In May, Bangladesh experienced a significant decline in remittance inflows, with a drop of 10.27% compared to the same period last year. The primary reason behind this decrease was the higher exchange rate of the dollar in the open market, which tempted expatriates towards hundi, an informal cross-border money-transfer method.
As per data from the Bangladesh Bank, expatriates sent $1.69 billion through the formal banking channel in May, a decline from $1.88 billion recorded in the corresponding month of the previous year.
Bankers attribute the shortage of dollars within the country’s banking system as the driving force behind many businessmen resorting to hundi to collect dollars from foreign sources. Currently, expats receive Tk108.50 plus a 2.5% incentive when sending remittances through the formal banking channel. However, the cash dollar rate in the open market ranges between Tk111-13, while it reaches Tk115-16 in foreign markets.
A senior official at the central bank acknowledges that numerous prominent businesses have opted to collect dollars from foreign sources through hundi, bypassing the official market. This practice has consequently led to a decrease in the inflow of dollars through the formal banking channel.
Overall, the drop in remittance inflows during May highlights the influence of higher dollar rates and the allure of hundi on expatriates, resulting in a diversion from the formal banking system for money transfers.
