Informal channels still remain popular among a large number of Bangladeshi expatriates although there has been a rise in remittance inflow through formal channel over the last few years. Against this backdrop, ensuring adequate and continuous flow of remittances has become a major policy concern for Bangladesh.
It is true that formal remittance flow has surged over the last few years due to a number of factors including better data collection, greater awareness of development potential of remittances, concerns about money laundering and terrorist financing. Cost and time in sending remittances have also been reduced.
Moreover, congenial policies to improve banking access and technology of money transfers have helped bring positive changes in the market as a whole. Banks and money transfer organisations, the major remittance service-providers, have been very active in recent years to adopt new technology in the pursuit of offering quality and cost-effective services.
However, despite greater risk involvement, informal channels are popular among remitters/ recipients because these require less time and formality. Experiments in a number of developing countries show that use of modern and innovative technology in formal channel is likely to reduce cost and time and enhance security in remitting money and thus would encourage more expatriates to use formal channel.
In a major development, mobile technology has become popular as one of the most exciting tools of transacting international remittances. This technology is cheaper and less-time consuming which provide better satisfaction to both the sender and the receiver.
However, the positive changes are also fraught with some challenges and unforeseen risks with it. The existing regulations are not fully compatible with the use of technology. Besides, there are other factors like limited understanding of business models of new digital players, low levels of customer trust, and the established nature of cash-based transfers.
On the other hand, use of technology may make the scenario more difficult for the formal sector to compete with the informal one as there are concerns that financial crimes like illicit fund transfer and money laundering may take place through use of mobile technology. So, challenge for policymakers is to ensure safe, efficient and affordable remittance-transaction in a compliant environment through use of modern technology.
International remittances are critical for livelihoods of hundreds of millions of people in the developing world. Since early 1980s, international labour migration has been an integral part of Bangladesh's economic and social development for its contribution to employment generation and ensuring stability to foreign exchange reserve. It also offers additional avenues to the government to attain its long-term developmental goals.
Workers' remittances have been a consistent source of foreign exchange in Bangladesh that has been playing an important role in improving supply side in the foreign exchange market and reducing poverty level. Thus, negative growth of remittance flows during the last three years became a cause of concern for the policymakers of the country. In spite of several recent policy initiatives, the remittance flow is yet to receive due push.
There are perceptions that changes in global policy and regulatory environments and leakage of remittances from formal to informal channels might be the reasons behind the fall. It is very difficult to estimate the magnitude and volumes of true size of remittance flows as a considerable portion of foreign remittances is believed to be entering the country through informal channels and it is extremely difficult to estimate the volume of informal flows with accuracy.
There are evidences that informal channels remain popular among a section of expatriate workers for sending money to rural Bangladesh. The system has proved to be efficient and dependable in general over the period as it involves significantly less time, less or no formalities, and requires comparatively less cost compared to official channel such as banks.
Lack of knowledge about banking procedures and involvement of paperwork and documentation are also notable hindrances to use of official channels. In spite of the growing use of information technology (IT), it seems not easy for banks to compete with the informal sector money remitters. In the present scenario, the policymakers are facing a key challenge to augment remittances through formal banking channels and thus integrate remitters with the development process of the country lawfully and productively.
According to the most recent published data, over 250 million migrants are working and living in countries far from home and they are supporting their families and friends through global money transfers. In 2017, the top five remittance recipient countries were India, China, the Philippines, Mexico, and Nigeria and in terms of the share of gross domestic product (GDP), the top five recipients are basically smaller countries - the Kyrgyz Republic, Haiti, Tajikistan, Nepal, and Liberia. In terms of volume, Bangladesh was among the top ten recipient countries of the world as of 2017. With regard to the trends, for the first time in recent history, remittance flows to developing countries registered a decline for two successive years.
Factors affecting remittance flows, especially to South Asia and Central Asia, include low oil prices and weak economic growth in the Gulf Cooperation Council (GCC) countries and the Russian Federation. Weak growth in Europe also affected flows to North Africa and Sub-Saharan Africa, as observed by the World Bank. The decline in remittances is further accentuated when expressed in US dollars because of the weakening of the euro, the British pound and the ruble against the US dollar.
Remittance flows to the Europe and Central Asia region registered a significant decline for the third consecutive year. Latin America and the Caribbean were the only region to register an increase in remittance flows, supported by strengthening of employment levels in the United States, a recent World Bank estimate showed.
Among the South Asian countries, India receives lion's share followed by Pakistan. Bangladesh has emerged as the third most remittance-receiving country in 2017 with 11.52 per cent share. However, the market share of Bangladesh, even among the South Asian countries, decelerated sharply during the last three years.
The South Asian region remains significantly dependent on remittances. Remittances exceeded 5.0 per cent of gross domestic product (GDP) in 2016 for Pakistan, Bangladesh, Sri Lanka, and Nepal. For India, remittances are not large as a proportion of GDP. However, there are sub-national variations in the impacts of remittances.
There are indications that remittances to the South Asia region declined in 2016 in the face of lower oil prices, fiscal tightening and 'nationalisation' policies in some host countries.
Moreover, remittance growth in the region is projected to remain muted, because of low growth and fiscal consolidation in Gulf Cooperation Council (GCC) countries. Especially, the economic slowdown in Saudi Arabia and Kuwait and lower demand from Malaysia and some GCC countries have caused difficulties, as observed by the World Bank.
Global data clearly indicates a slowdown of remittance inflows to the global economy as a whole. Almost all developing economies are experiencing stagnation in terms of remittance inflows during 2015-2017 period. The same happens for South Asian countries in general, and Bangladesh.
However, the available data reveals shrinking of market share of Bangladesh in the world and also in South Asia. It indicates greater fall of remittance flows to Bangladesh as compared to other developing and neighbouring countries though it is not easy to identify whether this fall is real or it is an outcome of switching of remittances flow from legal to informal channels. There are evidences that informal channels have become more popular in recent times.
Dr. Shah Md Ahsan Habib is Professor and Director (Training) at the Bangladesh Institute of Bank Management (BIBM)
