As a part of the Internship Program of Bachelors of Business Administration program requirement, the author chose to do the internship at BRAC Bank Limited (BBL) for the period of 10 weeks starting from 01 March 2007 to 10 May 2007. In BBL, she was assigned to the different concerned departments. The organizational supervisor was Ms. Tahniyat A. Karim, VP & Head of Human Resource Department. The project for the author of this report is ‘Dynamics of Remittance and its Utilization: The Case of BRAC Bank Limited’ which was assigned by the organizational supervisor of the said bank. Her faculty supervisor Mr. Syed Munir Khasru, Associate Professor, IBA, also approved the project and authorized her to prepare this report.
- To realize the current remittance scenario of our country
- To study the dynamics of remittance
- To understand the utilization pattern of remittances
- To recommend ways of improvement to the existing services considering the utilization pattern
The study uses both primary data and secondary data. The report is divided into two parts. One is the Organization Part and the other is the Project Part.
Primary Sources: For general concept development about the bank short interviews and discussion sessions were taken as primary source. The project part was mostly descriptive and therefore based on secondary sources, but to get a picture of the utilization pattern, a customer survey was conducted with a specific questionnaire in the four branches of BRAC Bank Limited having Western Union outlets – Gulshan, Motijheel, Moghbazar and Dhanmondi.
Secondary Sources: The information for both the Organization part and the Project part of the report was collected from secondary sources like books, published reports and website of BBL. Also the internet and journals were used.
- The survey has been limited to existing beneficiaries residing in Dhaka
- The work has been based on the beneficiaries approaching the Bank to collect remittances over a week’s period.
- Due to time constraints the sample size was limited to 70. Full effort was given to make this sample representative of the population.
- Most recent data and information were not available in all the cases. Therefore at times unfortunately past data had to be used.
Bangladesh – Economy and the Banking Sector
From a mainly feudal agrarian base, the economy of Bangladesh has undergone rapid structural transformation towards manufacturing and services. The contribution of the agriculture sector to GDP has dwindled from 50 percent in 1972-73 to around 20 percent in 1999-2000. The agricultural sector is, however, still the main employment provider. The staple crop is rice, with paddy fields accounting for nearly 70% of all agricultural land.
Industrial production growth has averaged more than 6% over the last 5 years. The export sector has been the engine of industrial growth, with ready-made garments leading the way, having grown at an average of 30% over the last 5 years. Primary products constitute less than 10 percent of the country’s exports; the bulk of exports are manufactured/processed products, ready-made garments and knit wears in particular.
The improved political environment in the country, after a delayed period of civil disobedience brought a much-awaited economic stability during the financial year (FY) 2003-2005. During the year some positive initiative were taken in the banking sector with improvements in the legal and regulatory environment to improve loan recovery but unfortunately the high quantum of non performing assets and under capitalization continued to plague the entire banking sector thus causing a major threat to the macro economic stability. The size of classified loans increased significantly which contributed to lower profitability of the banks.
Reserve of gross foreign exchange of the BB stood lower at US$3,033.88 million at the end of March, 2005 compared to US$3,179.41 million at the end of February. This was, however, higher than US$ 2,653.50 million at the end of March, 2004. The pressure on foreign exchange reserve continues due to low aid disbursement and sizeable private capital outflow, which amounted to around US$ 120 million. The official exchange rate was devaluated by 4.6% in seven steps in FY 2002 and in two steps during July-August 02 thus raising the cumulative rate of devaluation to 6.7%. The external account declined from over 5% of GDP to less than 3% ( US$ 0.9 million) in FY 02 which was mainly a result of healthy export growth (14%) and a significant increase in remittances from abroad, which in turn was due to stable political environment and a higher rate of contraction in import of food grains and capital goods.
Investment rate in FY 04 showed some increase and the declining trend in private savings was substantially reserved. The national savings rate increased from 11.9% of GDP in FY 03 to 14.6% in FY 04. This was partly due to increased inward remittances, increase in nominal interest rates and lower rate of inflation.
The Financial Sector of Bangladesh and Banking Operations
The financial institutions taken over by the government after liberation turned out to be passive instruments of the governments’ economic objectives. The directed lending policies required banks to expand fast into the rural sector and to channel credit into agriculture and other production oriented ‘priority’ pursuits at concessional lending rates; there were detailed sectoral credit restrictions, ceilings and curbs on lending for ‘non-priority’ purposes. In the urban sector, banks were directed to continue financing loss making public enterprises; and industrial term loans to the private sector by SBs were heavily influenced by external pressure. Eventually, loan default and loan delinquency became common place. To reverse the situation and in order to induce a market environment where financial institutions would compete to mobilize savings and seek its efficient allocation, major reforms were put in place starting from 1990. These related to interest rates liberalization, abolition of sectorally directed lending and abolition of sectoral refinancing from the central bank.
The financial sector reforms were implemented in a generally stable overall macro-economic environment, and the post-reform financial system behaved in a manner that is consistent with broad macro-economic stability. The reforms have successfully put in place an operating environment and a regulatory structure appropriate for market based financial intermediation between savers and investors. Collectively the recent reform measures have started to produce results though with a delay as had been anticipated.
The industry still suffers from limited competition, weak adherence to the regulatory framework (e.g., provision and capital requirement), and a selective but unsustainable (i.e., particularly among NCBs and SBs) exposure to Non-Performing Loans (NPL). The latter is in part contributed by excessive borrowing from NCBs, a process often mediated by various government ministries with or without an explicit loan guarantee. Looking forward, it would appear that industrial term lending and general agricultural loans by NCBs and short-term agricultural and micro credit activities of NCBs require a major overhaul as to program design and delivery. The rising concentration ratio since 1999 among FCBs (with the top firm alone controlling over 50 percent of the sector assets) is also of concern. These indicators may be helpful in the decision to rationalize the structure of ownership of the banking sector as a whole.
The Bangladesh banking sector relative to the size of its economy is comparatively larger than many economies of similar level of development and per capita income. The total size of the sector at 26.54% of GDP dominates the financial system, which is proportionately large for a country with a per capita income of only about US$ 370. The non-bank financial sector, including capital market institutions is only 3.22% of GDP, which is much smaller than the banking sector. The market capitalization of the Dhaka Stock Exchange was US$1,025 million or 2.19% of GDP as at mid-June 2002. In contrast, the size of the total financial sector in India, including banks and non-banks as well as the capital market is 150% (March 2002) of its GDP, with commercial banks accounting for 58.3% of GDP.
Access to banking services for the population has improved during the last three decades. While population per branch was 57,700 in 1972, it was 19,800 in 1991. In 2001 it again rose to 21,300, due to winding up of a number of branches and growth in population. Compared to India’s 15,000 persons per branch in 2000, Bangladesh is not far behind in this regard. This indicates that access to the banking system in the country is not a significant problem.
