Bangladeshi migrants overpay billions in remittance fees. Can it be fixed?

Inward remittances have long been a cornerstone of Bangladesh's economy, providing essential foreign exchange and financial stability. With millions of Bangladeshi workers abroad, remittances contribute 6–8% of the country's GDP, helping reduce external debt, strengthen reserves, and balance trade deficits. 

Unlike the ups and downs of foreign investments or aid, remittances offer a much more reliable source of income for the country. They help stabilise the exchange rate and provide vital support for important sectors like infrastructure, healthcare, and education. To make the process easier and more attractive, the government has introduced incentives such as cash bonuses and digital transfer options—steps that have boosted formal remittance flows and improved financial transparency.

At the household level, remittances are often a lifeline. For many families, especially in rural areas, this money ensures access to food, healthcare, and education. It also allows people to invest in livestock, farming, or small businesses—helping them become more self-reliant and, in turn, creating new jobs in their communities.

Recognising how powerful remittances can be for development, organisations like the World Bank and the United Nations continue to push for lower transfer fees. Their goal? To encourage more people to send money home through formal channels, so these funds can have an even greater impact. 

The UN's Sustainable Development Goal (SDG) 10.c aims to lower remittance costs below 3% by 2030, while the Global Compact for Migration promotes accessible and affordable transfer channels.

Rising remittance costs in Bangladesh

Despite periodic fluctuations, remittance inflows in Bangladesh have demonstrated resilience and steady growth, even in the face of global uncertainties, such as Covid-19 pandemic and Ukraine-Russia War. 

During the Covid-19 pandemic, remittance inflows reached a record high of USD 24.8 billion. In FY2024, they continued to rise by 10%, reaching USD 23.9 billion.

However, Bangladeshi migrants are paying significantly higher fees recently to send money home compared to their South Asian counterparts. According to Remittance Prices Worldwide (RPW) data, remittance costs for other South Asian countries ranged between 2.8% and 5.1% in 2024, while Bangladesh's costs stood at a staggering 9.4%—far above the global average of 6.5%. 

This marks a sharp reversal from 2021, when Bangladesh had the lowest cost (3.4%) in the region and was on track to meet the SDG target of 3% by 2030. The surge in remittance cost surge has been very costly to the migrants—Bangladeshi migrants paid an additional USD 1.3 billion in 2024 alone, totaling USD 2.3 billion in excess costs from 2022 to 2024.

Understanding the recent cost surge

Remittance costs, reported in RPW data, comprise two components: Fee for processing the transaction and foreign exchange margin (the difference between the exchange rate applied by service providers and the official rate)

A detailed breakdown of RPW data shows that the sharp rise began in late 2022, driven primarily by fluctuations in foreign exchange margins. While transaction fees remained relatively stable, the margin between official exchange rates and service provider rates surged from an average of 0.9% in 2021 to 6.3% in 2024, thereby raising the total cost from 4% to 9%.

Economic volatility in Bangladesh played a key role in the recent spike in remittance costs. Foreign exchange reserves fell by 50% in 2024 from their 2021 peak of USD 48 billion, and the Bangladeshi Taka depreciated by 41% against the US dollar during the same period, with a record single-day drop of 6% 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. This is what the remittance service providers did in the case of Bangladesh. 

While other South Asian countries also faced challenges, the impact was not as severe. For instance, India's rupee fell by 24%, but its reserves grew by 50%, helping stabilize remittance costs.

Addressing the cost surge 

Since RPW data is updated until 2024 Q2, it is yet to be seen how the cost of remittances behaved more recently, particularly in the aftermath of the 2024 political changes. That said, there are other factors, besides economic volatility, that may have contributed to the rising cost of remittances in Bangladesh.

Hidden fees continue to be a major issue, as many migrants are unaware of how transaction costs are embedded in inflated exchange rates. Although international mandates require full cost transparency, including a breakdown of all cost components, by 2027, many service providers have yet to comply. 

Raising awareness among migrants about official exchange rates and remittance costs is crucial. The government could introduce financial education programs, before leaving Bangladesh, to help workers make informed decisions on remittance transfer.

However, transparency alone may not be sufficient. Bangladesh must advocate for stricter regulations, including capping exchange rate margins and transaction fees. As seen in Ukraine, collaboration between the European Commission and the National Bank of Ukraine during the war helped bring down remittance costs by setting clear limits on exchange rate mark-ups. 

Bangladesh can push for similar measures through international bodies like the World Bank and G20.

Limited competition in remittance services also contributes to high costs. Exclusive agreements between national postal networks and overseas money transfer operators restrict competition, preventing lower-cost alternatives. Although Bangladesh has expanded remittance channels in recent years, some state-owned banks still maintain preferential agreements that are likely to keep fees high.

Additionally, the government's 2.5% remittance incentive may have unintended consequences. While designed to boost formal remittance flows, this policy may have given money transfer operators an excuse to increase their margins, assuming migrants would tolerate higher fees in exchange for the incentive.

Bangladesh's overseas missions must also play a more active role in negotiating fair exchange rate margins and guiding migrants on remittance costs. Many migrant workers lack financial literacy and struggle to differentiate between transaction fees and hidden mark-ups. Clearer guidance from mission staff could help prevent exploitation.

Finally, informal remittances remain a significant challenge in Bangladesh, particularly for unskilled, undocumented, and less-educated migrant workers. While exact figures are difficult to determine, global estimates suggest that informal remittances account for 35% to 75% of formal flows. 

Based on these estimates, Bangladesh may have received at least $8.4 billion through informal channels in FY2024, alongside $23.9 billion in formal remittances. Although informal remittances are often perceived as cheaper and more convenient, they come with hidden costs and risks. 

Fees lack transparency, exchange rates may be unfavourable, and funds are vulnerable to fraud or theft with no recourse. Moreover, informal channels do not contribute to recipients' credit history, restricting their access to financial services such as loans. 

On a broader scale, systems like hundi undermine Bangladesh's foreign reserves and can facilitate money laundering and other illicit activities. Given these risks, the drawbacks of informal remittances far outweigh any cost savings, underscoring the need to strengthen formal remittance channels for greater financial inclusion, economic stability, and national security. 

Creating awareness among migrant workers on the risks and dangers of informal remittances and their adverse effects on the country's economy could be an important step. Moreover, migrants need to be trained on the use of different modes of sending remittances formally, especially MFS (for example, bKash) as it has grassroots penetration in the country.

Hussain Samad (hsamad2000@yahoo.com) is an independent researcher and consultant at the World Bank in Washington, DC. This article's findings are based on his work on inclusive financial systems (IFS), funded by the Gates Foundation. Views and opinions expressed are entirely his and not of Gates Foundation.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard