Remitters ponder service charge subsidy to curb Hundi

KATHMANDU, Jan 8:

Remittance companies have said that the practice of bringing money into the country through informal channels like Hundi can be discouraged by providing incentives to banks and remittance companies who bring money into the country through formal channels.

“The government can offer subsidy or some sort of incentives like it does to the industries for export income. Such subsidy can encourage workers in foreign countries to remit money back home using formal channel instead of Hundi,” Suman Pokhrel, secretary of Nepal Remitters Association (NRA), said at an interaction in Kathmandu on Wednesday.

He also said many workers shy away from using formal channels to send money due to service charge involved in the transaction. "The government can provide subsidy to remittance companies on each transactions so that they can provide such service to the workers free of cost. Such incentives will obviously boost and encourage the practice of using formal channels,” he added.

He cited the example of Pakistan where Pakistan Remittance Initiative (PRI) has been formed to facilitate the flow of remittance free of cost and taxes. “Replication of Pakistani model will help discourage use of Hundi system as workers can send money home without paying any service charge," he added.

Remittance companies are currently levying service charges of 48 Riyal, 15 Diram and 15 Ringit on clients for each transaction made in Qatar, UAE and Malaysia, respectively.

According to the Nepal Rastra Bank (NRB), Nepal received a total remittance income of Rs 543.29 billion in 2013/14 compared to Rs 434.58 billion recorded in 2012/13. Officials of remittance companies estimate that another 25 percent to 30 percent of remittance is making way to the country through informal channels, mainly Hundi.

Meanwhile, government officials and experts have underscored the need for a strategy to funnel the remittance flow into productive sectors. “Remittance can have positive spillover impact in every sector, ranging from poverty reduction to the increase in enrollment in schools,” Surya Prasad Acharya, joint secretary at Ministry of Finance (MoF), said. “Now we should have to come up with a strategy to discourage families of migrant worker from making extravagant expenses and invest the money into productive sectors,” added Acharya, who also heads Economic Policy Analysis Division at the MoF.

NRA Secretary Pokhrel said that remittance and other private companies should be allowed to issue bonds to channelize remittance flows into productive sectors. “There should be a policy whereby companies can issue bonds targeting the migrant workers. The fund thus collected can be invested into productive sectors like hydropower, infrastructure and other projects,” Pokhrel, who is also the CEO of International Money Express, said.

Source: Republica