A C A S E O F R A G H U N A T H P U R V D C O F D H A N U S A D I S T R I C T

Capitalization Of Remittance For Productive Use

P R E S E N T E D B Y : R E G M I M I L A N

N A T I O N A L C O L L E G E , C E D ’ S

University Registration No: A01251110

Roll No :518

BDFin 2010-2014

K AT H M A N D U U N I V E R S I T Y

regmimilan7@gmail.com

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What is Remittance ?

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Remittance refers to the transfer of Money by a foreign worker to his/her

home country.

Money transferred

By an individual who has emigrated from the country of

Origin

To relatives who remains at home

• Transfer of funds with in the same country

• Usually, urban to rural

Domestic Remittance

• It involves emigrants sending money their native nations.

• Cross border transfer of funds

International Remittance

Types of Remittance

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History of Migration and Remittance Inflows

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The migration of Nepalese workers: particularly to India.

Later in the 19th century: “Gurkhas” soldiers earned the

ranks of the British and Indian armies.

A massive shift happened much later, starting in 2000,

driven by both push (Maoist insurgency in Nepal) and

pull factors.

In 1996, 6 workers left legally each day. By 2013 that

number was multiplied by a factor of 200. (mention the

%)

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Productive Use

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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.

Statement of the Problem

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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.

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RATIONALE OF THE RESEARCH

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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.

78.9% of the remittance is being used in daily consumption-NLSS (Followed by loan repayment)

Only 2.9% of the total remittance is used for capital formation.

In this regard, the rationale of this research is to access the current scenario of a particular VDC of Nepal, in terms of capitalization of remittance for the productive use (investment).

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Where is Remitted Money Going?

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C= Consumption

CF=capital formation

O=Others (loan repayment, Socialization)

18.2 % O

78.9%

C

2.9%

CF

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OBJECTIVES OF THE RESEARCH

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General Objectives:

To assess the status of remittance capitalization in Raghunathpur VDC,

Dhanusa district.

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.

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SCOPE OF THE RESEARCH

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The research was carried out in the central Terai of Dhanusa district in Raghunathpur VDC, ward no 5.

No of Household :2732

Area :25.4 sq Km

Sample Size :30

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SCOPE OF THE RESEARCH

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N

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LIMITATIONS OF THE STUDY

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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.

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LIMITATIONS OF THE STUDY

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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.

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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.

LIMITATIONS OF THE STUDY

Chapter-2 Review Of Literature

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REMITTANCE TO NEPAL

Workers remittance is now consider as a backbone of our economy.

The upsurge in remittances had led to a surplus in the current account, thereby strengthening the overall BoP position.

According to the NLSS 2010-11, 55.8 % of households receive remittance, with each household receiving an average Rs 80,436 per year.

If the individuals that are currently receiving remittance had the payments cut, their poverty level would be at 35.3 %, compared to 19.3 % currently

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GDP & Remittance: Understanding

GDP

Remittance

Fig –I

Misconception,

Remittance is not included in the GDP

Total GDP

Fig-II

GDP And Remittance are different things.

The portion of the remittance can be compared to the

total size of the GDP.

For instance, The size of remittance in Nepalese

economy is equivalent to 33% of the total GDP.

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Remittance Inflow And Its Ratio to GDP

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0

50

100

150

200

250

300

350

400

450

500

2008/09 2009/10 2010/11 2011/12 2012/13 2013/14*

Ac

hs

en

tite

l

Remittance Inflow

Ratio to GDP

Remittance Income

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Saving Education

Health Consumption

BuildingHome

InvestinAgriculture

Livestock

RepayLoan

Other

Rural 4.7 14.5 7.6 37 7.3 0.8 1.3 23.1 3.9

Urban 19.5 26.3 8.5 22 9.3 2.5 0 2.5 9.3

0

10

20

30

40

50

60

70

Re

mit

tan

ce

in

%

Source: DFID, ILO and ADB: Nepal critical Development Constraints, p.89,quoted from ferrari ,Jaffrin and Shrestha (2007)

Use of Remittance By Area & Expenditure (in%)

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Remittance And BoP

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The remittance amount has increased significantly from 2004 to 2013 and is growing every year since 2004. This has grown from less than Rs 100,000 million in 2004 to more than 400000 million in 2013. The current account and balance of payments grew steadily from year 2004 to 2009.

Contd..

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However, these amounts declined in the year 2010 and 2011. In these two years, current account was negative.

Both current account and balance of payments have improved in the year 2012. But again in 2013, these amounts have worsen. The BoP has decreased almost by half in 2013 compared to 2012.

Modes and Instruments used in Remittance

Business

Swift (Society for Worldwide Interbank Financial Telecommunication)

Telex

Demand Drafts

Fax Transfer

Online Remittance

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SWIFT

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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

Demand Drafts

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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.

