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).

Bibliography

44

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Adolfo Barajas, Ralph Chami, Connel , Fullenkamp, Do workers Remittance promote

economic growth ?, IMF, WP, 2009

Anderson Shirley J., Sending Money Home: Remittance, University of Minnesota, pg-1, 2006

Bhattarai Binita, Booming Remittance & Stagnated Economy: Case Analysis of Nepal, pg-7, 2013

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in South Asia.

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http://www.searchcio.techtarget.com/definition/SWIFT http://www.vocabulary.com/dictionary/productive ICIMOD, Labor Migration and Remittance in Nepal: Case Study Report, 2010

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(www.financialnepal.com/news/detail/remittance-keeping-economy-afloat)

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of the GDP;

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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