The finance sector remains predominantly bank-based, accounting for 96% of the sector’s resources. While there are sound banks, based on IAS, the banking sub-sector as a whole is technically insolvent. Consolidated data reported tend to have significantly understated provisions. Adjusting partly for the understatements, the financials of the banking sub-sector are characterized by about 32% NPL ratio, US$720 million shortfall in provisions, US$1,106 million shortfall in provisions and capital combined, and losses of US$685 million after adjusting for the shortfall in provisions in mid 2001. The adjustments would possibly be larger if provisioning as followed by major international auditors were applied. National Commercialized Banks (NCBs) also have disproportionately large and unexplained “Other Assets” that include, in particular, jute and other subsidized credits, suspense accounts and various receivables. To what extent these questionable assets have been provisioned remains unclear.
Composition of the Financial Sector
The financial system of Bangladesh consists of Bangladesh Bank (BB) as the central bank, 4 nationalized commercial banks (NCB), 5 government owned specialized banks, 30 domestic private banks, 10 foreign banks and 28 non-bank financial institutions. The financial system also embraces insurance companies, stock exchanges and co-operative banks. The structure of the banking system in Bangladesh is categorized in the following table.
The commercial banking system dominates Bangladesh’s financial sector with limited role of Non-Bank Financial Institutions and the capital market. The Banking sector alone accounts for a substantial share of assets of the financial system. The banking system is dominated by the 4 Nationalized Commercial Banks, which together controlled more than 54% of deposits and operated 3,388 branches (54% of the total) as of December 31, 2004.
Out of the 5 specialized banks, two (Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank) were created to meet the credit needs of the agricultural sector while the other two (Bangladesh Shilpa Bank (BSB) and Bangladesh Shilpa Rin Sangstha (BSRS)) are for extending term loans to the industrial sector.
Financial Institutions (FIs)
Twenty-eight financial institutions are now operating in Bangladesh. Of these institutions, 1(one) is govt. owned, 15 (fifteen) are local (private) and the other 12(twelve) are established under joint venture with foreign participation. The total amount of loan & lease of these institutions is Tk.29,729 million as on 30 April, 2003. Bangladesh Bank has introduced a policy for loan & lease classification and provisioning for FIs from December 2000 on half-yearly basis. To enable the financial institutions to mobilize medium and long-term resources, Government of Bangladesh (GOB) signed a project loan with IDA, and a project known as “Financial Institutions Development Project (FIDP)” has started its operation from February 2000. Bangladesh Bank is administering the project. The project has established “Credit, Bridge and Standby Facility (CBSF)” to implement the financing program with a cost of US$ 57.00 million.
In addition, one national co-operative bank, one Ansar-VDP Bank, one Karmasangsthan Bank and one Grameen Bank and some non-scheduled banks are also in operation. In order to enhance the overall efficiency of NCBs, decisions have been taken to rationalize bank branches, and up to June 2005, 91 new branches were established and 9 existing branches were closed under the ‘branch rationalization program’.
Organizational Overview – BRAC Bank Limited (BBL)
BRAC Bank Limited, with institutional shareholdings by BRAC, International Finance Corporation (IFC) and Shorecap International, has been the fastest growing Bank in 2004 and 2005. The Bank operates under a “double bottom line” agenda where profit and social responsibility go hand in hand as it strives towards a poverty-free, enlightened Bangladesh.
A fully operational Commercial Bank, BRAC Bank focuses on pursuing unexplored market niches in the Small and Medium Enterprise Business, which hitherto has remained largely untapped within the country. In the last five years of operation, the Bank has disbursed over BDT 1500 crore in loans to nearly 50,000 small and medium entrepreneurs. The management of the Bank believes that this sector of the economy can contribute the most to the rapid generation of employment in Bangladesh.
BBL started off in July 2001, and has now grown to 26 branches, 368 SME unit offices and 26 ATM sites across the country, and the customer base has expanded to 200,000 deposit and 45,000 advance accounts through 2006. In the years ahead BRAC Bank expects to introduce many more services and products as well as add a wider network of SME unit offices, Retail Branches, POS and ATMs across the country.
BBL Achievements till date
- Fastest growing bank in the country for the last two years
- Leader in SME financing through 368 offices
- Biggest suit of personal banking & SME products
- Large ATMs (Automated Teller Machine) & POS (Point of Sales) network
Vision, Mission and Values
Building a profitable and socially responsible financial institution focused on Markets and Business with growth potential, thereby assisting BRAC and stakeholders build a just, enlightened, healthy, democratic and poverty free Bangladesh.
- Sustained growth in ‘Small & Medium Enterprise’ sector
- Continuous low cost deposit growth with controlled growth in Retained Assets
- Corporate Assets to be funded through self-liability mobilization.
- Growth in Assets through Syndications and Investment in faster growing sectors
- Continuous endeavor to increase fee based income
- Keep our Debt Charges at 2% to maintain a steady profitable growth
- Achieve efficient synergies between the bank’s Branches, SME Unit Offices and BRAC field offices for delivery of Remittance and Bank’s other products and services
- Manage various lines of business in a fully controlled environment with no compromise on service quality
- Keep a diverse, far flung team fully motivated and driven towards materializing the bank’s vision into reality
Our Strength emanates from our owner – BRAC. This means, we will hold the following values and will be guided by them as we do our jobs.
- Value the fact that we are a member of the BRAC family
- Creating an honest, open and enabling environment
- Have a strong customer focus and build relationships based on integrity, superior service and mutual benefit
- Strive for profit & sound growth
- Work as a team to serve the best interest of our owners
- Relentless in pursuit of business innovation and improvement
- Value and respect people and make decisions based on merit
- Base recognition and reward on performance
- Responsible, trustworthy and law-abiding in all that we do
BRAC Bank has started with an initial capital of amount BDT 250 million, while the authorized capital is BDT 1,000 million. Over time the bank has increased it capital base because of its steady growth and within three years of operations, it has doubled its capital base to BDT 500 million. The Bank has planned to go public by the last quarter of this year (2006) and raise it’s paid up capital to BDT 1000 million. BRAC Bank originated with Local and International Institutional shareholding including BRAC as promoter with IFC and ShoreCap International, UK. Here is the break-up of BRAC Bank’s shareholdings positions.
BRAC, a national, private organization, started as an almost entirely donor funded, small-scale relief and rehabilitation project initiated by Fazle Hasan Abed to help the country overcome the devastation and trauma of the Liberation War and focused on resettling refugees returning from India. Today, BRAC has emerged as an independent, virtually self-financed paradigm in sustainable human development. It is one of the largest Southern development organizations employing 97,192 people, with 61% women, and working with the twin objectives of poverty alleviation and empowerment of the poor.
International Finance Corporation
The International Finance Corporation (IFC) is the private sector arm and the commercial wing of the World Bank Group. IFC promotes sustainable private sector development in developing countries. Using certain channels and overseas representatives, IFC helps local financial institutions find profitable ways to target small and medium sized companies. Funding comes from the Asian Development Bank, Canada, the European Commission, the Netherlands, Norway, the United Kingdom and IFC itself.
