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Why Do Migrant Workers Use Hundi? Implications on Bangladesh’s Economy

Migrant workers in  Bangladesh are a significant source of foreign currency for the country, with remittances accounting for around 8% of the country’s total GDP on average per annum over the last decade. However, a significant portion of these remittances is sent through an illegal channel known as “Hundi.” This phenomenon has far-reaching implications for the economic situation in Bangladesh. It raises several important questions about why migrant workers prefer this illegal channel to the legal banking system. More than 40 per cent of expatriate income as remittances are remitted to the country through Hundi, according to a Bangladesh Bank report.


Why do migrant workers use Hundi to remit their hard-earned money to their homeland?

One of the main reasons migrant workers in Bangladesh use the Hundi to send remittances is the lack of accessibility and convenience of the legal banking system. Many migrant workers are based in remote areas, and the nearest bank or money transfer service may be miles away. Even when these services are available, they can be difficult to navigate and require a significant amount of documentation and paperwork. On the other hand, Hundi is often operated by a network of informal agents based in the same communities as the migrant workers. These agents can be found in local markets, shops, or even in the worker’s own backyard. They are often able to offer a more flexible and convenient service with lower costs and fewer bureaucratic hurdles.

Let me give an example I experienced and learned from many others. A few months back, I was supposed to receive a scholarship stipend with a couple of bucks from abroad, and it was sent to my Bangladeshi bank account in a top-tier bank. I had to go through a lot of paperwork and submit several documents just to receive the money in my bank account. When the country has been going through an extreme dollar crisis, the paperwork for receiving dollars from a foreign country, and that too through a prominent bank transfer, raises serious concerns of convenience and accessibility about the incoming transactions through the legal channels. Being a postgraduate student and professional, I have found it full of hassles, and the procedure was prolonged. Now let’s put someone who acquired a university graduation or beyond degree and is a professional in the shoes of the migrant workers, who are uneducated or very less educated or barely have any knowledge and practice about paperwork. If you visit any bank to receive remittance, you will see how helpless the family of migrant workers looks to go through the paperwork for a few hundred bucks. On many occasions, migrant workers cannot provide the documents to the banks for dispatching the remittance. It involves multifaceted issues. Some of them are a genre of work, the work permit and its validity, the accessibility of obtaining documents from employers, the availability of legal channels both on foreign lands and in Bangladesh for senders and receivers, the higher rate of foreign exchange compared to the banking channels of Bangladesh, and the list go on.


What do other countries do to prevent illegal channels?

I have been to Nepal recently for a conference and exploration, where the country’s GDP is heavily dependent on remittances. During my exploration from the centre to the farthest remote places of Nepal, I found out that the legal channel, in terms of an agent point, is everywhere if the banks are not available, just like mobile top-up points. It exists even in the middle of nowhere in this mountainous country. The remittance receiver only needs to show a copy of the national identity card/passport to receive the money. Similarly, the sender can remit the money through their smartphone in real time. Such promptness, as well as a plethora of options and accessibility, are required to connect with and mobilise migrant workers for sending through legal channels.


Government’s Initiative to tackle Hundi and the outcome of it

Despite the government announcing a 2 percent incentive in 2021 on remittances coming through legal channels like banks, Bangladesh Bank highlighted the information related to Hundi. Despite the global COVID-19 pandemic, remittances in 2020-21 were $24.77 billion and $21.3 billion in 2021-22. Apart from this, in the six months up to December of the current financial year 2022-23, 10.492 billion US dollars have been remitted. Yet almost half of the remittance market is controlled through the Hundi channel. There is seldom any decline of using of Hundi. For example, in the year 2021, where during July-September 2021, expatriates remitted $5.40 billion, which is 19.44 percent less than the 2019-2020 fiscal period. Interestingly, due to the lockdown, remittance flows in all sectors, including the informal sector, had an upward trend during the previous two years of the pandemic. Notably, expatriates sent more money to their relatives during the pandemic, considering the family crisis. However, the travel ban was also a factor that contributed to the increased use of formal channels.


Hundi’s Manifold usages alongside dealing with remittance

Although billions of dollars of remittances are transferred to Bangladesh every year through banking, it is alleged that more money is sent through Hundi. Economists say money is being laundered out of the country due to sending money through informal channels like Hundi. According to the report of the concerned officials, the remittance flow decreased from June to September 2021 as more people chose the illegal transaction system Hundi.


Implications of Hundi on Bangladesh’s Economy and Foreign Exchange

There has been a dollar crisis in the country for quite some time, one of the reasons for which is the decrease in remittances. Apart from the banks, the dollar rate has also increased in the open market. At the beginning of 2021, every dollar was worth around BDT 90 in the open market. It touched a maximum of BDT 119 in 2022. After various initiatives, including an inspection by the central bank, the rate has now come down from BDT 106 to BDT 110, but it has kept increasing again. At the level of import, the price of the dollar, which was at BDT 86 in 2020, rose to BDT 112-113 in late 2022s till date. However, the difference between the bank rate and the open market has increased to around 10-12 BDTIt decreased slightly from 104 to 106 BDT in the middle of 2022. This is how the dollar rose as supply fell short of demand. Due to this, the price of the product has increased on the market. However, at present, the dollar rate banks give while buying dollars from customers or receiving remittances is still 101 BDT. Whereas in the open market, it regularly touches 112-113 BDT. On the other hand, banks charge at least 107 BDT when anyone buys dollars or pays for any international transactions like airfare.

