Remittance down despite expatriates favouring formal channels

In spite of a surge in expatriates opting for formal remittance channels, overall remittance inflows to the country declined by approximately 2.87% during the period of July to December in 2023, as compared to the preceding January-June period, prompting concerns about the health of the remittance sector.

The latest survey from the Bangladesh Bureau of Statistics (BBS) reveals that 93.6% of remittances are currently channeled through formal means, while the ratio was 76.08% in 2013.

The survey, styled “Household Income and Expenditure Survey (HIES) 2022”, reveals diverse channels employed by expatriates for remittance, with banks leading at 77.96%, followed by mobile banking 14.14%, hundi 4.21%, friends 1.58%, Western Union 1.31%, MoneyGram 0.24%, and other methods 4.21%.

In contrast, the 2013 survey depicted a different trend, indicating that expatriate Bangladeshis sent 67.32% of remittances through banks, 10.04% via hundi, 8.5% through friends, 6.87% using Western Union, 4.23% through known persons, 1.65% via MoneyGram, and 1.39% through alternative means.

Although over three million migrant workers left Bangladesh in the last three years, its impact on remittance flow is minimal.

In FY21, Bangladesh received a record $24.77 billion in remittances, but the figure stood at $21.03 billion in FY22, and $21.61 billion in FY23, data from the Bangladesh Bank reveals.

In the July-December period of the current fiscal year, the country’s remittance receipts stood at $10.80 billion.

The contradiction between the increasing use of formal channels and the decline in overall remittance inflows raises questions about the underlying factors affecting the remittance sector.

Analysts speculate there may be challenges such as currency exchange rates, economic conditions in destination countries, or other regulatory factors which are influencing the total remittance amounts despite a higher percentage of expatriates opting for formal remittance methods.

Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office, expresses concerns about the weakened state of formal channels for remittance flows. Despite a monthly outflow of approximately 100,000 workers from Bangladesh, the anticipated increase in remittance flows through formal channels has not materialised.

He noted that expatriates are receiving Tk8-10 more per dollar in informal channels compared to the formal exchange rate.

The decline in formal remittance flows is attributed to factors such as increased demand for dollars in informal channels, a rise in money laundering activities, and the impact of a fixed currency exchange rate introduced in September of the previous year, he observed.

“Since September last year, especially after the new currency exchange rate was fixed, remittance inflows have been declining. Demand for dollars in informal channels has increased as money laundering has increased, causing a decline in remittance receipts through formal channels,” Zahid Hussain said.

He urged policymakers, financial institutions, and experts to collaborate in identifying and addressing challenges that may be influencing the remittance sector.