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To Mitigate Human Trafficking in Nepal, Increase Financial Inclusion

April 13, 2022

By Suswopna Rimal and Prashamsha Simkhada

Human trafficking remains stubbornly entrenched in Nepal, which has emerged as a source, a destination, and a transit point for domestic and international trafficking of men, women, and children. Poverty, illiteracy, unemployment, and social inequalities are all contributing factors to human trafficking. The most widespread forms of human trafficking in Nepal are for forced labor, domestic servitude, organ extraction, and prostitution or sexual exploitation. According to a study in Kathmandu, 17 percent of workers in the adult entertainment sector are minors, and 62 percent of adult women in that industry started their work as minors, some as young as seven years old.

The financial exclusion of people who are geographically remote or socioeconomically marginalized is also a pressing concern in Nepal. Often unbanked and lacking assets that could be used as collateral, they cannot turn to formal institutions for financial services such as loans and credit. For these citizens, informal moneylenders are the first resort for weddings, health emergencies, educational expenses, or financing travel for foreign employment. These informal lenders often charge outrageous interest rates that can push borrowers into debt bondage. Many borrowers eventually resort to desperate economic measures to repay these high-interest loans, increasing their vulnerability to exploitation and human trafficking. In his 2020 book Debt, Trafficking and Safe Migration, Nicolas Lainez shows how informal debt is clearly associated with debt bondage, sex trafficking, and modern slavery.

Men seeking passports to work abroad. Financial exclusion forces many labor migrants to turn to informal moneylenders to finance their travel, which can push them into debt bondage.

Covid-19 has further amplified the economic hardship of people who lack financial resources. Recovering from the virus requires costly medical care, just when people have lost their jobs and incomes. Those hardest hit have been daily wage earners, women working in the entertainment sector, brick-kiln workers, and owners of small businesses. The UNICEF Covid-19 Child and Family Tracker has found that 50 percent of households in Nepal have lost a source of income, and many families lack credit or savings to overcome these financial setbacks, putting their children at risk of having to enter the workforce to support their families.

Over the course of 2020 and into 2021, employment declined tremendously in jobs typically held by Nepali migrants in the United Arab Emirates, Malaysia, Qatar, and Saudi Arabia. Women, primarily engaged in blue-collar semiskilled or domestic work, constitute half of this migrant workforce, and due to their overrepresentation in the domestic and hospitality sectors, they have been especially vulnerable to unemployment during the pandemic. Even within Nepal, 83 percent of working Nepali women have lost their jobs since the arrival of Covid-19. Often poorly educated and excluded from property ownership and access to credit, they are particularly vulnerable to human trafficking.

The UN Office of Drugs and Crime, in its Global Report on Trafficking in Persons 2020, found that the main drivers of human trafficking were economic. The Finance Against Slavery and Trafficking (FAST) initiative of the United Nations University Centre for Policy Research has made specific policy recommendations for the financial sector to increase financial inclusion and reduce the financially vulnerable population’s risk of trafficking, exploitation, and the revictimization of survivors.

Women who are excluded from the formal economy have been among the hardest hit by unemployment during the pandemic. They are among the Nepalis most at risk for human trafficking

The government of Nepal has introduced a number of measures to mitigate the immediate economic impact of the Covid-19 crisis, including the Social Security Fund; relief for vulnerable households, such as waivers of public utility fees and tax deferrals; relaxed payment plans for business loans; support for enterprises in the most-affected sectors of the economy, such as tourism and transportation; and subsidies to prop up small and medium enterprises affected by the pandemic. But these measures do not always reach the most vulnerable elements of the population—including returning labor migrants, daily wage workers, women in the informal economy, and unemployed youths—who must again resort to informal borrowing, perpetuating the cycle of debt bondage and exploitation.

I have heard of the local government providing collateral-free and interest-free loans up to 10 lakhs [1 million rupees] for entrepreneurs running a business during Covid-19. But it’s very difficult to access those schemes. They should be for individuals who have no collateral, but they are only accessible to those who have collateral. For this reason, these loans have not reached those who need them most.

—A woman entrepreneur in Nepal

Ironically, much-needed improvements in the nation’s notorious road system have contributed to human trafficking by dramatically increasing mobility. A 2020 study by The Asia Foundation, supported by the World Bank, found that the growth of road networks in the country can enhance economic prospects, increase employment opportunities, and improve people’s access to markets. But these opportunities hardly reach the most disadvantaged groups, who are instead disproportionately affected by the adverse effects of infrastructure development such as displacement, increasing their vulnerability to trafficking and forced labor.

This pattern suggests a need to be more strategic and improve the economic prospects of these communities by taking concrete steps to include them in the formal financial sector. When individuals are financially excluded, they are compelled to cover their expenses through high-interest informal loans and risky migration, exposing them to exploitation, trafficking, and bonded labor. For survivors of human trafficking, being financially excluded hinders their access to legal compensation and economic reintegration, increasing their risk of being victimized again.

The 2030 Sustainable Development Goals (SDGs) identify financial inclusion as a catalyst for other development goals such as eradicating poverty (SDG 1); ending hunger, achieving food security, and promoting sustainable agriculture (SDG 2); improving health and well-being (SDG 3); achieving gender equality and economic empowerment of women (SDG 5); promoting jobs and economic growth (SDG 8); supporting industry, innovation, and infrastructure (SDG 9); and reducing inequality (SDG 10). SDG 17 further highlights the role of financial inclusion in spurring greater growth.

While Nepal has already aligned its national development frameworks with the SDGs, the government needs to take an extra step—at the federal, provincial, and local levels—to integrate financial inclusion and literacy into its policies and programs and to target people who have been historically excluded: women, the poor, the marginalized, rural residents, and other sectors vulnerable to human trafficking. Governments should map out existing microfinance institutions at the local level and join with them to introduce digital financial literacy programs to the at-risk population. These programs should help the population understand the additional risks that they may encounter when using digital financial services. And the government and civil society should forge partnerships with banks and financial institutions to create financial products that are more suitable for the at-risk population, a process in which this population should be included.

Suswopna Rimal is a senior program officer and Prashamsha Simkhada is a program associate for The Asia Foundation in Nepal. They can be reached at [email protected] and [email protected], respectively. The views and opinions expressed here are those of the authors, not those of The Asia Foundation.

Related locations: Nepal
Related programs: Inclusive Economic Growth

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