THE FALLING REMITTANCE HOW CAN WE REVERSE THE SITUATION?

FARUK AHMED

The remittance, a lifeline of the economy of Bangladesh is now a hot topic in the financial hubs. Despite various lucrative incentives offered by the government, the volume of inward remittances had been showing a downturn in the last couple of months. One of the main reasons is that Bangladeshi diasporas are still preferring unofficial channels to remit their hard-earned money to their relatives.

Inward remittances into the country dropped over 15 per cent in the fiscal year (FY) 2021-22 over the previous fiscal, according to Bangladesh Bank. The remittance inflow declined by around 5.0 per cent in June alone compared to that of the previous month (May).?

The central bank and other banking sources, however, attributed the decline in the remittances to the inflow of a significant volume of foreign currencies through informal channels, meaning 'hundi'. To encourage remittance through legal channels, the government has raised the rate of incentives by 0.5 per cent to 2.5 per cent from January 2022.

As the remittance is falling, the foreign exchange reserve has come under severe pressure in recent days which has created an uncomfortable situation for the government to meet import demand that has forced the Finance Minister AFM Mustofa Kamal to beg for a multi-billion dollar loan from IMF and more from other multilateral donors.

The World Bank has predicted that Bangladesh may continue to experience a meagre growth in remittance inflow of only 2 per cent to $22 billion this year while remittances to Pakistan are likely to grow by 8 per cent to $34 billion and in India, this growth is likely to be 5 per cent in 2023.

Opposition politicians are blaming the government for its failure in economic management to arrest this falling trend while economists are finding the IMF loan as a respite for the government to tackle the crisis. But all of them agreed on one point Bangladesh needs to take more pragmatic steps to reverse the situation attracting more remittances through official channels.?

The question is: how can we reverse the situation??

A DEDICATED MOBILE APP- The Ultimate Solution

Bangladesh can attract more formal remittance by trimming down Hundi inflow facilitating low-income migrant low-cost delivery channels introducing a dedicated mobile app which will enable migrant workers to send money to their families with a single click.

Industry experts say the actual volume of formal remittance to the country is supposed to be much higher than the official figure. The missing volume is coming through Hundi – a traditional informal channel that deprives the National Exchequer of the legitimate deposition of foreign currency earned and sent by hardworking Bangladeshi expats.

Their preference for Hundi emanates from a few advantageous reasons – a) the commission rates for transferring money through hundi or hawala are quite low b) the exchange rate is higher c) easy as no requirement of disclosure of the source of income and d) delivery of money instantly to the respective recipient.

Every year, around 1.2 million Bangladeshis leave the country to work and live abroad contributing 15 per cent of GDP through sending hard-earned remittances. From the migration process to remitting money to their families living in rural areas, the expatriate Bangladeshis have a feeling of being exploited and their frustration leads them to illegal Hundi for a better rate, lower fee and convenient remittance transactions.

If they find an alternative way to get better exchange rates and quick delivery at lower rates, they will refrain from being the victims of hundi traders who are exploiting them using the logo of mobile financial service (MFS) which is very familiar to them, industry experts say.

Mobile Financial Service is a unique payment method and the best tool for the last mile solution”, said Dr Yousuf Khan, a remittance expert and former Deputy Managing Director of Mercantile Bank. “Hundi traders are now misusing this tool effectively, so banks should immediately deploy this innovation in its remittance service model and offer better rates to keep migrant workers”, he said.?

A number of Bangladeshi expatriates living in Australia, Italy and London have expressed their dissatisfaction over the performances of exchange houses operated by commercial banks and the rates offered by them. After the tie-up of bKash with WorldRemit, most of them send money through bKash and other MFS operators which helped push up remittance inflow to its record highest high of $22.07 billion in 2021.

But the volume of remittance inflow to middle east countries through official MFS channels is not significant as workers who at most times stay in remote areas do not use MFS channels. If they can send money from their accounts with bKash or other operators instantly from their workplaces, the volume of remittance would be higher.

Lower exchange rates and some incidents of delay in cash delivery driven by cash shortage in some bank branches allow migrant workers to use unofficial channels which ensure the quick and safe delivery of cash in remote areas, they observed.

“Money has no heart, it always moves toward high yields. You can’t stop its movement with only utter some words, without better rates, better environment, and better delivery service”, said Nujat Nuery Lopa, now living in Sydney.

“Our income is too small, so we remit a very tiny amount. We need better rates and quick delivery of cash to our relatives, whatever the channel might be”, said Motahar Hossain, a construction worker in Saudi Arabia. “As bank branches and ATMs are not available in remote areas, most migrant workers find mobile banking as the best solution”, he said.

Industry experts say a dedicated mobile app can attract these workers to send money instantly to their family members. This will reduce the cost of transactions and delivery significantly. As the operators will be Bangladeshi MFS providers partnered with banks, the central bank will be able to monitor real-time fund flow through such remittance apps, they say.

