In Bangladesh, at least $20 billion annually comes through the hundi channel. Though, the government of Bangladesh is providing several types of incentives to reduce remittance inflow from the hundi. But, still, the hundi business is popular in Bangladesh. Historically, hundi transactions happened hand in hand, and now, it is being completed through mobile banking and MFS. Import-oriented business persons are trafficking several crores of money using the hundi, and the country is losing revenue. The hundi heavily damages the country’s foreign reserve revenue and the overall economy. However, under the supervision of the Bangladesh Government, the CID and Anti-Corruption Commission are showing their activities to prevent the hundi.
In the financial year 2020-21, during the covid pandemic, Bangladesh earned its highest remittance of $24.8 billion. On the other hand, in the financial year 2021-22, though the situation was relatively stable, the remittance was only $21 billion. Unofficial mediums like hundi are used instead of official channels to move money, which is why this abnormal situation occurs. According to the honorable finance minister AHM Mustafa Kamal, 51 percent of the remittance inflow comes from the legal way or the official channel, but 49 percent comes from the hundi. According to the Bureau of Manpower Employment and Training (BMET), as of July 2022, Millions of immigrants are currently working in 168 different countries around the world like America, Canada, the Middle East, Europe, China, Japan, etc. According to Bangladesh Bank, in the financial year 2021-22, the total remittance was $4.5 Billion came from the most lucrative remittance market of Bangladesh, which is Saudi Arabia. However, in the previous financial year of 2020-21, the amount of this remittance was $5.7 billion which means the remittance inflow reduced to $1.2 billion, on which most of them came from the hundi or the unofficial source. According to CID, the MFS organization in Bangladesh like Bkash and Nagad’s five thousand agents are involved in illegally transferring money from abroad to Bangladesh or Bangladesh to abroad. Most of the time, Bangladeshi immigrants use hundi to send money to their country as there is no hassle of paperwork to transfer money. Two years ago, to stop transactions via hundi, the government of Bangladesh was providing 2 percent of incentives to increase remittance inflow from banks which had already increased to 2.5 percent. But recently, remittance inflow from Saudi Arabia, Malaysia, UAE, Oman, Kuwait, and the UK has decreased significantly. Moreover, in countries like South Korea, Iraq, and the Maldives, there is no option to send money through a formal channel to Bangladesh, so immigrants there are using hundi to send money to Bangladesh. The relatives of the immigrants in the country received the money through Hundi on time, but since this money transfer does not add to the national bank system, this adversely affected Bangladesh’s foreign reserves. Besides, there are many freelancers in Bangladesh who work with their foreign clients on a regular basis, and most of them collect their payments via hundi instead of legal channels because of the high exchange rate. Again there are no options to purchase the subscription to international services directly, so these service users have to rely on hundi, which also affects the country’s economy.
According to a report from the Daily Star published in July 2022, in 2021, the total amount of money deposited by Bangladeshis in various banks in Switzerland stood at 871 million Swiss francs or BDT 8,266 crore, which is 55 percent more than the previous year’s 563 million Swiss francs or BDT 5,215 crore. The question may arise, why and how are they taking out so much money from Bangladesh and depositing it in Swiss banks instead of in the country’s banks? As these amounts of money are mainly obtained through various forms of corruption or dishonest means, it is very risky to keep this black money in the country, and that’s why it is being smuggled abroad. And the main source of this money laundering is hundi. As nobody keeps the track record of transactions for hundi transfer, the rich and unethical business person keeps their black money via hundi to several banks abroad like the Swiss banks. Again, many unethical business people are smuggling their ill-gotten money through hundi to countries like the Middle East, Thailand, Malaysia, Singapore, the USA, and Canada, and keeping the money in banks there or investing in various real estate. In this way, the economy of Bangladesh is suffering due to the country’s money being smuggled abroad instead of kept in the country.
Hundi is still popular because of the several documentation difficulties and legal bindings for official financial transactions. Moreover, Bangladesh’s currency has lost value against the dollar, due to global inflation. As the dollar rate is higher in the curb market compared to official channels, BDT 5 to 10 or even is available per dollar in hundi, so people are using hundi more than legal channels. Apart from this, as there is no opportunity for direct banking transactions in Bangladesh with different countries of the world, the use of the Hundi is increasing in dealings with those countries. A large amount of money is laundered from Bangladesh through Hundi, which is another reason of Hundi’s popularity. And as a result, the government’s revenue from the country’s foreign reserves is constantly decreasing.
