Half of the $40 billion in annual transfers go through informal channels

The dollar rate differs from the minimum Tk6 between formal and informal channels

The formal channel offers 86.45 Tk, hundi 91-92 Tk for every dollar

Bangladeshi expats cannot legally send from multiple countries


Hundi – the means of sending remittances through informal channels that came to a halt during the pandemic – has regained its previous pace again thanks to a big difference between dollar rates in banks and the curbside market, according to the best economists in the country.

Banks are currently suffering from a dollar crisis for various reasons, such as increased import growth in the country, they added.

As a result, banks sell hard dollars at a rate above the price set by the Bangladesh Bank. Prices also rose at the curbside market.

For these reasons, the difference between remittances going through formal and informal channels is at least Tk 6 for every dollar. As a result, expats – despite the fear of losing money – are sending foreign currencies through informal channels in hopes of making more profit.

Hundi is an informal money transfer system in which local agents disperse or collect money on behalf of friends, relatives or other agents without legal protection or supervision, hoping that all remaining obligations will be settled. by future transactions.

According to some researchers and economists working on remittances and employment of migrant workers, the country’s remittance market is about $40 billion, half of which goes through informal channels.

They pointed out that the country is deprived of a lot of foreign exchange earnings due to its inability to control hundi.

According to a source close to the Hundi business, the Hundi “business” takes place freestyle in a mall in the capital Naya Paltan.

This correspondent – ​​disguised as a seller of dollars – contacted several exchange centers in the mall on Tuesday to investigate the matter first hand. Most of them claim that money cannot be brought from abroad into Hundi.

When a proposal was made for the transaction of a large amount, an official of a company located on the fourth floor of the building offered the transaction hundi at the rate of 91 Tk for one dollar.

However, he was not interested in any banking transaction of dollars or any other currency. According to its terms, the sender must pay hard dollars to their designated person. As soon as the person receives the dollars, the officer will pay the taka to the recipient at his own office according to the rate.

How hundi is profitable

On Wednesday, Bangladesh Bank raised the dollar rate from Tk 86.20 to Tk 86.45. However, a number of private banks said they were buying dollars at Tk 85.50. So, if an expat sends $100 to the country through a legal channel, he will receive 8,550 Tk.

However, after adding a government incentive of 2.5% and deducting a fee of 1-2% from the payout depending on the institutions, the client gets between 8,593 and 8,678 Tk.

Since there are no separate fees, a customer can receive 9,100-9,200 Tk in Hundi for every $100. In other words, if we send it through the informal channel, we will get Tk422-607 more than what we would have through the formal channel.

Khondaker Golam Moazzem, research director at the Center for Policy Dialogue (CPD), told The Business Standard that remittances that transit through hundi will send more money directly to customers’ homes than through the banking channel. People send money via hundi to get this benefit.

“The dollar exchange rate should be reduced, and although the effective exchange rate is very high, our nominal exchange rate is very low,” he said.

“The rate is determined primarily by keeping in mind the cost of import and export earnings. The issue of remittances is kept in the background when deciding whether to increase or decrease it. However, considering from all aspects, it seems that the value of our money should be devalued to a limited extent,” he added.

Md Arfan Ali, managing director of Bank Asia, told TBS that the dollar exchange rate should be left to market demand and supply.

“Then the market will be balanced,” he added.

Why hundi happens, where do dollars go

On the reasons for the increase in the Hundi, Professor Tasneem Siddiqui, founding chairman of the Refugee and Migrant Movements Research Unit (RMMRU), told TBS that there is no way to send funds through a formal channel from several countries such as South Africa, Maldives and Iraq.

Again, many migrant workers staying there illegally also cannot send money through a banking channel, she added.

“So they are forced to resort to hundi. Again, some of the remittances from Malaysia come into the country via hundi via Singapore. A lot of money from the Middle East goes through hundi,” she said. added.

Regarding the Hundi process, Professor Tasneem Siddiqui said that Hundi traders hire agents where expatriate workers work.

The traders, on the one hand, collect the foreign currencies from the agents and remit the money to the persons designated by the senders through their channels in Bangladesh. On the other hand, the coins collected are used in import-export business.

“Our import-export traders under-invoice and over-invoice for tax evasion reasons. They buy dollars from the hundi market and fill it. The money is also used in many illegal transactions, such as gold smuggling and drug trafficking,” she added.

There are also other ways to do Hundi business. A huge cycle is involved in this. They have people in every country inhabited by expats.

The scholar emphasized revising the tax policy and said the government should formulate the policy in such a way as to reduce the demand for hundi. It is difficult to control hundi activity if demand is not reduced.

Khandaker Golam Moazzem also believes that foreign currency obtained through hundi is used for illegal purposes.

He said illegal activities had been somewhat dormant due to the pandemic. Now that the situation has returned to normal, they have resurfaced. As a result, the demand for currencies in the Hundi market has increased a lot.

“I think this is one of the reasons for the rise of the dollar in the informal channel. If there is not much improvement there, then even the incentives will not bring the expected results” , he added.