The digital remittance market is likely to grow at a CAGR of 27% during the forecast period 2022-2032. The market is expected to be valued at USD 18.16 Billion in the assessment period 2022. As per the latest World Bank's report, the remittances industry moves over $600 billion around the world, with $466 billion being sent to low-and-middle-income countries.?

Remittances are expected to continue to increase in 2022, by 27% to reach nearly USD 18 Bn. The international community is striving to considerably reduce the cost of remittance services. This will eventually propel the growth rate of the digital remittance market in the forthcoming future. Robust growth in transfers from countries in Southeast Asia assisted offset lower remittance flows from other regions, especially the Middle East and the United States.

MOBILE APPS: Cut Cost, Push Up Inflow

According to The World Bank data, the Global Weighted Average increased to 4.71 per cent in Q2 2021, from 4.54 per cent in Q1 2021. Banks remain the most expensive type of service provider, with an average cost of 10.64 per cent. In Q2 2021, mobile money was the least costly instrument to originate remittances and was also the least cost instrument to receive remittances.?

After the introduction of mobile remittance apps, the cost of sending remittances reduced significantly over the years. Globally the average cost of sending $200 was 6 per cent in the fourth quarter of 2021, double the SDG target of 3 per cent, according to the Bank’s Remittances Prices Worldwide Database. It is the cheapest to send money to South Asia (4.3 per cent) and the most expensive to send to Sub-Saharan Africa (7.8 per cent).

The GSM Association (the trade association of mobile operators) released a study on the cost of remittances sent over mobile phones in Africa, finding that mobile technology cut remittance costs in half. The key is digital and mobile technology enabling efficiency and cost savings for senders and receivers of remittances.

What determines a migrant’s choice of payment channel when remitting money abroad?” A study by the EU shows that bank transfers are used less often for small remittances because of relatively high fixed fees. The results indicate a strong effect on a person’s living environment. In general, people living in urban areas are more likely to use MTO services or one of the other non-bank remittance options.

A survey conducted by the central bank of Kenya in 2021 established that the Kenyan diasporas prefer digital service providers due to convenience, efficiency in terms of speed / prompt service and ease of access. On average, recipients receive the funds sent on the same day, reflective of the high efficiency of these channels.?

The world of modern money transfers has made it incredibly easy, and safe, to move money from one place to the next. While in the past one has to go to the bank or a local post office to move money, these days one of the most effective ways to transfer hard-earned remittance is via a mobile app. This development in the industry has opened up a world of possibilities for all kinds of opportunities, but in particular, it is a game changer for those who work in distant places and are looking to send money home.

And with a mobile remittance app, one can really look forward to the fast transfer of money. With the best apps, money can be sent within seconds. There is no paperwork to go through and no downtime when it comes to organising the transfer. Bangladesh can reverse the falling situation by deploying its own dedicated mobile remittance app, particularly in middle eastern countries.

EXAMPLE IS BETTER THAN PRECEPT

Realising the potentiality of mobile remittances, many developing countries have developed mobile apps to attract remittances. M-PESA established on 6th March 2007 by Vodafone's Kenyan associate, Safaricom is one of them. It has more than 604,000 active agents operating across the Democratic Republic of Congo (DRC), Egypt, Ghana, Kenya, Lesotho, Mozambique and Tanzania.?

Safaricom and Visa have launched ‘M-PESA GlobalPay’ that enables customers to use M-PESA to shop at more than 100 million merchants across 200 countries for the first time. Through strong relationships with leading money transfer operators such, M-PESA is the destination for over US$1.5 billion in remittances every year, including 60% of formal remittances into Kenya and 20% into Tanzania.

Remittance inflows to Kenya have increased tenfold in the last 15 years reaching an all-time record of USD 3,718 million in 2021. South Asia remains the lowest cost-receiving region, with an average cost of 4.30 per cent. Sub-Saharan Africa remains the most expensive region to send money to, recorded at 8.72 per cent total average cost in Q2 2021.

Kabayan Remit is the leading single corridor online money transfer platform in the UK, with a sole focus on money remittances sent to the Philippines. With a great understanding of the Philippines and its culture, Kabayan Remit provides a unique approach to helping Filipinos who work hard overseas send money to their loved ones back home.

To increase financial inclusion among Syrian refugees in Jordan, GIZ teamed up with Dinarak, a licensed payment service provider in Jordan, to explore digital solutions for increasing access and usage of remittances and financial services.

THE BOTTOM LINES

Remittances from more than 10 million citizens abroad are very important for Bangladesh and along with garment exports are key sources of foreign exchange earnings. The remittance sent by them is 2 times higher than readymade garments, 15 times higher than FDI, 5 times higher than foreign aid and 10 times higher than the industrial growth of the country.

To arrest the falling remittance trend, Bangladesh should build its own mobile remittance app, particularly for workers in Middle East countries so that they can send money instantly from their workplaces. More study is needed to explore more possibilities. Here, policymakers, regulators, MFS operators and market observers should work together for better performance.?

( The article was published in DIGITAL FINANCE, a monthly special of THE BANGLADESH EXPRESS on August 31, 2022)

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