IFC is a 19% shareholder in BRAC Bank. A new assistance program signed in August 2005 aims to double the bank’s number of small and medium enterprise clients in 18 months through campaigns to target women entrepreneurs and rural clients, introduce new products and train branch managers.
ShoreCap International Ltd. (SIL) is an international private non-profit, equity company seeking to invest in small business banks and regulated micro finance institutions in countries with developing and transitional economies. SIL was launched by ShoreBank Corporation, America’s first and leading community development and environmental banking corporation. ShoreBank’s international work began in 1983 advising Muhammad Yunus and for 10 years doing the financial feasibility work for the major institutional donors to the Grameen Bank in Bangladesh. Founded in mid 2003, ShoreCap has a current base of $28.3 million in capital commitments and seeks to support the growth of development finance institutions in Africa, Asia and Eastern Europe. The institution has made investments totaling $7 million in Bangladesh, India, Cambodia, Armenia, Mongolia and Kenya. ShoreBank is a 9% investor of ShoreCap and runs the management company, which oversees investment activities.
ShoreCap typically invests between $500,000 and $2 million for an ownership position of 10-25% of a company. As a minority shareholder, ShoreCap seeks financial institutions with a strong, experienced management team and a committed set of local development-minded investors. ShoreCap currently owns 18% of BRAC Bank Limited
BRAC Bank has a centralized banking structure through online banking system that resembles the ABN·AMRO Model. Overall, BRAC Bank is divided into three major units – business unit, operations unit and support unit. All the functional divisions are discussed below. Besides these divisions, there is another support division for infrastructural support of BBL – Channel Infrastructure Development and one more operations divisions – General Infrastructure Services.
Retail Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks. In BRAC Bank Retail section has been divided into four parts –
- Distribution – Serve the acquired customers
- Sales – Business acquisition.
- Non Funded Business, Alternate Delivery Channels, Priority Banking
- Phone Banking
They are interdependent and work closely with each other. Retail offers different types of competitive banking products to the customers. The retail division of the BRAC Bank also offers some special types of deposits and loan scheme for the customer attention.
- Doctor’s loan
- Secured Loan
- Highflyer loan
- Topup loan
- Credit Card Loan
- Travel loan
- Study loan
- Teachers loan
- Car Loan
- NOW Loan
- Salary Loan
- Step up Fixed Deposit
- Salary Account
- Current Account
- Short Term Deposit
- Saving Accounts
- Ezee Accounts
- Abiram Account
- Interest First
- Fixed Deposit
Small and Medium Enterprise
The biggest operational division of BRAC bank is the SME (Small & Medium Enterprise) Division. SME is directly related to business of the bank. BRAC Bank extends loans to potential small and medium trading, manufacturing and service enterprises. This loan is able to provide quick and quality banking services to targeted business at any places of the country. Potential women entrepreneurs will also get the facilities of SME loan; this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment. BRAC Bank was titled to be the fastest growing bank in 2004 & 2005, and it had a profit of 14 crore taka. The profitability of the bank came mostly from the SME sector. SME division is enriched with more than 700 staffs and it has 367 unit offices all over the country.
Corporate department has also two different wings – Corporate Banking division & Cash Management.
Corporate Banking is a specialized area of BRAC Bank, which addresses the diverse financial needs of Corporate Clients.
This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies), NGO’s, trading houses, joint ventures and various government bodies/corporations etc. As the financial partner of choice for the corporate sector, BRAC Bank wants to be distinguished by its:
- Quality of service
- Value of innovative solutions
- Level of trust with clients
- Customer knowledge
Secure Remittance Services
- This is one of the business departments of BRAC Bank
- It acts as a medium in delivering the hard earned foreign currencies of our millions of people living abroad to their relatives in Bangladesh
- The Bank has liaison with BRAC offices all over the country and thus can deliver the remittance among the beneficiary at the remotest places.
- BRAC Bank has so far arrangements with around 30 exchange houses all around the world for remitting foreign currency to BRAC Bank. Most of the current business of this department comes from the Middle East
- BRAC Bank does a lot of campaigning in those foreign countries where there are potential markets. The bank publishes advertisement in local news papers, visits various construction sites and dormitories and also organizes cultural programs on important Bangladeshi events to promote the secure remittance service of the bank.
- BRAC Bank has alliance with Western Union. A major chunk of revenue of SRS comes from delivering remittances that are received via Western Union.
Treasury division at BBL deals with the fund position. This division calculates and projects the fund requirement to meet day-to-day operation. It has also two wings, one is front office and the other is back office. Front office deals with directly the money market of the country. Their main job is to lend money to other financial institution on call or short-term basis, if the bank has additional money idle. Or if the bank falls short in liquidity, this division borrows money from other financial institution on the same basis. On the other hand the back office keeps records of the fund position of the bank. Their objectives are:
- Managing mandatory liquidity.
- Maximizing return from fund management.
- Matching Asset and Liability.
- Generating profit from Intermediary functions.
These can be segregated into two broad categories of functions:
Money Market: Money Market is a network of financial institutions linked by telecommunication network to facilitate lending and borrowing of fund for short-term (less than a year).
- Maintenance of Statutory Reserve
- Meeting Branch/ Division fund requirements
- Call Loan taking and placing
- Term taking and placement
- Market analysis
Foreign Exchange Market: It is the organizational framework within which, financial institutions and individual’s trade or exchange foreign currencies.
- Circulation of exchange and interest rate on FX. Deposits
- Maintenance of daily exchange position within the limit
- Nostro funding
- Forward quote
- This functional unit makes sure risk is managed all through out the organization and day to day job is done according to the rules and guidelines of the regulators and the bank
- It is ensured that every process is done properly from vault security to document maintenance before giving out a loan.
- Core risks in banking:
- Asset Liability Management Risk
- Foreign Exchange dealing
- Credit Management Risk
- Money Laundering Risk Internal Control & Compliance Risk
- The internal Control & Compliance is ensured and in every branch and unit level in SME, risk management monitors if the steps taken are carried out properly.
- The internal Control & Compliance is ensured and in every branch and unit level in SME, risk management monitors if the steps taken are carried out properly.
- It supports the departments ‘retail’ and ‘corporate’.
- It has three wings: Corporate Credit, Retail Credit and SME Credit. (SME credit has less function as loans are disbursed at the root level meeting the requirements of credit.)
- The Sales Department collects files or reports about the person or organization, which are then sent to the credit division for entry.
- Data verification is assigned to external companies who investigate about the person or organization.
- The Credit Analyst decides using his experience, judgment, Letter of Introduction, Bank Statement, Debt Burden Ratio about the credibility of the applicant.
- This functional unit links employee with employer.
- It puts right people in the right places so that a person can perform to his or her ultimate and hence contribute in the development of the organization
- HR facilitates the promotion (does not motivate employees) by putting an employee in his or her deserved places
- It ensures that all the employees are complying with the rules and regulations of the organization and thus ensuring a healthy work environment
- HR department arranges training for the employees of the bank. The training may be in house training, on the job training or institutional training
Impaired Asset Management
- This functional unit is assigned for the legal action taken by the Bank for any sort of bad loan.
