Around the world, many Bangladeshi immigrants send billions of dollars in remittance, of which most come through the hundi. In the financial year 2021-22, $21 Billion in remittances came to Bangladesh from the official channel, Which was slightly more than half of the country’s total remittance earnings. That means more than $20-21 billion in remittances came through the unofficial channel or hundi. For a long time, hundi has been used as a transaction system because it requires no legal documentation and takes less time than a banking channel to send money to its receiver. Now, the government of Bangladesh is providing several types of incentives for reducing the remittance inflow through hundi. But, still, why is hundi so popular?
What is Hundi? How Does it Work?
Hundi is mainly an informal medium for sending money from one country to another, which is illegal in most countries’ judicial systems. Immigrants mostly use hundi to send their earned money to their country. For the past few centuries, due to less complexity, the hundi business has been quite popular worldwide despite being illegal. Hundi is the practice of sending remittance to home country via an agent. In this case, an immigrant askes the hundi agent to send money via local currency. At that time, the agent informs another agent who takes the money and delivers it to the immigrant’s family member or whoever it is. Hundi does not play a significant role in the country’s economy because no registered inflow of dollars happens, as no bank or financial institution is used as a medium. Moreover, if someone wants to send money to Bangladesh or give payment for product importing, hundi is also used to avoid various banking obstacles.
The Popularity of Hundi
According to the Bureau of Manpower Employment and Training (BMET), till july 2022, millions of Bangladeshi immigrants worked in 168 countries in the world where America, Canada, the Middle East, European countries, China, Japan, Russia are few significant names to take. These immigrants send billions of dollars in remittances to their families in Bangladesh using multiple channels. Among them, the hundi is one the popular medium of sending money. Most Bangladeshi immigrants send money through hundi as it is trouble-free and takes less time. According to the honorable finance minister AHM Mustafa Kamal, currently, in Bangladesh, 51 percent of remittance inflow happens legally, whereas 49 percent of the remaining comes from hundi. However, the covid outbreak lockdown, reduced the use of hundi in the last quarter of the 2019-20 financial year. Because of that, Bangladesh earned its highest remittance of $ 24.7 billion in the financial year 2020-21. However, after the end of lockdown, remittance revenue decreased to USD 21 billion in the next financial year of 2021-22.
According to several mass media, the amount of remittances that enter Bangladesh every year through legal channels or depending on the exchange rate, in some cases more money is being sent to Bangladesh through hundi or illegal channels. For a couple of years, Bangladesh’s government provided 2 percent of cash incentives to stop money trafficking via hundi, which will increase the remittance inflow through the banking channel. Although the incentive has increased to 2.5 percent from 2 percent. But still, what makes hundi a popular source in Bangladesh?
Why So Popular?
The Difference in Exchange Rate
Because of the exchange rate difference between the banks and the open market, the hundi usage is so popular. Though Bangladesh bank has decided on the dollar rate in BDT 95, according to some private banks, they have to purchase it in BDT 97. Nonetheless, the dollar rate in the hundi is BDT 108 to 114. In this case, if an immigrant sends $ 1000 through a bank, the receiver will get BDT 97 thousand at the rate of $ 1 equal to BDT 97. Although local banks charge 1 or 2 percent from the incoming remittance as their fee, after adding 2 percent incentive from the government, the receiver will still get BDT 97 to 98 thousand taka. On the other hand, if someone sends money through hundi, the receiver will get BDT 1 lakh 8 thousand to BDT 1 lakh 14 thousand for USD 1000 at the rate of USD 108 to 114 per dollar. In this case, the receiver will get BDT 10 to 17 thousand taka more after deducting bank charges with government incentives additions. Because of more profit availability immigrants are using hundi as their medium of sending remittance.
Lack of Financial Literacy
The main reason for this widespread hundi business is the traditional banking system. Most immigrants from Bangladesh living abroad are less educated. When sending money through the banking channel, most expatriates suffer from language complications in filling out forms and other documentation. As a result, immigrants prefer hundi over banking because it’s easier and faster for sending money to their countries without any hassle. Meanwhile, according to a source in The Daily Star, about three crore people of the total population of Bangladesh are still outside the reach of banks or any other type of financial institution. Most of them are old and live in rural or remote regions of the country.
The amount of documentation used to be required earlier to withdraw remittances from abroad in Bangladesh’s banking system has significantly decreased. Even still, the village’s common and elderly population prefers to transfer money from person to person using hundi rather than going through the formality of withdrawing money from a bank. Because it takes a significant amount of time to write a check, deposit it to the line, and then withdraw the remittance money from the bank. However, with hundi, there is no such problem. Instead, the agent physically contacts the receiver and gives them the money, or these days, it is being sent via MFS, which is quite easy for the recipient. On the other hand, there is no system to send money to Bangladesh through formal channels from several countries of the world, like South Africa, Iraq, and the Maldives. As a result, immigrants working in those countries are using hundi to send money back home.
Complications While Transfering Money
On the other hand, the customer has to suffer a lot while sending money from a country to their home country through the bank. Banks often ask customers several questions like what is the source of money, who it is being paid to, why it is sent, and other queries to prevent money laundering. Furthermore, various additional documents, starting with the NID card, are required, which causes the consumers quite a bit of hassle. Moreover, students, business people, or tourists living abroad often face harassment even if they go to a bank to buy dollars against money. A bank official not only asks the customer why he is going abroad and what country he will be going to, but also checks the customer’s visa copy, notarized, filled out various forms, attestation from various sources, asking for copies of various documents, and even the customer sometime hears “no dollar today” from bank officials, which wastes valuable time and money. If someone brings dollars from abroad and converts them into taka, they harass by asking for various documents besides giving low rates.
It is very easy to send money abroad through Hundi, so locals also use Hundi to send money abroad. On the other hand, in the case of dollar conversion or buying and selling, when someone calls the Hundi agents, they deliver the money to the customer, by knowing when and where the money or dollars will be needed. As a result, both time and effort are saved for that person. Besides, business persons use hundi to avoid hassles like opening bank LC, paperwork, documentation, showing license, etc. when importing a product from abroad by allowing someone to give the money to the Bangladeshi hundi agent, who informs the agent from the importing country, and the agent pays the exporter directly from that country. As a result, the importer does not have to go through the difficulties of banking and LC.
Since Hundi does not keep a record of money transactions, Hundi is the tool most commonly used to misappropriate government funds and send them abroad. Especially the country’s top business people, high-ranking government, and private officials smuggle the money abroad due to the risk of saving the money earned by illegal means in the country. Recently, scam and money laundering cases like Hallmark, Destiny, and PK Halder’s multi-thousand crore have come to the fore, where there is an allegation against P.K Haldar for assimilating BDT. 11,000 crore alone. In such cases of money laundering, they use hundi to misplace the money as there are risks of getting caught if the transaction is done through the bank. Even today, business persons use hundi for export, hoping for higher profits. As a result, the country’s foreign reserves are also getting low day by day due to insufficient export earnings.
At present, there are millions of Bangladeshis living and working abroad in legal ways. Still, the number of Bangladeshi immigrants earning money illegally is not tiny at all. As these illegal immigrants do not have valid documents and visas, they have no option to send money through banks or any other official channels for fear of being caught, so they seek to send money through the hundi. In addition, immigrants living on student visas can’t work more than 8 to 10 hours a day according to the law of that country. However, many of them earn their income by working longer hours, sometimes up to 14 hours a day, at various places apart from the legal working hours. Because of this, they cannot use banking channels to send money to the country because this income does not have a legal document. So, these illegal job-holders must use hundi to send money to the country.