There has been extreme instability in the foreign exchange market in the country for more than four months. The volatility is centred around the dollar crisis due to an abnormal jump in import costs and a downward trend in expatriate income. As a result, the Bangladeshi taka is gradually losing value against the dollar. In addition, the dollar price in the open market has risen to a record level due to the dollar crisis. Currently, the difference between the interbank and open market dollar prices is about 12 BDT. And since the open market rate is much higher than the bank rate, expatriates are sending money to Hundi.

How does Hundi function to make the transactions in two ends?

Digital Hundi has become strong again. Due to this, the desired foreign exchange is not coming to the country. Only messages with instructions to deliver money are coming. Hundi traders from abroad send emails, mobile SMSs, Messenger, IMO, or WhatsApp instant messages to local agents to send money to expatriate families. Based on that message, the local agents deliver the money to the beneficiary through legitimate channels. In this case, banking channels and mobile financial service institutions (MFS) are being used the most. Apart from this, with the help of various apps, there is an opportunity to send money to the country without an agent.

Hundi syndication works in three groups. Members of the first group stay abroad and collect foreign currency from expatriates. The second group works in the country. They pay the equivalent of Bangladeshi Taka to certain agents who have MFS access. Those MFS agents are the third group. They pay the money they receive through Hundi to specific phone numbers in the country. The exact opposite process occurs when money is smuggled out of the country.  According to the information given by the law and enforcement agencies of Bangladesh, with the help of MFS agents, money launderers are conducting many illegal businesses, including online gambling, drug trading, gold smuggling, and the “yaba” business with acquiring fixed assets abroad.

7.8 billion dollars, or about 75 thousand crores of BDT, have been smuggled from Bangladesh through Hundi. Out of this, BDT 2.70 billion has been smuggled in the last four months. Information has been given to the Criminal Investigation Department (CID) of the police.

Even after the government announced a 2% incentive for remittances made through authorised channels like banks starting in 2021, this is still the case. The appalling information regarding Hundi has been revealed by Bangladesh Bank. The $5.40 billion in remittances from expatriates between July and September 2021 is 19.44 percent less than it was over the same time period the previous year, which is believed to occur due to the popularity of the Hundi. Interestingly, during the last two years of the pandemic, remittance flows in all sectors—including the informal sector due to the lockdown—had an upward tendency. Notably, given the family issues during the epidemic, expatriates sent more money to their relatives. The travel prohibition, however, also played a role in the rise of formal avenues of communication.

It is said that more money is sent through Hundi than through the banking system, despite Bangladesh receiving billions of dollars in remittances each year. According to economists, money laundering occurs when it is sent through unofficial routes like Hundi. The remittance flow fell over the years as more people opted for the unlawful Hundi transaction mechanism, according to the report of the concerned officials. Still, Bangladesh is witnessing a high amount of remittance because more people go to foreign lands to earn money and support their families in Bangladesh.


Emergence to eradicate Hundi and Ensure Accountability

The use of the Hundi has several implications for the economic situation in Bangladesh. Firstly, it leads to a loss of revenue for the government, as Hundi operators do not pay taxes on the money they transfer. This results in a loss of potential revenue for the government, which could be used for public goods and services. Secondly, the use of the Hundi also leads to a loss of foreign exchange for the country, as the money is not recorded in the official balance of payments. This can lead to a shortage of foreign exchange, which can affect the country’s ability to import goods and services. Additionally, the use of the Hundi means that the government does not have any information about the source of the money, making it difficult to track and control illegal activities such as money laundering. Lastly, the use of the Hundi also creates a parallel economy, which can lead to a lack of transparency and Accountability in the financial sector.

Despite the drawbacks, migrant workers prefer to send their remittances through Hundi because it offers them a more convenient, cheaper, and reliable way of sending money. Moreover, they also feel that Hundi provides them with more control over their money and reduces the risk of their money getting lost or delayed. Furthermore, many migrant workers also have a lack of trust in the formal banking system, as they feel that the system is corrupt and unreliable.


What do we require to address and ensure?

In conclusion, the use of Hundi by migrant workers in Bangladesh is a significant issue that needs to be addressed. The reasons for its popularity include its cheapness and convenience, as well as its accessibility to any bare paperwork. However, the use of the Hundi has significant implications for the economic situation in Bangladesh, including fluctuations in the exchange rate, lack of control over illegal activities, and negative impact on the formal banking system. The government of Bangladesh needs to take steps to address this issue by providing more accessible and affordable banking services to migrant workers and cracking down on illegal “Hundi” operators. Additionally, migrant workers need to be educated about the risks and negative implications of using the Hundi and encouraged to use the formal banking system for the national interest.


MD Talebur Islam

Researcher, Columnist, and Communications and Development Professional.

Email: [email protected]

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