- The management team normally has contracts with lawyers all around the country and can take actions if a client defaults leaving no chance of paying back.
- This unit deals with the cards of the bank – debit card and credit card.
- It is a comparatively new initiative by the bank.
- The licensing and issuance of cards, application of charges, promoting and selling the cards, etc. are the major functions of this department.
- This department deals with product development and innovation
- They conduct different customer survey to assess the market scenario, which is considered a prerequisite for development of a product
- Advertising is an important part as it helps to communicate with people and let them know about the product and improve the brand image.
Marketing & Product Development
Financial Administration department does the financial evaluation of the overall business thereby helping the top management to identify specific problems, set standards and find out the strength and weakness of the whole organization. Major Activities of Financial Administration Department include:
- Custodian of the Overall Books of Account of the bank.
- Preparation of Financial Statement
- Payment to the Employees
- Payment to Suppliers
- Tax issues of the Bank
- Value Added Tax (VAT)
- Inspection and Audit Management
- Financial MIS
- Budgeting and financial planning
- Chart of Account Management
- This department deals with all the hardware, software, networking and Technological support issues of the whole bank
- This is a very important department for BRAC bank as it is an online bank and any little error might create huge problems.
Asset operation is to manage the assets efficiently so that return on the asset is secured and make sure risk is reduced while return is maximized. At BRAC Bank AOD provide the back office support to all business divisions in disbursing the loan marketed to actual customers. Duly approved loan files from Credit Division are sent to Asset Operation to initiate disbursement after proper scrutiny of all documents and securities. All its activities are pointed below.
- Provide best client services
- Ensure proper documentation
- Ensure risk minimization
- Ensure prompt loan disbursement
- Ensure timely reporting
- Ensure least audit objections.
- Ensure timely compliance of Bangladesh Bank
- Perform in a cost effective manner
Consumer Service Delivery
It is responsible for specific services for which deliveries must be made and helps to support the business by providing the clients with the right services at the right time.
The core functions of Customer Service Delivery are as follows:
- Data Entry: Forward data from account opening forms.
- Cheque Book and ATM card Production
- Signature Scan
- Welcome Package: Prepare package for client beforehand.
- Salary Disbursement:
- Update or change in account or transaction profile
- Shanchay Patra Maintenance
- Clearing Cheque of other banks.
Payment Service Department
- The back office of secured remittance services is payment service department
- It delivers the remittance to its destination. During night all the remittance information from USA or Europe is sent to payment service department via e-mail. In the morning another shift of employees convert those into pay orders and send to respective destinations.
- Where there is no branch, the Bank uses a correspondence bank. This might require longer delivery time.
- To avoid the problem of photo identity at the rural areas BRAC Bank has given digital cameras to its personnel working in those remote areas for making ID card and thus creates photo identification.
- Money transferred through SWIFT network is also looked after by payment services department.
Financial Performance Review
In the year 2006 the bank has earned an operating profit of BDT 1,050 million compared to BDT 580 million in the previous year with a stunning growth rate of 183%. This was possible, as BBL has earned a 191% growth on its net interest income. This difference has basically occurred because the cost of fund did not increase to extent of increase in return on loan.
The growth rate of operating expenses has also gone up by 173%, but this trend is acceptable because the bank has earned growth rate of over 100% in all aspects. More over a growth of amount 173% in its profit after tax supports the rationality of such hike in operating expenses earned.
All this upward trends help BBL to increase the Earnings per Share by almost 164% (from 38.54 to 63.31).
Other Performance Indicators
- Capital Adequacy: Capital adequacy focuses on the total risk weighted capital intended to protect the depositors from the potential shocks of losses that a bank might incur. In the year 2006 BBL has maintained capital adequacy ratio of 10.15% against standard of minimum 9.00% set by Bangladesh Bank. This keeps more options to absorb default loan amount.
- Asset Quality: The asset composition of BBL shows a high proportion of loans and advances (65%) in total assets. A high proportion of loans and advances indicate vulnerability of assets to credit risk, since the portion of non-performing assets is significant in our country.
- Management Soundness: Management Soundness is very difficult to measure, because it requires a qualitative measurement rather than quantitative measurement. Nevertheless ratios such as total expenditure to total income are generally used to measure management soundness. In this regard BBL’s total expenditure to total income ratio is 49%, which shows that almost half of its total income need to be spent for meeting operating expenses.
- Liquidity: At present BBL’s liquidity ratio is 24% out of Bangladesh Bank’s minimum requirement 20%. So the bank may feel comfort but the liquidity statement shows that for short period usually 1-3 months BBL has liquidity gap or in other words, for short period, the bank has a short fall to meet its liquidity.
(See Appendix – 1 for detailed financial statements)
In its broadest sense remittances refer to cash or in kind transfers from one place to another. The main reason for the renewed attention is the growing volume of official financial remittances to low income countries and their potential contribution to the economic development of the receiving regions. According to estimates of the World Bank (2005) developing countries received 126 billion US$ in 2004 in official remittances.
Since independence in 1971, Bangladesh has received more than $30 billion in grant aid and loan commitments from foreign donors, about $15 billion of which has been disbursed. Bangladesh has historically run a large trade deficit, financed largely through aid receipts and remittances from workers overseas. Foreign reserves dropped markedly in 1995 and 1996 but due to remarkable remittance growth in recent years, especially the large contributions made by the expatriate Sylheti community, had stabilized at around $3.1 billion. (or about 2.2-2.5 monthly import cover) in around beginning of 2006, by September 2006, the Forex reserves had grown to $3.6 billion.
Foreign aid has seen a decline of 10% over the last few months but economists see this as a good sign for self-reliance.There has been 18% growth in exports over the last 9 months and remittance inflow has increased at a remarkable 25% rate. Growths in remittance and exports have contributed to an overall positive balance of payment (BoP) in the last fiscal year (FY 2005-06). During the last fiscal, growth in import was 12.05 percent or $1431 million whereas export had a growth of 21.63 percent or $1849 million. On the other hand, remittance inflow maintained the growth rate over 24.78 percent, touching $4.8 billion mark in the last fiscal mainly due to increase in skilled labour abroad and government’s efficient move against money laundering.
Remittance inflow jumped 25 per cent to $4,861 million during the July-April period of the current fiscal, with blue-collar workers accounting for more than half. About 4.5 million expatriates sent this amount home during the first 10 months of the 2006-07 fiscal, surpassing the last fiscal year’s total of $4,801 million and surging foreign exchange reserves to $4,516 million. The highest amount came from Saudi Arabia as over a million workers sent $1,312 million during July-March period. The United Kingdom came out as the second biggest source of remittance with Bangladeshi Diaspora sending home $657 million to their relatives at home, closely followed by $656 million from the United States of America. Non-resident Bangladeshis remitted $559 million from the United Arab Emirates and $494 million from Kuwait.
