Introduction to Remittance in Bangladesh
Remittance is the life line of Bangladesh economy. Some 4.5m nonresident Bangladeshis are working abroad , and sending home hard earned foreign currencies. It is believed that the actual number of Bangladeshi migrants, both legal and illegal, would be close to 7.5 million. In the first 10 months of FY 2006-07, number of manpower export stood at 0.42m, showing 83.14% rise, compared to 0.25m in FY2004-05 . In FY2005-06, the number stood at 0.29m, current year to year growth is around 16% . In addition to achieving higher export earnings, the country witnessed a 44 percent growth in remittance earnings during the first quarter of 2008-09 fiscal year compared to the same period of the previous fiscal year . The other records of remittance earnings in a single month are $820.71 million in July and $808.72 million in March of year 2008. A total of 9,81,102 Bangladeshi people went abroad in 2007-08 fiscal year which is about 74 percent above the previous fiscal year figure, Bangladesh Bank statistics  show. According to the statistics, on monthly average basis more than 81,000 Bangladeshis went abroad in 2007-08 fiscal year. The figure was 46,000 in the previous fiscal year . Non-resident Bangladeshis (NRBs) sent $2.345 billion to Bangladesh between July and September of 2008, according to the Bangladesh Bank statistics ,. Meanwhile, private bank officials said the global economic slowdown, mainly in the US and European countries, is yet to impact the remittance inflow. They, however, apprehend that if the crisis continues it may have a negative impact on the inflow .
The remittance market of Bangladesh has been showing a steady growth in terms of incoming remittance volume. Considering the current macro-economic indicators: it seems that this growth run will continue in the coming years. Central Bank  predicts that our annual incoming foreign remittance will touch $10 billion in the next 3 years. The reasons for such robust growth can be summarized as:
- Stable macro-economic indicators including GDP growth,
- Steady growth in manpower export specially in the middle east
- Substantial devaluation of the local currency
- Rapid urbanization
- Development of new remittance corridors in Australia and part of Europe and Africa
- Increased focus of Central Bank and the Government to channel funds through formal channels
- Increased competition among financial institution to grab market share
- Aggressive marketing policy adopted by Banks to increase their share of wallet
- Expansion of branch network of various commercial banks
- MFIs involvement in channeling remittance funds in remote areas
- Participation in the UN peace keeping missions
- Anti-Money Laundering rules and regulations came in force
However, the market is still far from perfection in terms of service quality, cost structure, and transaction risk aspects. Among all, the biggest impediment is the speed of transactions and cost of transaction. In cases, it takes more than a week to send a foreign remittance to beneficiary. Average cost is 20 SAR  for a remittance from Saudia Arabia to Bangladesh.
Current Remittance Process
Currently the remittance process is mostly manual, partially automated. Migrants use different methods in sending remittance involving both official and unofficial channels. A major portion of remittance is being processed by Hawala’s which is also known as ‘hundi’ , which is an illegal process. And these Hawalla’s are getting market due to lengthy process of remittance management using banking channel.
Legally bank and exchange house acts as main means for remittance. Exchange houses play a vital role as remitters touch point. Mostly, remittance process initiates from exchange house .Exchange house acts as the contact point for remitter, exchange house receives the payment instruction from remitter and transfer the instruction to bank with which they have bilateral arrangement for fund mobilization. The receiving bank receives the fund and routes the remittance to actual beneficiary thro other banks or agents. Central bank acts as clearing house for inter bank fund transfer.
Officially,  transfer of remittance takes place through demand draft issued by a bank or an exchange house , telegraphic transfer; postal order; account to account transfer. When remittances are transferred directly from the foreign account of migrant worker to his own account at home it is known as direct transfer. This can be through telegraphic means or otherwise. Remittances are frequently sent through demand draft in Taka issued by a bank or an exchange house in favour of a nominee of migrant. Usually the draft is sent by post or in emergency by courier service. One can send remittance through the postal authorities. In such case the remitted money is handed over to the receiver by the local post-office .
As there is no automated system between exchange house to and bank to bank – the process takes weeks to process a transaction in general.
Roadblocks in Current Remittance Process
The major roadblocks of a smooth and efficient payment of foreign remittances are as follows :
- Poor infrastructure in rural and semi-urban economy
- Inadequate reach of private commercial banks within the country
- Massive information asymmetry in the market
- Active ‘Hundi’ market
- Inefficiency of financial institutions
- Poorly regulated exchange houses
- Low literacy rate in the country
- Uneven competition among financial institutions
- Lack of investment in IT backbone development for market efficiency
- Absence of a strong central payment gateway for ‘Straight Though Processing (STP) of payment services
These above imperfections/inefficiencies have resulted in abnormal share of ‘Hundi’ business in this sector. Today, it is estimated that the share of ‘Hundi’ business constitutes roughly 40% of total incoming foreign remittances.
Banks drives the legal channel for remittance mobilization. Top 3 remittance receiver banks in market are given in Table 2.1. All bank information has been listed in Appendix B.
Table 2.1 Monthly Inward Remittances, August ’08 
|Sl.||BANK||August, 2008 (in USD Million)|
Whilst data on Non Resident Bangladesh (NRB) remittances coming into Bangladesh are readily available, projections for local remittances are difficult to determine. The figures in USD given in the Table 2.2 are approximate.
