There are three types of drawing arrangements in the banking system of Bangladesh to channelise remittance from abroad. These are Taka Drafts Drawing Arrangement, Electronic Fund Transfer Arrangement and PIN Code System. Of these, the first one is obsolete and it is not used any more. The second one is electronic fund transfer made through banking channel. In this method, the fund is transferred through the banking channel and the beneficiary can receive the money either in cash form or money can be credited to his/her bank account. The third method is actually transferring fund through money transfer organisations where the beneficiary can collect the money only in cash form.
As part of remittance collection, different exchange houses are channeling funds to Bangladesh. Among these, some exchange houses are owned by Bangladeshi banks and these generally charge a certain amount to send remittance through these exchange houses.
Apart from the banking channels, branch offices of NGOs and post offices are also working for distribution of remittances. Again, a large number of banks have already been given the permission to distribute remittances by Mobile Financial Services (MFS) for strengthening remittance distribution network and some have already started their operation.
The bank-led model is the formal and legal channel of remitting workers' funds to the country. Over the years, the banks have improved their efficiency in channeling remittances by collaborating with exchange houses, MTOs, local branches, MFIs, and MFS in terms of speed, cost, and quality of services.
Remitters invest in government bonds through banks but banks generally do not have products targeting remitters of the country. Islami Bank Bangladesh Ltd (IBBL), the highest remitting bank, does not also like to market government bonds having interest-bearing feature. In response to global and internal developments, major remitting banks are facing the challenge of remittance flow contraction with the exception of DBBL that is working to popularise its MFS service in channeling remittance to the doorsteps of the rural people. It probably indicates the growing acceptability of MFS in remittance services. However, there are also evidences of growing popularity of MFS in channeling remittances using informal channels.
The absence of data on migrants is a barrier in the context of Bangladesh to precisely identify the true status of country- specific fall of remittances from the host countries. However, apparent situation in the host countries indicates that fall in remittances are not clearly visible in the context of the Western economies like those of the UK and the USA.
However, greater uses of informal channels by remitters of Middle Eastern countries are particularly apparent. There is no doubt that the host-country specific analyses might be extremely useful for identifying specific policy propositions as the future course of actions by Bangladesh. In this context, it is very important to maintain data base on migrants and the returnees. Record of returnees might be useful in refilling recruitment requirements in other host countries.
Global and country data on cost of sending remittances are not at all of concern for Bangladesh. The published global data on the cost of remittances shows that Bangladesh's remitters avail remittance services at a much lower cost using formal banking channel as compared to other economies. In recent times, cost of sending remittances through formal channels has gone down further. The current average cost of sending remittances to the country is not very far from the SDG target to be attained by 2030.
So, cost apparently is not a big issue; rather it is the formality, documentation and compliance requirement in using formal channel which emerge as the biggest challenges to the remitters. There are evidences of growing popularity of mobile- based money transfer through illegal channels. There are instances that a person is offering illegal remittance services as the agent of more than one MFS.
Sometimes, remitters and recipients do not even know that these services (without engaging a bank) are illegal. Use of mobile apps has made informal remittance transactions vibrant and extremely easy. There are claims that growing tendency of building second homes by some Bangladeshis in certain countries has raised the demand for foreign currencies and has thus given a boost to informal agencies.
Popularity of such illegal services might pave the way for remittance-based money laundering and such concerns have duly been shown by the Bangladesh Financial Intelligence Unit (BFIU) in a disclosure.
These are also undermining the legally established MFS services of the country. Strong enforcement of KYC and greater monitoring on the part of the central bank might bring positive changes. The recently issued circulars of Bangladesh Bank on MFS activities might contribute to this context.
There are symptoms that remitters and recipients of remittances in the country lack information and awareness in connection with available legal and illegal channels of sending remittances. Alongside banks, MFS companies, and electronic and print media might play crucial roles in this context.
All negative incentives like taxes on deposits (in the absence of e-TIN), requirement of using revenue stamps by the remitters should be removed. There are also scopes to design positive (issuing special card for remitters, tax benefits in different investment, special deposit/loan products targeting remitters/ provisions of services by the Bangladesh Embassy etc.) and negative incentives (restriction on purchasing fixed assets etc.) for the remitters.
There is no doubt that the country cannot keep itself away from the use of technology in channeling remittances, and it is crucial to ensure greater penetration of MFS in remittance services being within the bank led formal sector model. To address illegal remittance flows through MFS, designing right kind of positive and negative incentives is crucial.
Moreover, there are huge scopes to improve the quality of banking services for the remitters. Banks should work to develop targeted deposit and loan products to attract remitters through banking channels and these should also contribute to awareness development of remitters.
Finally, a coordinated approach of the relevant stakeholders might contribute to creation of awareness among remitters and designing of a sound incentive structure to augment remittances through banking channels of the country.
Dr. Shah Md Ahsan Habib is Professor and Director (Training), Bangladesh Institute of Bank Management (BIBM).
