Payment of remitted money usually takes three forms. It can be made by cash, by debiting or crediting a bank account, or by use of prepaid funds like electronic money. The disbursement processes involve transfer of information as well as funds. In the formal sector, remittances are commonly transferred by commercial banks, money transfer companies (MTOs), non-bank financial institutions, and post offices. Now-a-days, locally-operated credit unions and microfinance institutions (MFIs) are also increasingly getting involved in the process of remittance transfer in developing countries.
Commercial banks and international MTOs are considered by far the most relevant types. Formal remittances enter a country through official banking channels and specialised money transfer companies, of which Western Union is the biggest.
There are evidences that global development as a whole is contributing to remittance contraction and these factors appear to be relevant for the country as well. Especially, nationalisation trends and risk minimisation are causing notable changes in terms of costs and compliance requirements.
Moreover, taxes on outbound remittances in some host countries, and currency depreciation are discouraging factors for remitters. On the other hand, availability of virtual platforms is making remittance transfer smooth and extremely easy. These are believed to be causing moving back of remittance to the informal sector. All these factors are also pertinent in the context of Bangladesh.
The country faced cut in notable correspondent relationship during the last three years in response to the risk-minimisation actions.
With regard to the process, money remittance transaction may involve a sender, a recipient, intermediaries in both the countries, and the payment interface used by the intermediaries. Together, these comprise the remittance channel. Most remittances are of relatively low value, are regular or frequent, and mainly involve persons at both ends because they are generally targeted at family maintenance.
Remittances assume the form of cash or credit transfers and transfers in kind (involving transfers of goods). Cross-border remittance flow can take place through various channels, depending on availability of services, preference of the remitter, and institutional environment. Formal remittance channels are those officially authorised to operate in the money transfer business, such as banks, money transfer operators, or other officially registered institutions.
Informal remittance channels are outside financial regulation and supervision but often legal; the least official and formal channels for transfer of funds may involve intermediaries which do not operate as formal businesses. The remitter's choice among various channels of fund transfers may be influenced by a host of factors, such as the kind of institutional infrastructure available in the host and home countries, ease of access to formal financial institutions, speed of fund transfer through alternate channels, differential cost of fund transfer, government regulations, incentives offered by the home country in the form of tax concessions and interest rates, identification requirements, and procedural burdens embedded in the formal channels.
Mobile money has established itself as a critical tool for facilitating international remittances while reducing remittance cost and maximising the impact of remittances on development. Because of its reach and growing use among underserved people, mobile money is uniquely positioned to transform formal remittance markets and to advance financial inclusion. Mobile money providers are at the forefront of domestic payment services in many emerging market economies. Traditional money transfer operators are also collaborating with them. Today, Western Union customers anywhere in the world can send funds to Tigo Money accounts in a number of Latin American countries.
Internet-based payment providers are also getting involved. These companies have global reach and substantial experience in the remittance business, bringing additional expertise and robust compliance systems. Several recent global developments with regard to policies and regulations of host countries, approaches, economic conditions, technological developments and risk-minimisation have come up in literatures as factors affecting remittance industry and flows to developing countries.
Bangladesh has undertaken various initiatives to encourage remittance flow and utilise it for economic development. A separate ministry has been established to ensure welfare of expatriate workers and increase overseas employment. To support the process, the government has established different organisations and is offering different investment instruments like non-resident foreign currency deposit, Wage Earners' Development Bond, US$ Bond, US$ Premium Bond, etc. to encourage remittance flow.
Moreover, to boost investment, the government is providing tax holiday and exemption for investment of any venture by non-resident Bangladeshis. The government is working to enhance benefits derived from international migration for socio-economic development of the country. In this regard, it focuses on issues like further reduction of migration and remittance transfer cost and facilitating remittances into productive investments in line with Sustainable Development Goals (SDGs).
Policymakers of the country have come up with several initiatives in this regard. A new drawing arrangement has been made to ease transfer of remittance between commercial banks and foreign exchange houses. The necessary security deposit and minimum deposit have been reduced between foreign money transfer companies and the bank's drawing system of the country in order to ensure remittance flow through banking channel. Due to this, it has become possible to set up remittance system with new money transfer companies which can reduce the cost of sending remittance competitively.
In order to increase competition by reducing the transfer fees and exchange rate margin, it has been ensured that the clause 'Pay cash exclusively' should not be included in the agreement between multinational money transfer companies and commercial banks of Bangladesh so that they cannot create monopoly in the market.
Bangladesh Bank (BB) has set up a 'Customer Interest Protection Center' to address any remittance related complaints from non-resident Bangladeshis (NRBs) and their beneficiaries. They can directly complain to the BB which has also given a circular to all commercial banks to open 'Remittance Help Desk' in each branch.
The aim of the initiative is to extend quality of remittance service delivery for NRBs. It is also aimed at providing remittance-related information and to ensure prompt service to the beneficiaries of the remittance earners. All the banks have been instructed to publish advertisements of different investment-related products of their own highlighting the benefits of sending remittance through legal channels.
Dr. Shah Md Ahsan Habib is Professor and Director (Training) at the Bangladesh Institute of Bank Management (BIBM).