Telex

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It refers to international telegraphic message-transfer

service consisting of a network of tele-printers.

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.

Destination Country and Remittance Inflow

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Remittance Recepient Matrix,Nepal

Australia

Brunei Darussalam

Canada

India

Japan

Korea, Rep.

Qatar

Saudi Arabia

Thailand

United Kingdom

United States

Germany

The figure 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.

Source: Bilateral remittance matrix, 2012, may 2013 version, WB).

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The Ghost Town Phenomenon ??

Indicators used In the Study

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).

The Conceptual frame work follows the Carlings Model of Remittance –Development linkages.

Research Methodology

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Sampling Method: Judgmental sampling (Non-probability) is used to

determine the sample required for this area. I.e. sample size of 30 from

Raghunathpur VDC ward no 5

Data Source: The data required for this study were obtained by using a

structured interview, and Household questionnaire.

Primary Data collection Procedure: During the course of this study, only

remittance receiving household were selected and data was obtained by

conducting Household survey of the study site.

Data Processing : Thus obtained primary data were first checked for errors.

After that, it was classified into different groups along with their frequency

table.Mathemaical average were obtained and were transformed into

geographical diagrams.

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Data Analysis: Mainly descriptive analysis is used in this study. Besides that a regression analysis is also performed to find out whether or not there is relation /dependency between Total remittance amount, total Investment amount and total Consumption.

Statistical Inference testing: As the sample size is small (n=30), t-test is used to test the hypothesis while conducting the bivariate regression analysis.

Tools used For Analysis : Microsoft Excel-Data Analysis tool pack is used for the Analysis of the Data.

Did the remitter go abroad

on his own Investment?

Loan Obtained From

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Presentation And Analysis of Data

Cooperatives 81%

landlords 19%

yes 6%

No 94%

Objective 1: The situation of migration and foreign employment in Raghunathpur, VDC

Sex of the Emigrant

Age group of the Emigrants

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30

Objective 1: The situation of migration and foreign employment in

Raghunathpur,VDC

male 100%

female 0%

12%

18%

9%

37%

21%

3%

15-20 20-25 25-30 30-40 40-50 50+

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Push Factor 67%

Pull Factor 24%

Terai insurgency

3%

other 6%

Andere 9%

Reasons For Foreign Employment

21%

12%

15%

52%

Education Level of the Emigrants

Illiterate Pre-primary

primary Secondary

Objective 1: The situation of migration and foreign employment in

Raghunathpur,VDC

Desination Country of the

Emigrants

Type of Employment

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Gulf 76%

India 3%

Asian 18%

European 3%

61%

3%

9%

27%

Labour Driver Table work Cleaner

Objective 1: The situation of migration and foreign employment in

Raghunathpur,VDC

Yearly Remitted Money

in'000 (Average Value)

Channels Used While Sending

Money

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50-100 21%

100-150 37%

150-200 12% 200-250

15%

250-300 3%

300-350 6%

350+ 6%

Andere 15%

formal 100%

informal 0%

Objective 1: The situation of migration and foreign employment in

Raghunathpur,VDC

Consumption Pattern of the

Emigrants House Hold

Investment Portfolio of the

Emigrants Household

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Objective 2&3: Consumption and Investment

pattern (trend of utilization)

53%

27%

5%

1% 4% 10%

Livestock polutry

Cashcrop Shops/Hotels

Business/Service Sector Money lended to others

Food 18% Health

5%

Clothing 2%

Education 8%

Infrastructure

Development

31% Religious purpose

11%

Facilities/luxury 25%

Regression Analysis Case-1

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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.

After , running the data in the excel data analysis tool pack, our fitted loglinear

model is :

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%.

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•

Two tailed t-test is used for the purpose of the significance test with 5% level of

significance. From the above output we have, t=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 house hold which is not accounted by the model that we have used.

Now to test the significance of our model , we develop the following Hypothesis.

Regression Analysis –Case-II

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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.

The regression is run using the MS Excel and fitted log linear

model is thus obtained.

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:

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Two tailed t-test is used for the purpose of the significance test with

5% level of significance. 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.

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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.

Conclusion & Recommendations

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Land purchase is significantly affected variable.

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.

Saving habit of among recipients is not yet developed. And this is all because of lack of financial

literacy.

In this regard, the cooperatives and other MFI’s must increase their outreach in such areas.

The local authorities must increase awareness activity to get control over the spillover effect.

The government must provide vocational trainings to those who are about to go on Foreign

employment so as to harness their skill transfer in the long run.

The productive areas are receiving very less amount of investment because most of the income is

spend on the consumption.

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Thank You for your Patience

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