How Bangladesh can fulfil its $40b remittance potential

In July-August last year, Bangladesh's migrant workers played a heroic role in the ouster of Sheikh Hasina, demonstrating how vital they are to the country's financial stability. 

By boycotting formal remittance channels, they sought to punish Hasina's regime. It was only after Hasina fled that they began sending record amounts of remittances through formal channels.

Migrant workers sent a record $2.63 billion in remittances in December, a 33% year-on-year increase. In 2024, Bangladesh's remittance inflows reached a record $26.9 billion, a 23% increase from 2023, offering a critical lifeline to the country's strained dollar reserves. 

While this surge in remittance is remarkable, it still falls short of Bangladesh's potential, which could be achieved if most migrant workers opted for formal channels over informal ones.

Various studies indicate the amount of money sent to Bangladesh by evading banking channels is very high. For example, according to a keynote presentation at a seminar titled 'Measures to increase remittance flow through legal ways easily and securely via digital medium,' in 2022, Bazlul Haque Khondker, chairman of the South Asian Network on Economic Modeling (SANEM), noted that about 49% of the remittance arrives in the country through illegal channels. 

While confidence in the new government has encouraged migrant workers to use formal channels, viewing it as an 'act of patriotism,' several policies have also contributed to this trend. In 2024, the exchange rate gap between formal and informal channels narrowed from Tk7-10 to Tk3-5 per dollar.

As a result, banks reported a surplus of foreign currency, alleviating pressure on reserves and enabling the country to meet $3 billion in debt obligations without a crisis. Rising dollar inflows boosted reserves to over $21 billion, despite ongoing import payments. Additionally, overdue letters of credit (LCs) dropped significantly, from over $2 billion to $400 million.

"We propose issuing a card for workers who send remittances through official channels. These workers would receive significant benefits. For instance, we could dedicate an entire section of the third terminal to migrant workers, but eligibility would be based on the amount sent through formal channels. Exchange rates must be revised to make formal channels more competitive."

Mamun Rashid, Economist

Experts believe that if the full potential of remittances could be harnessed through formal channels, the total amount could increase by at least 50%, if not double. This would allow Bangladesh to receive an estimated $35-$40 billion in remittances annually, providing a significant boost to the nation's economy.

"If we provide migrant workers with accessible banking channels and digital technology, I believe it would be possible to increase remittances by one-and-a-half times or even double," said Shariful Hasan, who manages the Brac Migration Programme.

"It is often said that money is sent through hundi, but actually, no money is physically sent through this system," he said. 

Hundi essentially involves laundering money, facilitating payments for various criminal activities, and corruption, he explained. For example, someone collects money from a migrant worker in Saudi Arabia, telling them that they are sending this money to their family. However, that money does not come here. Instead, someone else in Bangladesh pays that family. Ultimately, this money comes from corrupt sources — laundered money from government employees or funds used for criminal purposes.

"So aside from the $27 billion in official remittances, the money sent through hundi offers no real benefit," he added. 

Iftekhar Ul Hasan Chowdhury, CEO of Gulf Overseas Exchange Company, based in Oman, told TBS in a previous interview that Oman is a $2 billion remittance market. During Covid-19, remittances grew significantly, and Bangladesh earned around $1.5 billion in remittances from Oman in a year. However, after hundi was back in play, the amount decreased to about $700 to $800 million. By the end of last June, it had reached around $1 billion. 

"I believe at least 40% of people send money through illegal channels. If 100% of Bangladeshis sent their money through formal channels, we could receive about $2 billion in remittances from Oman annually," he said. 

The picture, he noted, is almost the same across the Middle East. 

Iftekhar said that through his company, workers send around $120 million in remittances monthly, of which $70-$75 million goes to Bangladesh from Oman.

Among several factors responsible for this is a lack of knowledge and awareness among the migrant workers about hundi's impact on the national economy, and the absence of nearby banking facilities to send money whereas hundi intermediaries collect money directly from their camps or stores.

We interviewed a researcher who conducted in-depth studies in the Middle East and other migrant labour destinations to understand the trends of hundi and the evasion of formal remittance channels.

Requesting anonymity, the researcher said that they studied who was buying these dollars. They found that most of them belong to powerful vested groups with connections to government organisations. These groups take dollars from exchange houses and facilitate their transfer to banks.

At present, more than trade-based money laundering, gold smuggling is being heavily financed by non-resident Bangladeshis. Instead of sending dollars, they purchase gold bars and bring them to Dhaka within the allowable limit. A racket has developed involving gold businesses. These businesses provide gold bars to the buyers.

Besides, the hundi rackets offer rates higher than the market. For example, if the market rate is Tk122, they offer Tk125, effectively outpacing the 2.5% government incentives. They also provide advance payments to the buyers' families and arrange free transportation from the airport to various destinations.

"If you investigate the airports in Dhaka and Chattogram, you'll find that financiers of gold smuggling offer higher rates, advance loans and support for reaching homes. Similar activities were carried out by S Alam through their exchange houses in different areas," the researcher said. 

"Now the question is, how can these practices be tackled? Even S Alam banks used to provide loans for buying Akamas — essentially wholesale work permit purchases. When we conducted research in Saudi Arabia, we discovered that Akama financing is a significant issue. Workers are directed to send money to specific individuals designated by these networks. They operate informal, Akama-driven networks in Malaysia, the UAE and other regions," the researcher added. 

Iftekhar said Indians have strong regulations against hundi. They have explored all possible measures to prevent it. For example, they have created separate Non-Resident Indian (NRI) bank accounts, offering specific benefits and government facilities. When money is sent to NRI accounts, the government provides privileges such as housing benefits and other forms of policy support.

Bangladesh lacks an equivalent of NRB (Non-Resident Bangladeshi) accounts. The government should ensure accounts for migrant workers, where the total amount sent to these accounts would qualify for additional incentives. 

For instance, beyond the existing 2.5% incentive provided by the government, an annual incentive percentage could be introduced. This would encourage workers to send money through formal channels, Iftekhar said. 

"Although there is an assumption that hundi operators will always offer higher margins than formal channels, I still believe that those who use formal channels can be encouraged with the right policies," he added. 

Economist Mamun Rashid also recommended introducing a reward card system for migrant workers. 

"We propose issuing a card for workers who send remittances through official channels. These workers would receive significant benefits. For instance, we could dedicate an entire section of the third terminal to migrant workers, but eligibility would be based on the amount sent through formal channels," he said, adding, "Exchange rates must be revised to make formal channels more competitive." 

It is widely criticised that the embassies of Bangladesh in labour destination countries provide no tangible benefits to migrant workers. Instead, they are subjected to mistreatment, and their needs —  such as passport renewals or extensions — are neglected. 

Shariful Hasan said that in the last four years alone, about 2 million migrant workers went to Saudi Arabia. However, while remittances from Saudi Arabia were about $5.7 billion five years ago, they have now dropped to about $3.5 billion. 

Instead of doubling, we lost $2 billion. 

"We need to think about how to bring this money into legal channels. What technology can we use? How can we make banking channels more accessible? What kind of products and privileges can we offer to migrant workers' families? These are the steps we must take," he said.