Utilizing remittance to create lasting change

Awareness raising at the Indian border during Migration Day - Credit: Oxfam

By Rigendra Khadka, Program Coordinator

What if poverty forces you to migrate for work and you are unable to send your salary back home just because your family lives in a remote place where no banks or remittance service provider can be found? 

This is a persistent problem in Nepal, where 10% of the people are believed to work as migrant labourers in The Gulf, Malaysia and other countries. No wonder Nepal is the world's third highest remittance recipient in relation to the size of its economy. However, only 3% of the remittance gets financed and invested in enterprise development. In the absence of access to credit and others kinds of essential support, hard earned income tends to be used for repaying high interest migration loans and hand to mouth purposes. 

In a novel approach, Oxfam’s Food and Economic Justice program piloted a remittance-based product to rural cooperatives for capital accumulation so that it can provide enterprise loans to women farmers. 

Within six months, we have seen several remarkable changes.

A quarter of Nepal’s GDP

Rural enterprise development is a key to poverty alleviation in Nepal as the government’s 13th Development Plan includes micro-enterprise development as part of strategy for poverty reduction.
As a country suffering from chronic poverty, remittance is Nepal’s major income earner, contributing more than 25 percent of the Gross Domestic Product (GDP). At the same time, more than 80 percent of Nepalese live in rural areas, where banking and financing facilities are not accessible.

But cooperatives are everywhere. The country has more than 20,000 cooperatives with a significant presence in rural areas. The problems these cooperatives are facing is a lack of financial stability and capacity to cater for enterprise loans, insurances and credits in times of natural disasters.

In a 2012 Oxfam study 70.7 percent of respondents revealed that lengthy procedure and unavailability of loan providers are major challenges in accessing loans. Another 15.5 percent could not afford available loans due to high interest rates. Moreover, the management of recordkeeping of rural cooperatives tends to be unorganized resulting in poor data management and problems of transparency and creditability.

This creates a domino effect. The cooperatives can neither provide easier and safer remittance transfer services nor introduce schemes to convert remittances into savings. Ultimately, in absence of large savings and on-lending from the commercial banks, they are unable to invest in local enterprises that create jobs, improve local economy and reduce poverty.

Creating a lasting change

To address the issue, Oxfam’s Food and Economic Justice program piloted a remittance-based product to a rural cooperative for capital accumulation so that it can provide enterprise loans to women farmers. Oxfam’s sustainable livelihood intervention has helped launch more than 50 rural agricultural and saving and credit cooperatives which serve at least 25,000 families with financial access and enterprise development.

Last year Oxfam signed an MOU with Prabhu Bank Limited, a leading remittance service provider company in Nepal, to support cooperatives by including remittance service and strengthening their financial management capacity. Oxfam and Prabhu Bank in 2009, collaborated to support a cooperative in Kapilvastu District as a pilot project operating saving and credit for its members.

While Oxfam provided financial management training and installment services, Prabhu supported software for remittance service operation and provided training to staff on how to operate the software. The cooperative gets connected via Internet.

Within six months, we have seen several remarkable changes.

The cooperative has been able to receive NPR four million (£251.140) remitted by 98 villagers who are working in Gulf countries and India. They now send money directly to the savings account of their wives who are the members of the cooperative and send money to their children who are studying in different cities. The cooperative also provides SMS to recharge mobile phones of the members in the villages.

Those who obviously enjoy this new service the most are women. In the past, they had to spend hours traveling to a city to collect the money and forward it to their children in another city.  At present, the cooperative has 931 members, 70 percent of them women.

The Cooperative's latest service, a disaster relief scheme, has been a great boon in a country which ranks as one of the world’s most disaster-prone. Members can get an interest-free loan up to NPR 20,000 ( (£126) for a year in case of disaster or injury from accident. Members also can get loans worth up to NPR 200,000 (£1260) at an interest rate of 12% for enterprise development - an increase of more than 500% compared to earlier loans, thanks to the availability of liquid cash. Now, the cooperative is planning to issue check books and ATM cards by connecting itself with wider banking networks and introduce insurance schemes for its members.

Next big step

The pilot project is a great experience and learning for everyone. We have learned that rural cooperatives with financial management system and remittance operations are a key to migrant families’s access to financial and enterprise services. They provide a social safety net for members during crisis periods. Members can also establish a social enterprise provided market access, skill trainings and financial services are available.

We are now working with concerned agencies to replicate this model in other places. It is an exciting period for everyone to see true impact at scale.

Do you like to more about this novel project? Check out our learnings here.