To support Nepal’s reconstruction, waive remittance fees
Simply waiving the fees for a few months could allow in more money from the Nepalese diaspora than the UN’s attempt to help
By Ngozi Okonjo-Iweala and Dilip Ratha
The flash floods that struck Nepal on Aug. 26 killed more than a thousand people and destroyed livelihoods, homes, farms and public infrastructure. With reconstruction and the economic recovery underway, support for the survivors can travel quickest through payment networks and family ties — as is often the case when disasters strike developing countries.
By waiving fees on these remittances for at least two months, money-transfer companies and banks could help Nepal move from rescue and relief toward reconstruction. Struggling Nepalese families would receive more than two and a half times the US$49.6 million that the UN is trying to raise through its emergency appeal.
Nepal is one of the world’s most remittance-dependent economies. Remittances exceeded US$16 billion in the last fiscal year, equivalent to more than a quarter of GDP. More than 3.5 million Nepalese work abroad, and the global Nepalese diaspora numbers more than 6 million — 20 percent of the country’s population. These expatriates are sending financial help to families in the affected districts, as are people and charitable organizations of many nationalities. These transfers could be worth more, and could bring greater relief, if they are allowed to move free of charge.
Remittances are a lifeline. Families use this income for groceries, medicines and healthcare. For a flood-displaced household, such transfers are what puts a meal on the table and pays for antibiotics that a relief camp cannot supply. Even in normal times, a share of remittance income goes directly into housing.
In the weeks ahead, remittances could help rebuild houses, school buildings, and village roads. They could keep children in the classroom, help businesses cope, and restore livelihoods by restocking destroyed shops, replacing lost livestock and replanting flooded fields.
The remittance industry has waived fees before in response to natural disasters, including after Haiti’s earthquake in January 2010, Pakistan’s floods in 2010, the Philippines’ typhoon in November 2013 and Nepal’s earthquake in April 2015. During the three months following the earthquake, remittances to Nepal increased by 18 to 26 percent from the previous quarter, and it is estimated that a fee waiver was worth US$40 million to US$50 million per month to Nepalese families.
Some of Nepal’s own money-transfer companies have already led the way, but only for a short period. What is needed is for the international money-transfer operators and banks that handle the bulk of Nepal’s inbound remittances to do the same.
A fee waiver would be worth even more this year than it was in 2015. According to Nepal Rastra Bank, remittances to Nepal averaged US$1.5 billion per month during the past two months, up almost 25 percent from a year earlier. If remittances continue at this pace and rise by another 20 percent over the next two months — in line with the 18 to 26 percent surge seen after the 2015 earthquake — it could reach about US$3.6 billion. A fee waiver would then amount to US$126 million to US$144 million, assuming an average fee of 3.5 to 4 percent for sending US$200. And since actual fees can rise to 6 to 12 percent on some remittance services, the savings could be even larger.
In addition to being several times greater than the UN’s appeal to raise almost US$50 million, such a contribution would be timely and targeted, because the money would be disbursed directly from overseas relatives to the households that know where it is needed. It is likely that a fee waiver would increase remittance volumes through formal payment networks.
The cost borne by money-transfer companies and banks that choose to help the Nepalese in their time of need is entirely manageable. In fact, the revenue forgone in the near term by waiving fees could bring new customers, increase transfers through formal channels, and earn lasting goodwill from families rebuilding homes, farms and livelihoods. After a disaster of this scale, keeping more of every remittance in the hands of Nepalese families is the right thing to do — and sound business.
Ngozi Okonjo-Iweala, a former foreign and finance minister of Nigeria, is director-general of the WTO. Dilip Ratha is CEO of Ratha Global, an advisory and analytical services firm that specializes in remittances, cross-border payments, diaspora bonds and development finance.
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