Remittance inflow increased gradually over the years due to strong monitoring system of Bangladesh Bank, quicker services provided by the local banks and stable foreign exchange rates. More foreign exchange came from the Asian countries with concentration of blue-collar workers. About $2,741 million came from the Middle East and adjacent countries.
So far, the central bank gave license to 635 exchange houses to set up offices in the foreign countries to facilitate inward remittance. Local banks, which have either opened exchange houses abroad or developed linkages with foreign banks, have quickened delivery of money at home, now taking maximum 72 hours to reach the recipients anywhere within the country.
Importance of Migration to the National Economy
International migration plays a vital and indispensable role in the national economy of Bangladesh in two major ways.
Firstly, it reduces unemployment. Migration has kept the unemployment rate unchanged since the 1980s, although the growth rate of the labour force is almost twice that of the population growth.
Secondly, migration results in remittance flows to the country, which serves as an important but inexpensive source of much needed foreign exchange. During 1977-78 to 1997-98, the annual average of contribution of remittances was 26.5%. In the year 1998-99, 22% of the official import bill was financed by remittances. The steady flow of remittances has resolved foreign exchange constraints, improved the balance of payments and helped to increase the supply of national savings. The contribution of remittances to GDP has risen sharply from a meager 1% in 1977-78 to 5.2% in 1982-83. Also, if the cost of import of raw material is adjusted, then the net earning from migrant workers’ remittances is higher than that of the RMG sector. The contribution of remittances to the economy can be depicted by an example below:
Remittances contributed more than 4 per cent to the country’s GDP and almost 20 per cent of foreign exchange earnings. Remittances amounted to one-third of the total amount of government revenue from taxes and to 30 per cent of the total amount of debt service payments. It equalled 60 per cent of the development budget. The total amount of foreign aid which flows into Bangladesh is less than the total amount of remittances. It should be remembered that these figures only take into account the official remittance flows.
Contribution of Remittance to the National Economy
Readymade garments, frozen fish, jute, leather and tea are the five groups of items that account for four-fifths of its export earnings. Currently, garments manufacturing is treated as the highest foreign exchange earning sector of the country (US $ 4.583 billion in 2003). However, if the cost of import of raw material is adjusted, then the net earning from migrant workers’ remittances is higher than that of the garments sector. In 2003, net export earning from RMG should be between US$2.29-2.52 billion, whereas the earning from remittance is net US$3.063 billion. In fact, since the 1980s, contrary to the popular belief, remittances sent by the migrants played a much greater role in sustaining the economy of Bangladesh than the garments sector.
For the last two decades, remittances have been at levels of around 35% of export earnings, making it the single largest source of foreign currency earner for the country. This has been used in financing the import of capital goods and raw materials for industrial development. In the year 1998-99, 22 percent of the official import bill was financed by. The steady flow of remittances has resolved the foreign exchange constraints, improved the balance of payments, and helped increase the supply of national savings. Remittances also constituted a very important source of the country’s development budget.
In certain years in the 1990s remittances’ contribution rose to more than 50 percent of the country’s development budget. Government of Bangladesh treats Foreign aid (concessional loan and grants) as an important resource base of the country. However, remittances that Bangladesh received last year was twice that of foreign aid. Remittances have played a major role in reducing the extent of the country’s dependence on foreign aid. The contribution of remittance to GDP has also grown from a meagre 1 percent in 1977-1978 to 5.2 percent in 1982-83. During the 1990s the ratio hovered around 4 percent. However if one takes into account the unofficial flow of remittances, its contribution to GDP would certainly be much higher.
An increase in remittance by Taka 1 would result in an increase in national income by Tk 3.33. Following the expiry of multi-fiber agreement (MFA), Bangladesh will face steep competition in export of RMG. The country will cease to enjoy any special quota. It is apprehended that Bangladesh’s RMG export will decline sharply. This will result in loss of job of many workers and shortfall in foreign exchange earning. Potential of retaining employment and export earning through export of frozen fish, jute, leather and tea seems rather bleak. It is in this context labour migration has become key sector for earning foreign exchange and creating opportunities for employment. Therefore, the importance of migrant remittance to the economy of Bangladesh can hardly be over emphasized.
The flow of wage earners remittance for the last 24 months show a gradually increasing trend as can be seen below.
A survey among labour migrants to the UAE revealed that 46 per cent of the total volume of transactions has been channeled through official methods, around 40 per cent through the hundi system, 5 per cent through friends and relatives and 8 per cent was hand carried by migrants themselves.
Currently, MFIs are not allowed to make financial transactions and deal with foreign exchange, making the involvement of MFIs in remittance transfer very difficult. Figures of BRAC Bank show that the majority of official remittances is channeled through NCBs (about 59%), while PCBs dealt with 38 per cent, foreign banks with about 2 per cent and specialized banks with less than 1 per cent of the remittance flow in 2003.
In terms of volume of remittances, the most important commercial bank would be Islami Bank of Bangladesh Limited (IBBL). Other noteworthy PCBs in terms of outlets abroad include Uttara Bank, Arab Bangladesh Bank and National Bank Ltd.
Currently, 30 PCBs participate in this remittance collection business (See appendix for all the names of the participants). Islami Bank leads the market with 2755 market share, while National Bank captures 10%. Pubali Bank and BRAC Bank follow closely with 8% and 7% respectively.
Secure Remittance Services – BRAC Bank Limited
Secure Remittance Service is one of the business departments of BRAC Bank. From its name it is self explanatory that through this department BRAC Bank acts as a medium in delivering the hard earned foreign currencies of our millions of people living abroad to their relatives in Bangladesh. No matter how remote the destination is in Bangladesh, the bank is committed to deliver money within the shortest possible time. The specialty of BRAC Bank Secure Remittance Service is that the bank has liaison with BRAC offices all over the country and by utilizing the NGOs resources, the bank delivers the remittances among the respective beneficiaries. BRAC Bank has so far arrangements with around 30 exchange houses all around the world that remit foreign currencies. Most of the current business of this department comes from the Middle East. BRAC Bank is trying to develop its market in Singapore and in some European Countries.
The bank has to buy foreign currencies from the exchange houses at a rate and sell them locally at a higher rate, therefore, always undergoing a risk of loosing out money due to a decrease in the value of foreign currency itself. BRAC Bank does a lot of campaigning in those foreign countries where there are potential markets. The bank publishes advertisement in local news papers, visits various construction sites and dormitories and also organizes cultural programs on important Bangladeshi events to promote the services provided by Secure Remittance Service of the bank. BRAC Bank has alliance with Western Union, via which it receives a major chunk of its revenues.
