted
amount and the total consumption. As the remitted amount increases by 1
percent, the consumption increases by 0.14%.
Now to test the significance of our model we develop the following null
and alternate hypothesis:
The regression is run using the MS Excel and following output is obtained. SUMMARY OUTPUT
Regression Statistics
Multiple R 0.069269 R Square 0.004798 Adjusted R Square -0.03501
Standard Error 1.120886 Observations 27
41
Two tailed t-test is used for the purpose of the significance test with 5%
level of significance. From the above output we have, 0.347176
The table value of t at α=5% and df=n-1=26-1=25, is t = 2.060.
Since, the test statistics t = 0.347176 is less than ⁄ , we fail to reject the
null hypothesis and conclude that the remitted amount has no significant
effect on the Consumption made. This result suggests that Consumption
made by the migrant's family is not dependent only on the remitted amount.
There are many other factors such as Increase in family size, other internal
source of income, that may affect the amount of Consumption made by
household which is not accounted by the model that we have used.
Analysis on “R”
From the above output, R2 = 0.004798 i.e. only 0.4% of the variance in
consumption is explained by the model. Also as our R is very less, it
indicates that, there is very low correlation between the dependent and
independent variables
CHAPTER-5
CONCLUSIONS AND RECOMMENDATIONS
42
The emigrants of this area are earning very low as compared to their
consumption needs. As a result of which, they can’t save money for future
reference. Increased flow of remittance has increased the consumption level
of the respondents but the habit of saving among them is not yet developed.
And this is all because of lack of financial literacy. The problem in this area
is that, the emigrants are not earning enough to fulfill the consumption
needs. This is because they have a family size of 5-10 members on an
average. Moreover, there is enough inflation in the Nepali market as a
result of which, consumable goods are price hiked thrice a year. The people
don’t have knowledge on how to make appropriate expenditure decisions
i.e. they lack financial literacy as a result of which there is haphazard
utilization and mobilization of the fund.
The productive areas are receiving very less amount of investment because
most of the income is spend on the consumption. Speaking of the current
scenario of Raghunathpur VDC, very less amount of Remittance is
mobilized in Productive use; money lent to others is only 10% and
investment made in Business/Service sector is only 4% on an average.
However it indicates that, if there is surplus income, then the investment on
such productive areas can be increased.
The Possible Causes for Less Productive Use of Remittances in the study
site i.e. the reasons as to why migrant workers do not invest in productive
uses:
a) Paucity of promotion support in terms of information, advisory, training
and other services pertaining to investment in new and potentially
successful sectors;
b) Less risk involved in the purchase of land and construction of houses;
c) Hardly any knowledge on investment opportunities;
d) Top priority accorded to household expenditure;
e) Lack of expertise in the remittance receiving household for undertaking a
business; and
f) Lack of investment-friendly climate.
43
Under these circumstances, it is highly recommended that the cooperatives
and other MFI’s must increase their outreach in such areas. The
government must support enterprise development. The government must
amend policies regarding the foreign employment situation and must
provide the potential foreign employee with proper vocational trainings and
help them to enhance their capacity. The government must come up with a
proper National level policy regarding different issues on their security,
safety and Insurance. There is a whim among the people in the rural sectors
to go abroad; the government must disseminate enough information related
to foreign employment and migration using various channels of
communication to stop the whim & brain drain. The local authorities must
increase awareness activity to get control over the spillover effect. This
current situation of HR export doesn’t benefit anyone, neither the
remittance receiving household nor nation in the long run. Because most of
the exported HR are in the form of labor and there can be no skill transfer
from such labors. The reason why Nepali human resource is mainly used as
a labor force is because, they are illiterate and most of them do not have
proper trainings. Hence, the government must provide the vocational
trainings to those who are about to go on Foreign employment.
The Government intervention is much needed here to put more focus on
increasing the literacy level of Potential Migrant workers. The government
has to come up with a policy like; you have to have a certain level of
educational qualification if you want to go abroad to work as an Emigrant.
