How Bangladeshi workers lost $1.3b in remittance fees, exchange rate volatility in 2024

Infograph: TBS

Highlights:

• Bangladeshi workers pay highest remittance costs in South Asia
• Exchange rate margins, not fees, drive cost increase
• $1.3 billion lost in 2024 to excessive remittance charges
• Economic instability worsens currency exchange costs for Bangladeshis
• Limited competition, hidden fees, and policy gaps inflate remittance costs
• Experts urge cost ceilings, education, and better remittance guidance abroad

Bangladeshi migrant workers face disproportionately high costs when seeking employment in Saudi Arabia, the UAE, and Malaysia, significantly exceeding the expenses incurred by their South Asian counterparts from Nepal, India, and Pakistan. This financial strain extends beyond recruitment, with Bangladeshis also paying considerably more to send their hard-earned money home.

After toiling in demanding conditions in foreign lands, these workers often remit modest sums to support their families back home, covering essential needs like food and education, or contributing to long-term aspirations. However, a substantial portion of their earnings is eroded by high remittance costs.

In 2024, these costs averaged $9.40 for every $100 sent—nearly tripling the rate from just three years prior. This includes approximately $3 in transaction fees and a significant $6.30 lost due to unfavorable exchange rate margins. Consequently, Bangladesh now bears the highest remittance costs in South Asia, dwarfing those of neighboring India and Pakistan, where sending the same amount costs between $2.80 and $5.10. The situation is even worse than the global average of $6.50.

These concerning figures emerge from a recent study funded by the Gates Foundation and led by Hussain Samad, a Bangladeshi researcher and World Bank consultant. The study utilised data from the World Bank's Remittance Prices Worldwide (RPW) database, a comprehensive resource tracking remittance costs across 367 corridors involving 48 sending and 105 receiving countries. The data paints a stark picture for Bangladesh.

This isn't merely a matter of statistics; it represents a staggering $1.3 billion—Tk15,860 crore in 2024 alone—in excess charges due to inflated fees and exchange rate manipulation. This is money that could have reached families in Cumilla or funded education in Chapai Nawabganj, instead vanishing into a system plagued by inefficiencies and opportunistic pricing.

To put this into perspective, this $1.3 billion is equivalent to the extra amount paid by 6.5 million Bangladeshi workers if each sent just $200. It also equals three months' worth of remittances from Saudi Arabia, Bangladesh's largest single source of foreign income. This substantial sum has been effectively siphoned off through transaction fees and unfavorable conversion rates, hindering investment, savings, and even basic consumption for recipient families.

This isn't a sudden occurrence. Between 2022 and 2024, Bangladeshi migrants paid a cumulative $2.3 billion in excess remittance charges—a sum exceeding the construction cost of the new terminal at Hazrat Shahjalal International Airport, a major national infrastructure project.

Drivers of the cost surge:

The World Bank's RPW data identifies two primary components of remittance costs: transaction fees and the foreign exchange (FX) margin, which is the difference between the exchange rate offered by service providers and the official rate.

Quarterly RPW data reveals that transaction fees have remained relatively stable at around 3% between 2016 and 2024. The primary driver of the cost surge is the foreign exchange margin, which dramatically increased from 0.9% in 2021 to 6.3% in 2024, pushing the total cost from 4% to over 9%.

The study also highlights variations in costs depending on the source country. Examining the top five sources of remittances to Bangladesh (Saudi Arabia, Malaysia, UAE, UK, and USA), which collectively account for over 60% of official inflows in FY2024, revealed significant trends between 2021 and 2024.

Saudi Arabia saw the most substantial increase in transaction fees, rising steadily from 2.4% in 2021 to over 4.2% by 2024. In contrast, the UK experienced a moderate decline in fees, from 2.2% to 1.4%. Fee variations for the other countries were less significant.

"The margin in foreign exchange rate increased sharply across all source countries, with Malaysia and KSA dominating—the increase was 7.7 percentage points for Malaysia and 6.7 percentage points for Saudi Arabia. In terms of total cost, Saudi Arabia experienced the steepest rise, climbing from 1% to approximately 11.9%, making it the most expensive source country in terms of the cost of inward remittance. Malaysia followed with a rise to 10.8%, and the USA and UAE followed with a rise to roughly 10%," the study reports.

Researcher Hussain Samad attributes the surge in remittance costs partly to Bangladesh's economic volatility. Foreign exchange reserves plummeted by 50% in 2024 from their 2021 peak of $48 billion, and the Bangladeshi Taka depreciated by 41% against the US dollar during the same period, including a record 6% drop on May 8 2024.

"To manage the volatility of currency, remittance service providers often impose extra fees as they take some risk which arises from rapid movement in the foreign exchange rates and foreign reserves," Samad explained. However, he noted that while other South Asian nations faced similar economic headwinds, the impact on their remittance costs was less severe. For instance, India's rupee depreciated by 24%, but its reserves grew by 50%, helping to stabilise remittance costs.

Samad also pointed to other contributing factors, including hidden fees embedded in inflated exchange rates, a lack of full cost transparency despite international mandates, and limited competition in remittance services due to exclusive agreements. He also suggested that the government's 2.5% remittance incentive might unintentionally incentivize service providers to increase their margins.

Munshi Md. Ashfaqul Alam, an expert in inward remittances with experience in UAE exchange houses, corroborated the impact of exchange rate volatility in 2022. He also highlighted two additional factors based on his experience: the added cost for exchange houses to employ Bangladeshi staff for communication and the inability of undocumented migrants to use formal remittance channels. He estimated that 1-1.2 million Bangladeshis in Saudi Arabia alone are undocumented.

Addressing the issue:

While completely eliminating remittance fees remains a challenge globally, several countries have successfully implemented policies to significantly reduce or waive them in specific contexts.

Pakistan, for example, has made remittance sending cost-free through the Pakistan Remittance Initiative (PRI), offering rebates on transfers above $100. Alam noted that this initiative has streamlined remittances, lowered costs, and significantly reduced the use of informal channels like "hundi."

In his report, Samad stressed the need for stronger action in Bangladesh, recommending the government introduce a ceiling on total remittance costs, encompassing both transaction fees and exchange rate margins. He also suggested that Bangladeshi missions abroad could guide workers toward affordable remittance options and that pre-departure education should empower migrants to understand and navigate remittance costs effectively.