The type of remittance is ‘inward’ and the instruments used by SRS to deliver its services are:
Demand Draft (DD)
- Pay Order
- Telegraphic Transfer (TT)
- Bearer Cheque
(See Appendix – 3 for the list of exchange houses in agreement with BBL)
The Process Flow
- Exchange Company provides sufficient cover fund to their accounts with BRAC Bank
- Sender comes to Exchange Company to remit money
- Exchange Company sends Tested Payment instructions to BRAC Bank Head Office through E-mail/Fax
- BRAC Bank’s Remittance Department decodes the test number to check for authenticity of the message
- BBL issues and dispatches Pay Order to the beneficiary’s bank or sends Payment Instructions to BRAC Field Office nearest to the beneficiary for making the payment
- BRAC field office issues and dispatches account payee cheque to the beneficiary’ bank or makes payment to the beneficiary in cash.
BRAC Bank Probashi Products and Services
§ Probashi Current Account
This is an interest-less account. To facilitate regular transactions, this account has cheque book and ATM card. This is an ideal account for the non resident Bangladeshis who have to transact frequently.
§ Probashi Savings Account
Interest in this account is paid twice-June and December. Also, to aid the transaction process, the account holder/subscriber will get ATM card and cheque book facilities.
§ Probashi DPS
This account provides attractive interest amount based on regular deposits of small amount. A DPS account can be opened for a monthly deposit of any amount being a multiple of Tk. 500, the lowest being Tk. 500 itself. The tenures can be for 4, 7, 11 and 14 years as per the customers’ instructions.
§ Probashi Fixed Deposit
This account provides the customer with a substantial amount of interest at the maturity of the fixed deposit, which ranges from 3 months to 3 years.
§ Probashi Abiram
This is a type of fixed deposit where the customer will get the interest on a monthly basis and its tenure ranges from 1 -3 years.
§ Remitters Life Insurance
The remitters availing BRAC bank services through the exchange houses all over the world can enjoy the special life insurance coverage policy. Without any charges the remitter gets a 65 days insurance coverage. If the remitter dies due to any accident within this period, the beneficiary will receive Tk. 1 -5 lac, depending on the amount of remittance. In case of normal death, the beneficiary will receive Tk. 10, 000*.
§ NRB Demand Draft
A remitter can send money through any of the enlisted Exchange houses of BRAC bank in the form of a Demand draft.
§ Probashi Subidha Account
A remitter can open this account for his/her beneficiary. The beneficiary can then enjoy the different services of BBL – SMS banking, Internet banking, Phone banking, etc. After this account is activated, the remitter only needs to inform the amount of remittance and the account number of the beneficiary. As per instructions, within 6 hours, the money will be credited to the beneficiary’s account.
Highlights of Secure Remittance Service for the financial year: 2006
- The network of electronically connected field offices has been increased from 502 to 1000 BDP outlets across the country for faster remittance payment.
BRAC Bank Gulshan branch has been included in Club 500 of Western Union, a club of top 500 WU locations around the world. It was the first time any Bangladeshi location was eligible for the Club 500 program.
SRS organized a training session on July 16, with the Bureau of Manpower, Employment and Training, for Bangladeshi people who are leaving for Middle East to introduce trainees of BMET with different NRB products ad services of BRAC Bank as well as to create awareness about the effects and legal steps taken by the government against hundi business.
Probashi Services as officially launched on March 28, to cater to the NRB customer needs. Slowly, new products we re being added to the portfolio as the year went on. In order of launching, they are: Probashi Current Account, Life Insurance, Demand Draft facilities, and Probashi Subidha Account.
Future Plans of SRS – BBL
ü To achieve 9 % of overall market share of remittance in Bangladesh by the year 2009
ü Increase the networking to more countries
ü Be the number 1 agent of Western union Bangladesh and gradually increase the number of our sub agents.
ü Increase the number of Non-Resident Bangladeshi (NRB) customers.
Dynamics of Remittance
Migration has shaped and is still shaping Bangladeshi society. International remittances come mainly from three large, but distinct types of migrant. Firstly, there is an important, mainly American and British, diaspora of well-educated, high or middle income earners. Secondly, there is a diaspora of Bangladeshi origin, in the same countries and other industrialized countries, belonging to the low-income or unemployed segments of the population. Thirdly, there is a major group of migrant labourers, residing for a specific period in Middle Eastern, South-East Asian and some industrialized countries.
Why do Bangladeshis migrate?
Migrants to Western industrialized countries consider the following as their motivation:
- § Better educational opportunities for their children
- § Access to specialized jobs
- § Better health care systems
- § Wider opportunities for self-actualization
- § Family reunion (for long term migration)
- § Avoid political turmoil, violence, insecurity and corruption
Short-term labour migrants to the Middle East and South-East Asia migrate:
- § In search of better job opportunities
- § To escape unemployment and poverty
- § Influenced by the available information on migration and job opportunities, the existence of social networks and the operation of recruiting agencies.
Women migrate to escape unhappy social situations including bad marriages, harassment, violence and idle husbands.
How do Bangladeshis migrate?
Once a migrant decides to go abroad s/he has to organize a number of issues, such as the travel, the visa, securing employment, etc.
Three major channels have emerged to assist the migrant in this process:
- § Via help from friends, family or middlemen (53%)
- § Through recruitment agencies (45%)
- § Through the governmental agency, the Bangladesh Overseas Employment Services Limited (BOESL) (2%)
Nature of Migrants
BMET classifies short term migrants to Middle East and Southeast Asia into four categories:
ü Professional – doctors, engineers, teachers, nurses
ü Skilled – manufacturing/garment workers, drivers, computer operators, electricians
ü Semi Skilled – tailors, masons
ü Unskilled – housemaids, cleaners, menial laborers
The overwhelming majority of Bangladeshi migrant workers are male, according to official data of BMET. Only 17,784 women migrated officially between 1991 and 2003. This very low figure represents less than 1 per cent of the total labour migration during that period. However, real figures will be much higher, but these are not available as many women leave through unofficial channels due to the restrictions that are in place.
As stated earlier, data on the age of migrant workers are hard to find. Some micro-level studies indicate that most labour migrants are young, more specifically between 15 and 30 years of age. The Bangladeshi diaspora in the UK and the USA belongs to one of the youngest population groups in both countries.
Most migrant workers have a low educational background or are illiterate. More than half the Bangladeshi labour migrants are unskilled or semi-skilled, while the proportion of professionals is very low (about 2% in 1999 for instance). Over the last 25 years about 44 per cent of all recorded temporary labour migrants were unskilled, 22 per cent were semi-skilled, 30 per cent skilled, and only 4 per cent were professionals.
The Trend of Migration and Remittance earned
The following charts and tables show the amount of remittance earned over the years from the different countries and the number of labor migrants.
As we can see, the trend has been increasing at a growing rate. In the early 80’s there was a sudden peak, which again stabilized through the years. More countries were opening doors for Bangladeshi migrants.
Methods of Transfer
Officially, remittance transfer takes place through:
- Demand drafts issued by bank or exchange houses
- Traveler’s Cheques
- Telegraphic transfers
- Postal orders
- Account transfers
- ATM facilities
- Electronic transfers
Utilization of Remittances
Focusing on the individual migrants, a detailed and heterogeneous picture of the remittance dynamics emerges.
The earnings of migrants can be consumed, invested or saved in the country of destination, or remitted to the home country and subsequently saved, invested or consumed.