The country’s foreign reserves suffer the most because of using the hundi or any other unofficial channel instead of making money transactions. Because, the largest part of a country’s foreign reserves comes from remittances sent by immigrant workers. When a Bangladeshi immigrant forwards his earned money to his relatives in Bangladesh through a bank, the foreign currency is deposited by the banks, and the recipient receives an equivalent amount of Bangladeshi taka. Later, after covering the trade deficit created due to export and import activities, the balance of payments amount is credited to the country’s foreign reserves. But, when the same immigrant remits money to the country through Hundi, the recipient gets the money he deserves but still, the foreign currency earned by the expatriate remains in the country. Doing this adds no foreign currency to the country’s foreign reserves. For example: if an immigrant from Qatar sends money via hundi, that time he gives the money in Qatari riyal to the hundi agent of that country. Meanwhile, the Hundi agent in Bangladesh delivers the Qatari Riyal equivalent to the recipient. If money is sent here through the banking channel, it would be converted into Qatari riyal dollars and come to Bangladesh as a foreign currency, thereby increasing the country’s foreign reserves. However, just because it has been sent via hundi, only money changes hand to hand with the country, and the foreign currency remains in Qatar.
According to a source of Bangladesh Bank, the total foreign reserves of Bangladesh in the financial year 2020-21 were more than $46 (46.4) billion which decreased to about $42 (41.9) billion in the financial year 2021-22. Basically, the remittances of immigrants coming to the country through hundi do not contribute to the economy. Besides, the main reason behind decreasing the foreign reserve in Bangladesh is the increase in import costs as well as the hundi. In the last of February 2022, there was inflation in the global economy due to the war between Russia and Ukraine. As a result, America changed its policy, and other currencies around the world began to lose value against the dollar. From May of 2022 in Bangladesh too, the value of taka against the dollar continued to decrease, the exchange rate went up to 90-95 taka per dollar in the banking channel. On the other hand, at the same time, one dollar was being exchanged at the rate of BDT 105 to Tk 110 in the curb market, which is BDT 15-20 more than the legal channel. In May of the financial year 2020-21, earnings from the remittance were $2.2 billion which was reduced to $1.9 billion in the financial year 2021-22. That is, from the decrease in the amount of remittances in the official channel, it can be pretended that the amount of transactions through hundi increased at that time. As a result, the inflow of dollars into the foreign reserves keeps decreasing. As a result, foreign reserves fell to just $37.06 billion in September of the financial year 2022-2023. In order to reduce the additional pressure on the country’s foreign reserves, the government has already reduced the number of imports, and the budget deficit of Bangladesh and to strengthen the foreign reserve , the government is seeking loan help from the IMF.
Moreover, despite Bangladesh being an export-oriented country, starting from RMG to electronics, raw materials for almost all types of manufacturing products still have to be imported into Bangladesh. While making these imports, the importers create invoices showing a lower than the fixed value at the time of LC opening to evade taxes and duties. By doing this, even if the importer pays tax and duty against the LC, the part which is outfitted is paid through hundi, so the government does not get any tax or duty from it, reducing the revenue of the government.
It is through remittances or exports that the country’s GDP increases. But if remittance enters the country and the money of corrupt and dishonest business people goes out of the country through hundi, the country’s economy will fail to grow properly. The economy of Bangladesh is still relatively small and growing compared to its neighboring countries. But the economy of Bangladesh is constantly suffering due to hundi activities for a long time. If remittances from abroad had come through official channels and money laundering could have been prevented, there would have been significant growth in the country’s GDP growth, industrialization, and the country’s economy. It should be noted that it will not be possible to completely eliminate this hundi that has been going on for the past few hundred years. However, the country’s huge remittance income and money laundering abroad can be prevented if at least 20 to 50 percent of hundi trade can be reduced by adopting various policies, making strict laws, or bringing hundi traders under the law and punishing them seriously. Although the state has seen no such initiative regarding this issue, the government of Bangladesh has become quite strong in stopping the hundi business. CID and the anti-corruption commission are trying to bring these hundi traders under the law.