Remittance: Govt's flawed policies boost hundi business

It would not be an exaggeration to blame the government's wrong policies for the prevailing dollar crisis in the country. Former chief economist of the World Bank Dhaka office, Zahid Hossain, also termed this as a fundamental crisis of the economy.

The two main sources of foreign exchange in Bangladesh are exports and remittance sent in by expatriates. Our import costs are higher than our export revenue. As a result, this source hardly contributes in boosting foreign exchange reserves. Therefore, we have to depend solely on the remittance inflow. According to the information obtained from various sources, a large part of the remittance flows in through illegal channels or hundi. Consequently, Bangladesh is deprived of much-needed foreign exchange.

A recent study conducted by the Refugee and Migratory Movement Research Unit (RAMMRU) found that 66 per cent of Bangladeshi workers in Maldives send money through hundi. Around 64 per cent of them do not have bank accounts. There are about 200,000 Bangladeshi expatriate workers in Maldives, a small country in South Asia. The number of Bangladeshi workers abroad is approximately 10 million.

In that case, it is not difficult to estimate the amount of remittance coming from other countries through hundi. The government's restrictive monetary policies, as well as money laundering, are mainly responsible for this hundi business. Instead of allowing the market forces to determine the value of the taka against the dollar, the government's attempts to control it has resulted in the opposite. The dollar price in the curb market is higher than the rate set by the government. It goes up to Tk 6 to Tk 8 higher.

Due to that, expatriates prefer hundi to banking channels. Expatriates persist in choosing hundi as their preferred method of money transfer over banking channels, despite the government's 2.5 per cent incentive. Another reason for the upswing of the hundi business is the massive money laundering from the country. According to experts, smugglers are the main source of money for the hundi traders. Hundi traders take foreign currency from expatriates and deposit it in the smugglers' bank accounts.

Speakers at a RMMRU workshop said that no matter how much incentive the government offers, if the price is higher in the market outside the banking sector, the expatriates will opt for that. There is no alternative to stop the hundi business to increase remittance flow. The country is being deprived of valuable foreign exchange by not leaving the exchange rate of the dollar to market forces.

On the other hand, the 9-6 per cent interest rate fixed by the government due to inflation did not help either. The country witnessed the highest inflation in the past 12 years. On the other hand, imports of many essential goods have also declined due to the dollar crisis. Due to excessive load-shedding during this heat wave, not only was the life of the people disrupted, but also the production in the industries fell down drastically. According to the World Bank, Bangladesh's economy is experiencing significant pressure as a result of import controls and a crisis concerning the availability of dollars.

Government policy makers are also aware of this pressure. They are still reluctant. We believe this is high time. Other than stopping money laundering, the exchange rate of foreign currency should also be left to the market to curb the hundi business. We believe it is imperative to extend institutional support to migrant workers, facilitating their use of proper channels for money transfers.