Table : Local and Foreign Remittance Comparison in USD 
|07-08 (No.) in USD||2008-9 (No.) in USD||2009-10 (No.) in USD|
|NRB Remittances||7 million||8.5 million||10 million|
|Local Remittances||14 million||17 million||20 million|
Most of the remittances sent to our country are for various livelihood purposes, such as disbursement of Small loans, living expenses, business start up costs, medical treatment and funds for asset purchases. This highlights the importance of fast disbursement of money that e-Remittance System promises to deliver. The system will help attract new un-banked customers who have previously depended upon informal channels. At present, only a fraction of remitters send their money through banking channels. The e-Remittance system will also provide the right platform for handling the substantial market for within country remittances.
Source Countries of Remittance
From Saudi Arabia, over a million workers sent $1,312 million during July-March period of 2007. In the same period The United Kingdom came out as the second biggest source of remittance with Bangladeshi Diaspora sending home $657 million to their relatives at home, closely followed by $656 million from the United States of America. Non-resident Bangladeshis remitted $559 million from the United Arab Emirates and $494 million from Kuwait in July-March period of 2007 .
Steps Taken for Remittance Process Improvement
Government as well as private sector has undertaken various strategies to make remittance transfer easier and hassle free. Now, the Nationalized Commercial Banks (NCBs) have some overseas branches/remittance wings for transferring remittances. The private commercial banks (PCBs) also become aggressive in transferring remittances by providing quick and reliable services. Some of the PCBs also have established oversees branch or correspondence relationship with Banks/Exchange Houses. Although the nationalized and private commercial banks have taken various marketing strategies to transfer remittances, but even today, the choice of remittance channel is 46% formal and 54% informal.
Recently, illegal transfer of money slid down drastically, as Bangladesh Bank (BB) has stepped up monitoring of such transactions at home. BB so far gave license to 660 exchange houses to set up offices abroad to facilitate remittance. Local banks are now able to deliver money to recipients in weeks.
Remittance has economic benefit both at macro and micro level. In 2004, the formal remittances contributed 6% of GDP. If informal channels were included this contribution reaches 9-10% of GDP. In 2004-2005 fiscal year remittance was 44.47% of export receipt. The proportion of foreign aid was only 38.74% of remittances in 2004-2005 fiscal year and foreign direct investment was only 13.58% of remittances in 2003-2004.
The remittance has significant macroeconomic impact at household level. The majority of Bangladeshi migrants abroad is unskilled, and originates from rural areas and poor community. The poorer the household, the more impact or benefits remittance income can have alleviating poverty. Remittances allow the poor people to increase expenditures on both durables and non-durable products, and provide them with protection against negative income shocks.
Usages of Remittance Money
Remittances are cited as making up around 60% to 70% of recipient poor households’ total income. It is found from a study that almost 80% remittances are used in non-productive investment. The critical analysis of utilization pattern of remittances in Bangladesh explores that 20.45% of remittances are used for food and cloths, 11.24% for agricultural land purchase, 15.02% for home construction/repair, 10.55% for repayment of loan (for migration), 9.07% for social ceremonies, 7.19% for sending family members abroad, and finally only 4.76% are used for investment in business and 3.07% for savings.
|||Bangladesh Bank Remittance Division http://www.bangladesh-bank.org/ , April 2009.|
|||“CENTRAL BANK OF SRI LANKA IMPLEMENTS REAL TIME GROSSSETTLEMENT SYSTEM (RTGS) AND THE AUTOMATED GENERAL LEDGER SYSTEM”.
http://www.cbsl.lk/cbsl/rtg.html , April 2009.
|||http://www.lankaclear.com/ , May 2009.|
|http://www.asiaone.com/Business/News/SME+Central/Story/A1Story20080325-56157.html , May 2009.Efficiency of Migrant Workers’ Remittance: The Bangladesh Case,
Professor Tasneem Siddiqui, RMMRU,University of Dhaka
Asian Development Bank,Manila,August
BRAC Bank , Business Solutions Management Department ,March 2009
|||Jano Shokti Kormo Shonghtan Bureau of BangladeshProvisional Figure of Inward Remittance, Bangladesh bank Press release of 10th August,2009.|
|||The Bangladesh Journal http://www.bangladeshjournal.com/article/Business/67/ , Jan 09|
|||World bank -Remittance Prices Worldwide http://remittanceprices.worldbank.org/RemittanceCosts/?from=163&to=17 , May 2009|
|||Remittance flows in thick http://www.bangladeshnews.com.bd/2008/10/08/remittance-flows-in-thick/ , May 2009|
|||Asia Online http://www.asiaone.com/Business/News/SME%2BCentral/Story/A1Story20080325-56157.html , March 2009|
|||Reserve bank of India, http://www.rbi.org.in/scripts/PublicationsView.aspx?id=159, Mar 09.|
|||Payment System of China, www.mof.go.jp/english/if/SSEAE2003-2.pdf, March 2009.|
|||Foreign Exchange Policy Department, Bangladesh Bank, Feb 2009 .|