Remittance black market
Bangladesh is among the top 10 recipient countries of workers' remittances. It has received over $2190 million US dollars from the expatriates legally during first eight months (July- February) of the current fiscal year (2003-2004). But this does not include the remittances made through illegal HUNDI system. A study published by local newspaper The Independent in 2002 found that 40 percent of remittances were being sent through the hundi system.
Usually the Hundi system operates in this way:
A person goes to an unlicensed remittance agent in Country A to send $1000 to a collection point in Bangladesh ran by another unlicensed remittance agent. His assignee collects Tk. 60,000 from that point. Here the exchange rate is usually higher by Tk. 1-2 than the current market. But the remitter doesn't mind as the process is safe and seldom there are greater surety of transferring the money. And if you are guessing how HUNDI agents make this happen, then you must know that all the smugglers and the exporters/ importers who use under-invoicing to avert higher tax, does their transaction in HUNDI system. If that Bangladeshis agent has $1 million payable to the agent in country A, then the Bangladeshi agent can pay this HUNDI remittance in Tk. in Bangladesh and deduct from the amount payable. The agent in Country A will do vice versa for a similar transaction. So the illegal trades between country A & Bangladesh make this HUNDI thing work and they can easily avert taxes. Another example.
Under legal system, The remitter can send a bank draft via airmail to his/her relatives. There are rackets now active in Bangladesh to steal those letters from post office, which contain bank draft/cheques and encash it in Hong Kong or another point falsifying identity. A remitter cannot wire transfer money to a person who does not have an account. And in remote places there are no banks within a great distance. And even if a person gets a check/draft from the remitter, it usually takes more than a month to encash it and with immense hassle.
So the Hundi system is reliable for those who does not have access to banks.
The global official remittance market is estimated to be worth 95 billion dollars. So you have an idea how big the illegal market is.
Raids carried out on hundi centres, especially in the United States and Britain, contributed to the sharp increase in the formal flow of remittances between 2001 and 2002 in Pakistan, from 1.1 billion to 2.4 billion dollars, according to an ADB newsletter. The US efforts to fight Money Laundering is facing many challenges according to this article.
The Bangladesh Government has taken many satisfactory steps to encourage citizens working overseas to make use of official banking systems to send money home. The crackdown on the hundi system in Bangladesh, as well as a reduction in the commissions on remittances, improved banks' efficiency, while incentives to workers who sent money through banks boosted the official remittance flow by 21 percent between 2001 and 2002.
But unless there are enough banks with wire-transfer facilities in the rural areas, there is no hope for a outright change in the habits of sending remittances through HUNDI. If the govt. cannot provide security to the drafts sent by Airmail, how can they expect people to send the money through legalized channels.
There is another option: the banks can license some agents, through which remittances can be sent to peoples doorsteps in the remote areas with a reasonable charge.