The proportion of the income that migrants remit is dependent on a number of factors. In general it is stated that remittances are likely to be higher in situations where the migrant leaves broadly for economic reasons than political or social reasons, where they have temporary rather than permanent resident status, where they are young, but married with family left behind at home, and that remittances will increase as emigrant wages increase although at a certain point, further increases in wage levels do not seem to translate into higher remittances.
A study revealed that a typical migrant remits about 56 per cent of his income, while another study showed that temporary women migrants to the Middle East remit on average 72 per cent of their income. These figures are mainly applicable to labour migrants. Despite the lack of available figures, it can be argued that the diaspora should remit on average a smaller proportion of their income compared to the labour migrants. Surveys indicate that expatriates living in the USA and the UK tend to save more abroad. A possible explanation for this is that the diaspora is more attached to their destination country than the short-term labour migrants. They establish a family, a social network, a business, etc. The future of these families lies in the destination country and consequently they remit less of their income.
Looking at the dynamics and utilization of remittances, four types of transfers can be distinguished:
- 2004 Individual transfers from migrants to children, wives, family members or friends
- 2005 Individual transfers by migrants in order to save or invest in home country
- 2006 Individual transfers by migrants to charity or community development
- 2007 Collective transfers to charity or community development
Influencing the Utilization of Remittances
While many measures have been taken to influence the choice of the remittance method, less attention has been given to the use of remittances. It has been very difficult to find initiatives specifically aimed at the utilization of remittances. Of course, receivers invest remittances in certain areas, but we have found hardly any tailored schemes for remittance investments in Bangladesh. Schemes such as the following should be tailored for the remitters and beneficiaries so that the money can be utilized for the betterment of the country as a whole:
– Saving and investment schemes of banks
– Offering opportunities for investment of remittances
Why Migrants do not invest in Productive Ventures
- Lack of promotional support in terms of information, advisory, training and other
- Services relating to investment in new and potentially successful sectors.
- Perceived lower risk in the purchase of land and construction of houses.
- Lack of ideas about investment opportunities.
- High priority attached to household expenditure.
- Lack of expertise in the remittance receiving households for running businesses.
- Investment environment not perceived to be conducive.
- Interest in investing abroad.
- Unsuccessful past investments.
The existing initiatives about remittances mainly target the channeling of remittances, while the mentioned initiatives about the utilization of remittances remain very limited in scope. A consumer survey was conducted to get an idea of the demographic profile, transaction profile and the remittance utilization pattern of the beneficiaries. This will help the remittance department to develop new products and offer improved services to the clients, shaped according to the client needs. A survey was conducted to support the findings of remittance utilization sectors.
The survey was conducted through the branches of BRAC Bank Limited offering Western Union services, namely – Gulshan, Dhanmondi, Motijheel and Moghbazar branch. Beneficiaries filled in the questionnaire as they came to collect their respective remittances. The questionnaire was limited to a-page length so as not to irritate the beneficiary.
(See Appendix – 2 for the questionnaire used for the survey)
Analysis and Findings
- Most of the beneficiaries who come to collect the money are males. Therefore, offering any new product for the remittance department targeting the female segment (e.g. femina account for retail banking) would not be feasible.
Male: 89% Female: 11%
- The remitters send in the money for their families through the channels. As we can see, mostly the remitters have left behind a family of moderate size, with 4 to 7 members.
- is not mandatory that a beneficiary receive money from one single remitter. Rather in most of the cases (76%), it is more than 1 remitter. Every 24% beneficiaries responded that they receive remittance from 1, 2, 3 and 4 remitters It each, while the rest 4% received remittance from 5 remitters every year.
- Remitters are not the only source of income for the beneficiaries. The range of other sources of income varies, but from the respondents we can conclude that mostly (45% of the cases) the income, from the source other than the remittance, lies between the range of Tk. 20,000 to Tk. 30,000, monthly.
- Through BRAC Bank Limited beneficiaries receive money from all around the world. The major countries that send remittances, as found from the survey, are Kingdom of Saudi Arabia (33%) and United States of America (21%). Other Middle Eastern countries are next in number of transactions, while the least is from Australia, Belgium, France, Germany, Italy Singapore and United Kingdom.
The occupation of the remitters are mostly ‘business’ (56%) and ‘service’ (33%), while a negligible number of the remitters are in the educational sector.
- Frequency of remittance collection per beneficiary ranges from single digit figures to 50 times per year. Around 45% of the beneficiaries collect their remittances 12 times a year (or once every month) while others collectively represent the rest 55% with each being a negligible percentage itself.
- The monthly average remittance collection amount does not drastically differ or reflect any discrimination. It can be seen that the most number of remittance collection lies in the top or the bottom range, i.e. either it is less than Tk. 20,000 monthly or it is above Tk. 50,000.
As we can see, most of the beneficiaries responded that remittance is spent on housing, followed by education of the family members. Savings was the least of all concerns with only 8% responses. Various family expenses, day to day expenses, and development of business and related investments were the criteria that were considered as ‘Others’ by the beneficiaries
- Responding to whether the beneficiaries maintain a Probashi Shubidha Account with us or not, the responses obtained were mostly negative most of the time.
Yes: 24% No: 76%
The respondents who already maintained the account were mostly satisfied and had no complain about it, while the main reason behind not having the Probashi Shubidha Account was ‘I do not know about it’ (45%) while others responded as ‘I already have another account with BRAC Bank Limited’ (22%) and ‘I don’t find it necessary’ (17%). This shows that the marketing of the Probashi Shubidha Account to the beneficiaries has not properly been done, for which they are still ignorant about the facility that SRS has to offer.
- ‘Getting quicker service’, ‘decreasing the queue’ and ‘facility to directly credit the amount of remittance to the beneficiary accounts’ we re some of the comments that the respondents provided when asked for further improvement opportunities for BBL.
- (Here, amount of remittance will be referred to by the category number – 1, 2, 3 and 4) Remittance from category 1 and category 4 is utilized mostly on ‘housing’, while for category 3 it is both ‘housing’ and ‘others’. ‘Education’ and ‘savings’ are the areas where the beneficiaries receiving remittance in the second category utilize the same. Overall, the most amount of remittances is spent on housing, while the least is saved.
- As we can see, USA and Middle East remitters send in remittance in all categories, while Australia and some Asian countries cater to mostly the middle income level. Even though USA maintains a consistency, from Middle East, the volume of transfers is higher and the average amount is high on the high end. From Europe, remitters usually send in lesser amount of money (18% are less than Tk. 20,000).
- According to the categorization of remittance utilization with respect to regions, we see that remittance received from the different regions is utilized on a different priority basis. The money sent from the Middle East region is used mostly for housing and education, while half of the ones from Asia are saved. The table below gives a clearer idea, taking each regions total as a 100%.
- Only 30% of the remittance is transferred to families with a less than 5 members, while 70% remittance is utilized by larger families. Even though a clear trait is not followed, but it is seen that most amount of remittance is sent on the ‘more than Tk. 50,000’ category and that too is for families with members over 5.
