Bangladesh witnessed a threefold rise in human outflow over the past decade. Yet, remittance inflow has experienced relatively poor growth, rising from $15 billion to a maximum of $24 billion.

The gap between possible remittance and actual US dollars received widened, raising a loud question: where are the missing billions going?

The answer can be found in a recent World Bank study that said a 1 percent deviation between the formal and informal exchange rates is estimated to shift 3.6 percent of remittances from the formal to informal channel.

Considering the 2023 formal remittance inflow of $22 billion, such a 1 percent deviation between the exchange rates would create a shift of about $792 million outside the formal channel. Again, if that deviation was increased to 5 percent, the amount would be nearly $4 billion.

Despite rate hikes through the crawling-peg system, a remittance receiver can get a maximum of Tk 117 per US dollar and the incentive from banks, whereas the domestic kerb market offers an exchange rate ranging from Tk 120 to Tk 125.

In 2022, former finance minister AHM Mustafa Kamal stated that just 51 percent of remittances to Bangladesh use formal channels.

There are reportedly more than 1 crore Bangladeshis working abroad.

Bangladeshis abroad continue to send money through informal channels, popularly known as hundi, allured by higher exchange rates and convenience. Even the government's 2.5 percent cash incentives prove lacking in adequate pull power.

In fact, cash incentives seemed to have widened the gap between the official and informal rates. The conventional view of the hundi business portrays migrant workers abroad as the primary drivers of demand. They seek hundi services to transfer their earnings back home. Hundi agents abroad and within the country are believed to control the supply side. At times, they also lend money in advance.

Remitters exchange their foreign currency with the hundi agent abroad, who subsequently instructs their agent in Bangladesh to pay the equivalent amount in Bangladeshi taka to local beneficiaries. The US dollars remain abroad.

The central bank has issued repeated instructions to banks, mandating remittance disbursement to beneficiaries within two days without imposing additional fees and fair pricing prioritising quick and cost-effective delivery.

A recent central bank monetary policy statement report outlines collaborative efforts between the Bangladesh Financial Intelligence Unit (BFIU) and other law enforcement agencies to identify individuals engaged in hundi activities and curb unofficial remittance channels.

The Probash pension scheme, designed to provide financial security for expatriates through long-term contributions, is reportedly on the wane. Low interest rates, the absence of a one-time payment facility, and the weakening value of the taka against the US dollar contributed to the scheme's attractiveness.

On the other hand, a praiseworthy policy is the tax remission on IT freelancers, who do not have to pay tax at source from IT freelancing jobs, encouraging growth in the digital economy.

While the government's initiatives exhibit positive steps towards enhancing the remittance landscape, addressing challenges such as hundi businesses and refining pension schemes would be crucial for sustaining long-term economic benefits.

However, the efficacy of these policies may go in vain if we fail to promptly stabilize the currency exchange rate through closing the gap between formal and informal markets.

Along with a rational exchange rate policy, whether floating or otherwise, and the encouraging behaviour of migrant workers, a strict mechanism to track money transfers from abroad is needed to check remittance leakage through hundi.

Expatriates should also be able to open bank accounts online. Also, the Expatriate Welfare Ministry's desk in our overseas missions should help Bangladeshis open bank accounts. If banks are kept off-limits, it cannot be expected that remittance earners will be encouraged and move from one city to another to find a bank branch.

Many professionals, who invested in a US dollar bond, find their foreign currency account in a bank dormant every six months. It requires repeated reactivation.

If banking services remain complex and exchange rates not encouraging, when we are aggressively looking for US dollar earning non-resident Bangladeshis, then they will look for easier and faster ways to send money home.

The author is chairman of Financial Excellence Ltd.