This must be made mandatory so as to stop the flow of illiterate HR in
neighboring and International market economies.
Thus the study indicates that there is no significant capitalization of
remittance in productive use, as investment in Productive sectors is very
less (As explained by Fig-24).
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44
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www.investopedia.com/terms/d/demanddraft.asp ANNEXES
Annex-1
46
Capitalization of Remittance for Productive Use: A Case of Raghunathpur VDC
of Dhanusa District, Household Survey Questionnaire, 2014
1. General information of Respondent
101. Name of the Respondent:
102. Sex: 1. Male 2. Female
103. Age:
104. Education
105. Religion:
106. Occupation:
107.Number of School going children’s: 108.Number of Senior Citizens :
109. Number of Family Members:
110. Address:__________________________ Raghunathpur VDC, Dhanusa
2. Information about remitter
201. Did the remitter go abroad on his/her self investment?
1. Yes 2. No
202. If, No then how did he/she obtain the loan?
1. Relatives/Friends 2. Banks/ Finance Companies 5.Others
3. Cooperatives 4. Landlords
203. If the loan was obtained from financial institution, what was interest rate?
……………………..
Detail information of the emigrant
S. No
204. Name of Emigrant
205. Sex
206. Age
207. Education
208. Destination Country
209. Type of employment
210. Duration Of Stay (Years)
211. Yearly Remitted Amount (NPR)
212. Channels used while sending money (please tick)
1
2
3
4
5
Sex: (1) Male (2) Female, Age: 1( 15-20 years old) 2 (20-25 years old) 3(25-30 years
old) ,4 (30-50 years old) 5 ( 50 years and above ) Educational Qualification: (1)
Illiterate (2) Pre-primary (3) Primary (4)Secondary (5) Higher Secondary (6) Bachelors
and Above, Destination Country: 1 (Gulf Countries) 2(India) 3(Asian Country ) 4(Euro
Zone ) 5(others; specify) Type of employment:1(labour), 2(driving), 3(Table work)
4(Care Giver’s) 5 (if any others, please specify, Duration of stay : 1 (1-2 years) 2( 2-3
years) 3(3-5 years) 4 (5 years and Above ) Remittance channel : 1(Formal) 2 (Informal),
205. What was the reason for foreign employment?
1. Because of Unemployment in Nepal [Push factor]
47
2. Employment opportunities abroad [Pull Factor]
3. Because of the Insurgency in Terai Area of Nepal
4. It was his/her dream to go abroad
5. Any other reasons (Specify)…………………………
3. Please provide the details of your expenditure, saving and investment Activities under
the following Categories with utmost good faith
Consumption category Amount (NPR)
301. Food
302. Health
303. Clothing
304. Education
305. Infrastructure Development ( e.g. Building house, Bio-gas, buying of land, )
306. Religious purpose (Socialization)
307. Facilities (Vechile purchase, AC )
308. Total Consumption
309. What is your net saving per year? ............................................
310. Where/How is the saving being made? What are the benefits of saving in that particular
FI?
___________________________________________________________________________
___________________________________________________________________________
______________
Investment
Items Amount (NPR)
311. Livestock
312. Poultry
313. Cash crop
314. Shops/Hotels
315. Business/Service Sector
316. Manufacturing Business
317. Tourism Business
318. Money lended to others (if any ?)
318. Total Investment
4. In which aspect of yours you find change in because you are back from abroad? And
how much?
Aspects
Change Experienced (Rating)
0 (No) 1(little) 2(moderate) 3(Extremely Good)
401. Field of Technical Knowledge
402. Economical Aspects
403. Psychological Aspects
Thank you for answering the questionnaires
Annex-2
48
Study Site
(C) REGMI_Milan014
N
10
Annex-3
Photo-1 : Field Survey
49
Photo 2: Respondents posing for photograph with souvenirs
Photo 3: Office of Sana Kisan Thatha Rin Sahakari Santha