- As the remittances are utilized more in the housing sector, banks can develop new products for the beneficiaries relating to housing, land, etc.
- The amount of savings is least for most of the categories. This has to be increased. The migrant associations offer advice and assistance to returned migrant workers in the reintegration process. They also work with the migrant workers’ families in order to raise awareness about the situation of the migrant. In this way they urge them to save some of the remitted money. Two projects of SHISUK indirectly influence the use of remittances.
- The highest volume of remittances is sent from Saudi Arabia. Effort should be thus given to ensure the utilization of the remittance coming from that region and hence can be customized according to the regions specialty or characteristic traits of the remitters.
- The main initiatives of banks and the government are limited. A number of banks have saving, investment and insurance schemes that are not specifically developed for migrant workers but can be accessed by them.
- Remittance collection from the bank should be a much easier and hassle free job for the beneficiaries. Process flow should be smoother so that the waiting time for them is decreased.
- Education loans could be given to beneficiaries as the utilization on this sector seems to be on a rise.
- The existence of the Probashi Shubidha Account should be clarified to the beneficiaries. Some still do not know that there is such an account and others find it unnecessary to open the same, as no significant specialty is perceived.
- To utilize the remittances better, we need to ensure increase in the remittances through the official channels. This can be done by an extended pre-departure orientation programme, combined with awareness raising initiatives for both migrants and their families, and information dissemination in the destination countries could address the problem of limited awareness about the costs and benefits of the migration process, as well as the possible remittance channelling methods and utilization. The information could consist of mainstreaming remitting opportunities, related costs, timeframes, financial products (including saving and investment options) and reliability.
- BRAC Bank is concentrating on the channeling of remittances. This should be continued and enhanced. The vast network of BRAC enables them to reach the remote rural areas. Utilizing the micro finance systems and keeping poverty alleviation in mind, the process can be taken further. Such should be followed by other banks.
- BRAC Bank Limited should more actively involve in encouraging migrant workers to use official channels. One of the main problems is the limited awareness of migrant workers about these schemes and official channels, and about using banking facilities in general. Different institutions try to create awareness among migrant workers to remit their money through official channels.
- A migration management policy should be present centrally, to look into the matters in a systematic and coordinated manner. Remittances are very important for the Bangladeshi national economy. In addition, labour migration is seen as a strategy to combat unemployment in Bangladesh. Therefore, to utilize remittances and take the nation forward, it is required to encourage labour migration and increase the level of remittances.
- All the banks should provide access to banking facilities for the remitters and their beneficiaries.
- Improvements are still needed to combat the informal channeling. Among the most important measures are the following
– Reduction of transaction time
– Reduction of transaction costs (by cutting commission fees)
– Making remittances tax free
– Simplifying formalities
– Regular monitoring to ensure service
– Maintaining where possible the same exchange rate as the informal market
- These are to be eliminated, so that remitters trust the formal channel more, and thus send in money which can be utilized for the betterment of our country.
- Banks can create special accounts catering to the different classifications of the beneficiaries, requirements according to the family size, and utilization arena.
- Investment should be facilitated too. The following were done by Bangladesh Bank. These can be adopted and promoted by the other banks too, so that remittances reach us to be utilized.
1. Launching bonds
Bangladesh Bank has launched various bonds to attract foreign exchange from migrants and expatriates. The oldest one is the Wage Earner Development Bond, created in 1986. A migrant can buy a bond at Bangladeshi banks and embassies abroad. It is available in different denominations, ranging from 1,000 taka to 50,000 taka, for specific time periods, and offers high interest rates. Relatively new are the US Dollar Premium Bond and the US Dollar Investment Bond. These are sold by commercial banks and the interest rates can be paid in dollars. Dominations of these bonds range from US$ 500 to US$ 50,000. Similar steps should be further taken.
2. Tax benefits
Bangladesh Bank offers tax benefits for expatriates. For instance, interest on the NFCD account is now tax free, as is the purchase of the Wage Earners Development Bond. Furthermore, a tax identification number is not required for buying immovable property in Bangladesh. Exchange regulations have also been relaxed. All transactions can be made through an authorized dealer without the permission of Bangladesh Bank. In addition, the government gives awards to non-resident Bangladeshis who have made valuable contributions to the Bangladesh economy and society.
3. Promoting investment in Bangladesh and offering assistance
Initiatives are also taken by the private sector to encourage investment in Bangladesh. These initiatives are particularly apparent in Sylhet due to the strong link with the expatriate community. One example is the Investors Forum Sylhet Bangladesh (IFSB), established in 1995 by a group of business people. They organize seminars in Sylhet and in the UK and offer assistance and information to people who want to invest in Sylhet.
The banking sector of Bangladesh is composed of NCBs, PCBs, FCBs and SBs. BRAC Bank Limited (BBL), a fully operational commercial bank that had started off in 2001, has been the fastest growing bank in 2004 and 2005. Amongst all its functional divisions, BBL has 4 major business units – SME, Retail, Corporate and SRS. Due to the quicker services provided by BBL as well as the other local banks, strong monitoring system of Bangladesh Bank, and stable foreign exchange rates, remittance inflow increased gradually over the years. The potential contribution of remittance to the economy has put it into such an important position.
Although remittances and migration in Bangladesh have received an increasing amount of attention in recent years, it is still not adequate to determine unambiguously the impact of remittances on the broader society. Based on the remittance dynamics, the migrant communities can be divided into three groups: temporary migrant labourers, high-income diaspora and low-income diaspora. This categorization is not rigid but serves as an analytical tool. These three communities differ in emigration history, in socioeconomic characteristics, and in living and working conditions. In Bangladesh, four different types of transfers exist, of which remittances sent to family members is the most important.
Remittances are very important for the receiving families to meet their basic needs and as an additional income source.
Clearly, more research is needed on the following topics:
– The impact of remittances on the receivers and the senders, as well as on the broader community;
– The gender aspect of migration and remittances;
– The use of remittances as a development tool in Bangladesh.
The policies and initiatives implemented to enhance the impact of remittances are mainly aimed at encouraging the sending of financial transfers through official channels, while the utilization of remittances is neglected by official bodies.
The government should focus on enabling migrants to send and use their remittances in the most effective ways, according to their own needs. Consequently all the banks and other mediums of aide in remittance inflow should adopt the measures for the betterment of the economy.
Research institutes are exploring new ways of addressing remittance senders and receivers’ needs in terms of remittance methods and utilization. Pre-departure training for labour migrants is not only important to reduce the human and economic costs of migration; it can also be a powerful tool in raising awareness about remittance methods and utilization.
While many measures have been taken to influence the choice of the remittance method, less attention has been given to the use of remittances. In this report a survey was done on behalf of BBL to support the facts of where do beneficiaries spend their remittances. These have been found to be housing, followed by education. BBL strives to implement new ways based on the remittance dynamics to help our economy through the utilization of remittances.