Remittances to Bangladesh will pick up in the long run, aided by the rapid expansion of fintech companies despite lingering challenges facing the country’s primary source of foreign exchange.
The resurgence of the “Monday cartel” – which operates an illegal cross-border financial system – has created obstacles to the inflow of funds in recent months.
But the ongoing development in the FinTech industry will erode the strength of money launderers, which will bring positive change in the years to come, analysts said.
Remittances grew 36% year-on-year last year, the strongest in 30 years, according to data from the Bangladesh Bank (BB).
Expats sent home $ 24.78 billion in 2020-2021, up from $ 18.2 billion a year ago.
Inflows, however, fell 20% year-on-year to $ 7.05 billion in the first four months of the current fiscal year.
The recent easing of coronavirus-related restrictions on public travel around the world is primarily responsible for the drop in remittances to Bangladesh.
As cross-border movements have resumed, the Monday cartel has become active again, said Mustafizur Rahman, a distinguished member of the Center for Policy Dialogue.
On top of that, expatriates sent large sums of money to their respective families to deal with the economic hardships households endured during the height of the pandemic, he said.
The drop in remittances is not an unusual trend, but the influx will be higher than the level before the pandemic this year, he predicted.
Rahman suggested that the central bank further depreciate the taka’s exchange rate against the US dollar in an effort to encourage senders to send money through formal banking channels.
The interbank exchange rate stood at 85.80 Tk to the dollar on November 18, compared to 84.80 Tk a year ago.
But people are now paying over Tk 90 to buy a dollar in the market, an informal and illegal arena where one can buy foreign currency.
“The large gap between the formal and informal sectors generally encourages Monday cartels,” Rahman added.
In addition, the central bank should strengthen supervision to contain money laundering activities, he said.
Rahman went on to express the hope that remittances would reach a satisfactory level within the next three to four years if appropriate action is taken.
Mohammad Ali, additional managing director of Pubali Bank, said the strength of the Monday cartel has started to wane thanks to the wide range of fin-tech operations around the world.
For example, remittance recipients now receive the money in real time, which means that the money is credited to their accounts right after it is sent to them by the expats.
Different social media sites like Facebook and Instagram are working to make their platforms settle transactions in the years to come, he added.
There are many developments taking place in the tech world, which will significantly reduce the power of the Monday cartel, Ali said.
Expats mainly send their hard-earned money to their relatives through informal channels, as these require fewer commissions than the banking industry.
Recent and upcoming developments in the fintech industry will deal a blow to these informal channels, Ali said.
Abul Kashem Md Shirin, managing director of Dutch-Bangla Bank, said the digital bank helps lenders transfer funds to beneficiaries.
For example, DBBL customers can easily withdraw their remittances through the lender’s ATMs and bank agent outlets, he said.
The bank, a leading lender in terms of remittance mobilization, has set up the largest ATM network system in the country, establishing nearly 5,000 units.
DBBL has also signed agreements with more than 60 foreign companies, which are dedicated to the mobilization of remittances.
Mohammed Monirul Moula, Managing Director of Islami Bank Bangladesh (IBBL), said Bangladeshi expats can easily open accounts with the lender from overseas as it recently introduced a digital banking app.
This has helped expats send money to a large extent, he said.
The Sharia-based lender, which is the leading player in the banking sector in terms of fundraising, regularly sends its employees to different countries, to encourage expatriates to send their money through the formal channel.
At present, around 20 bank officials work in different countries.
IBBL has signed agreements with 147 foreign companies to mobilize remittances, Moula added.
The bank has so far set up around 2,600 outlets and 2,000 ATMs, which are also used to withdraw remittances.
“We will introduce a remittance card for beneficiaries by January of next year, which will boost remittances,” he said.
Mashrur Arefin, managing director of City Bank, said the lender now provides “transfer loans” directly to beneficiaries.
The bank has already paid Tk 110 crore to 1,400 remittance recipients in Bangladesh.
“Through our own subsidiary – CBL Money Transfer Sdn Bhd in Malaysia – we encourage senders to send money home through the bank channel.”
The subsidiary has already created 15 branches in the foreign country.
Tarique Afzal, managing director of AB Bank, said the bank now grants an additional 1% incentive to recipients of remittances.
This means that customers can take advantage of three percent of incentives in addition to the two percent declared by the government, he said.
In addition, the bank has set up special counters for recipients of remittances in the 104 branches.
“We provide debit cards to beneficiaries so that they can withdraw money from any ATM machine, which is why Monday will be ignored in the future due to the rise of financial technology companies. “said Afzal.
Md Arfan Ali, Managing Director of Bank Asia, said the export of human resources was facing a major disruption globally due to the pandemic, resulting in a negative impact on remittances for the time being.
But that won’t last long as the traffic restrictions are completely lifted, he said.
Ali said, however, that relevant authorities should focus on exporting skilled workers, which will eventually pay off.
Salehuddin Ahmed, former BB governor, said the government should take more initiatives to export human resources as the sector suffered a setback during the lockdown.
“If we don’t approach the issue with the utmost importance, remittances will not increase at a faster rate.”
Between January and September of this year, some 3.83 lakh of people went to work abroad.
The figure was 2.17 lakh last year and 7 lakh in 2019, according to data from the Bureau of Manpower, Employment and Training.