Linking Remittances with Digital Financial Services
Ms. Audrey M. Misquith
Ms. Aliska Bajracharya
KM and Communications Consultant
We believe that the Nepali migrant workforce and their families are financially under-served and there exist opportunities for banks to design and offer products and services that solve real problems beyond money transfer transactions. Laxmi Bank is excited to join hands with UNCDF on this pilot and look forward to exploring innovative approaches and technologies to create solutions that can be scaled."
Mr. Ajaya B. Shah
CEO, Laxmi Bank
Migrants from low- and middle-income countries sent home USD 46 billion in 2017. Nepal, a country with 27 million people alone received USD 6.9 billion, equalling to 28.39% of the country’s gross domestic product in 2017. This figure is in stark contrast to the year 2000 when remittances inflows totalled USD 111 million. The steady growth in remittance inflows, a lifeline for millions of Nepal’s low-income people is ripe for digital disruption, with tremendous opportunities to deploy digital financial services (DFS) to cut costs  and expand greater access to remittance linked financial services for the recipients in country such as Nepal.
Nepal has witnessed the growth of a robust digital ecosystem with 50 licensed remittance companies. However, contrary to common belief, multiple research studies have indicated that remittance inflows have not necessarily aided in the socio-economic development of the country. Remittances are normally spent on household consumption and/or repayment of loans. Only a small portion is earmarked for future savings or productive investments which limits asset-building and capital formation. In addition, recipients, most of whom are low-income, can potentially build their credit profiles using remittance transaction histories to access microloans and other financial services, at affordable rates through DFS. Thus, UNCDF has conceptualised a greenfield intervention with a customer-centric approach to develop remittance-linked financial products. On the supply-side, this intervention will help banks and financial institutions build a stable deposit base that creates opportunities for investment and credit in the local economy.
UNCDF with technical assistance from Amarante Consulting is partnering with Laxmi Bank, a Class “A” commercial bank and its subsidiary microfinance institution to develop suitable savings and credit products that cater to migrant Nepalis and their beneficiary families back in Nepal. The end goals are:
-To direct the flow of remittances into short or long-term savings instruments and/or credit products that help generate income and assets.
-To explore credit products to support out-migration costs and meet short-term consumption needs such as payment of school fees.
For that purpose, UNCDF and Laxmi Bank will explore the potential of blockchain to facilitate cross border settlements to drive down costs and artificial intelligence-driven credit scoring technologies to originate and gauge customer creditworthiness. Marketing exercises that are adapted to the local context will be deployed to create the link between remittances and access to finance.
Mr. Ajaya B. Shah, CEO of Laxmi Bank states, “We believe that the Nepali migrant workforce and their families are financially under-served and there exist opportunities for banks to design and offer products and services that solve real problems beyond money transfer transactions. Laxmi Bank is excited to join hands with UNCDF on this pilot and look forward to exploring innovative approaches and technologies to create solutions that can be scaled.”
UNCDF and Laxmi bank will run a pilot in early 2019 for four months. The goal for the pilot is to enrol 400 savings and credit customers, at least 40% of whom are new customers for Laxmi Bank. Activity level in savings/credit accounts, end-use of credit and credit delinquencies are some of the other indicators that this pilot will aim to track. The emerging evidence from this pilot could inform potential course-corrections for a full scale-up in pilot corridors (Nepal-UAE and Nepal-Malaysia) as well as other geographies. The project’s objectives and tracking mechanisms aim to address four SDGs in particular namely poverty reduction (SDG 1), decent work and economic growth (SDG 8), reduced inequalities (SDG 10) and partnerships for the goals (SDG 17).
 The UN's Sustainable Development Goals include a target of cutting remittances fee to 3%.