In October, 2021 the foreign exchange reserve in Bangladesh was more than 46 billion USD which was a record highest but by one year it has drastically dropped below 36 billion USD. The worldwide economic turmoil due to the Russia–Ukraine war, the rise of global inflation and high import payments are the main reasons for such dropping of foreign exchange reserves. Bangladesh government has taken several initiatives to lift the reserve but to no avail. Rather the pressure on the reserve is increasing with tension. To cover up the pressure, the government is on the way to borrowing foreign currency from IMF. But, if the regular sources of foreign currency like wage earners' remittance, export proceeds etc. are not increased compared to import payments and other payments, the real growth of forex reserve will not be visible.
Like many countries of the world, Bangladesh has two main sources of inflow and outflow of foreign currencies. One is the official source which is mainly through banking channels and another is unofficial which is not legal and is most commonly termed “Hundi”. Hundi is a kind of financial instrument, sometimes in writing, an unconditional order made by one person to pay a sum of money to another person. It is the transfer of money from one place to another place, mostly a cross-border transaction, among different persons belonging to two different currencies. Though it is an organised transaction it is illegal and considered a criminal offence under the Anti-Money Laundering act. The history of Hundi is very old. Though illegal, it is very popular in the world for its unique characteristics. It includes benefits such as cost-free transactions, door-to-door service, speedy delivery, competitive exchange rate, no documentary formalities and thus, hassles free. According to the Bureau of Manpower Employment and Training (BMET), till September 2022, more than 14 million of Bangladeshi immigrants are settling and working in 168 countries across the world. According to Bangladesh Bank, expatriates sent $21.03 billion through official channels in FY21-22, compared to $24.77 billion in the previous fiscal year. From July to September this year, the country received respectively $2.0963, $2.037 and $1.539 billion in remittances from the migrants though overseas employment cumulatively increased from 691,017 to 874,739 during that period. However, the increase in migrants does not conform to the remittance flow, which is quite unusual. Recently, the finance minister has revealed that only 51% of the remittances come through formal and legal ways i.e. through banking channels and the rest comes through Hundi. It is so alarming. Hundi is working parallel with official remittance. The amount of money we receive every year through an official channel, the same amount of money we forgo due to entering through unofficial (Hundi) channels. The criminal Investigation Department (CID) of Police has found that country has lost $2.5 billion (Tk. 25000 crore) in the last four months due to Hundi. Analysing the trends, the CID estimated that Bangladesh may have lost around $7.8 billion (around Tk. 75,000 crore) in remittances last year. The data reveals that the activities of Hundi traders increased affecting our official remittance flow.
But, why do migrants send money using Hundi rather than banking channels despite government-provided cash and non-cash incentives? According to Population and Housing Census 2022, 25.34% of Bangladeshis are illiterate and in the rural area, the rate is 28.44%. They do not know how to read and write and so fear the banking formalities and documentation process to receive a remittance. They prefer Hundi as it is hassle-free, directly added to their mobile wallet or get cash through an agent. On the other hand, the better exchange rate encourages remitters to prefer Hundi to formal channels. Hundi is comparatively less costly than official channels. Moreover, the wage earner can send as much money as he wants through Hundi, which is impossible in official channels. Besides, there is little scope for sending money through banking channels from some countries like Iraq, South Africa and Libya. However, the only option for illegal migrants across the world is Hundi. The network of Hundi traders is so strong abroad. It is easier to find a Hundi trader abroad than a remittance point (Bank, remittance house etc.). Communication with a Hundi trader is easier than with a bank official. These are the main reasons behind preferring Hundi to banks.
Another crucial question that may come to mind is, “where does the foreign currency collected through Hundi go?” This is more horrible. According to the observation of CID, Hundi traders are carrying out illegal businesses such as online gambling, drug trafficking, gold smuggling and yaba trade where the collected remittance is spent. Washington-based Global Financial Integrity (GFI) in a report related to “Trade-Related Illicit Financial Flows in135 Developing Countries: 2008-2017” has revealed that Bangladesh suffered a ‘value gap’ to the tune of $7.53 billion on average annually from 2008 to 2017 in its exports and imports due to misinvoicing, a major way of capital flight and duty evasion. Here value gap is the amount that is siphoned off by means of Hundi or other illegal means. Suppose there is no Hundi then what would be the position of the country? The country would get all those money as official reserves which would not only enrich the economy but also brighten the image of the country.
So, law enforcement agencies of the country, Bangladesh Bank, different commercial banks and MFIs, overseas agencies, embassies and other stakeholders must work together with patriotic zeal to confront the network of the Hundi traders. Consciousness among the people is to be created so that both the remitters and receivers use official channels when transacting money. Connectivity among the banks and MFIs should be strengthened further in easing the remittance payment procedures. Increasing collection points and exchange houses overseas can be a good initiative to increase remittance flow. There is no alternative to wiping out the root of the Hundi to save the economy of the country.
The writer is a banker and freelancer.