- The Nepalese central bank issued a circular that prohibits banks and remittance firms from releasing funds before the money reaches the country
- Remittance recipients will have to wait, according to the regulatory board
- Remittance delays can lead to the proliferation of informal financial instruments such as hundi
Recipients of remittances going to Nepal will have to wait for their funds until banks, financial institutions and remittance services get the green light from the central bank to release their money.
According to the central regulatory and monetary authority Nepal Rastra Bank, funds will only be given to recipients once the money is transferred to the country. The problem stems from a dispute between Nepal’s Himalayan Bank and Malaysian international money transfers and forex brand Max Money regarding an alleged fraudulent cross-border payment coming from Malaysia.
A Himalayan Times report states that the dispute involves NPR 180m that Max Money allegedly has not yet transferred to Himalayan Bank. Max Money representatives say that this is a fake claim and alleges that the bank forged payment receipts.
Based on recent reports, the bank has already released the funds to recipients. The dispute has resulted in an issuance of a new circular that halts the release of funds until they reach their destination.
Before the dispute, banks, financial institutions and remittance agents in the country were able to release payments in real-time or as soon as the remittance service abroad had placed a release order.
While the new circular intends to protect Nepalese banks, economists have said: “The new central bank rule could give birth to unintended consequences, like thriving of informal channels like hundi.”
Hundi is an ancient financial instrument similar to an IOU. Experts add that it would be better for the central bank to focus on the investigation instead of putting a backwards solution in place.
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