1.0 ORIGIN OF THE REPORT
The MBA program of Business Studies Faculty of Dhaka University is designed with an excellent combination of theoretical and practical aspects. Internship provides the students to link up their theoretical knowledge into practical fields. After the completion of the course requirement for the MBA program, students are sent to various organizations where they are assigned to one or more task to get three months practical experience. During this program, supervisor guides each student one from the university and the other from the organization. In this connection, I was assigned to Eastern Bank Ltd. Head Office, Service Delivery department for my practical orientation.
At the end of the program, the internships are required to place the accomplishments and findings of the report through the writing of the internship report covering the relevant topics
1.2 Objectives Of The Study
The main objective of this study is to identify and evaluate remittances management and its impact on the economy and performance of NRB-Ops. The objectives are summarized as follows:
- To identify the overall trend of wage earner’s remittance markets (as a financial product) from abroad toBangladesh.
- To present a market scenario of both formal and informal channel and identify Eastern Bank Ltd. position in it.
- To identify the gaps between formal and informal channel as well as those between Eastern Bank Ltd. channel and other players in the formal channel.
- To identify ways to increase remittance volume through the formal channel in general and through Eastern Bank Ltd. in particular.
- To know about the remittance collection scenario ofBangladesh.
- To be acquainted with the impact of foreign currencies remittances over the macro-economy and the micro-economy.
- To identify the various hidden factors that will create the opportunities to enhance remittances flow ofBangladesh.
During the study, I have faced the following limitations:
Three months time is not enough for such an extensive study. It is very difficult to collect all the required information in such a short period
The bankers are very busy with their jobs, which lead a little time to consult with.
Due to some legal obligation and business secrecy banks are reluctant to provide data. For this reason, the study limits only on the available published data and certain degree of formal and informal interview.
Because of the physical distance and inaccessibility of remitters and beneficiaries, a primary study on them to identify the proper market segment was not possible.
The lack of published data on remittance through informal channel has made accurate estimation of possible market size difficult. The volume of remittance is based on the secondary data
The remittance market is fast growing, unstable and depending on various situations like political and economical situations both of the host and the home countries. Hence it would be difficult to generalize the findings for beyond 2010.
2.1 SOURCES OF DATA
In order to make the report more meaningful, presentable, a complete one and to meet the goal of this report different data and information are required. Those data and information were collected from various sources, such as, primary and secondary which is showed below:
2.2 PRIMARY DATA SOURCES
The “Primary Sources” are as follows:
- Face-to-face conversation with the respective officers and staffs of the head office.
- Practical work exposures from the Non Resident Business (NRB) Ops. Department different branches of the different Banks namely United Commercial Bank (UCBL), Agrani Bank, Sonali Bank, Janata Bank, and Bangladeh Krishi Bank (BKB).
- Relevant file study as provided by the officers concerned.
2.2 SECONDARY DATA SOURCES
The “Secondary Sources” of data and information are:
- Annual Report of Eastern Bank Limited and others banks.
- Various file study of Eastern Bank Limited.
- Various books, articles, compilations etc. regarding Remittances Business operation.
- Different ‘Procedure Manual’.
- Bangladesh Bank Annual report
- Internet Browsing
- Several kinds of Academic test-book.
- Different publications regarding banking functions and Remittances operation.
OVERVIEW OF EASTERN BANK LIMITED
The needs for commercial banks in any country are important for its economic growth. Primarily, commercial banks are the one of the major source of funds in the economy. By borrowing money from the locals and lending the same to the locals as loans and advances, they perform an important function. People and Govt. itself are very much dependent on the effective and efficient services provided by the banks in the financial markets of the country. Commercial banks act as financial intermediaries by performing the functions of mobilizing the funds and utilizing them in the proper way. Banks make reasonable amount of profit after meeting the cost of fund. InBangladesh, one common problem is the cost of fund is very high because of the high transaction and ledger costs and limited source of fund. Competition is intense for funds in the country. Combining all these issues, financial environment is tough to operate inBangladesh; moreover the stringent rules, regulations, and Govt. control on market make things worse. Now this report focuses on an important side of banks that is how efficient they are in providing credit facilities. Their efficiency is reflected by the amount of classified loan. Another two factors are also associated with these classified loans – provisioning strategy and recovery strategies.
In pursuance of the “Bank of Credit and Commerce International (Overseas) Limited in Bangladesh (Reconstruction) Scheme, 1992”, framed by the Bangladesh Bank and approved by the Government of Bangladesh, the Eastern Bank Limited was formed as a public limited company incorporated in Bangladesh with primary objective to carry on all kinds of banking business in and outside the country. Eastern Bank Limited had also taken over the business, assets and liabilities of erstwhile Bank of Credit and Commerce International (Overseas) Limited branches inBangladeshwith effect from 16h August, 1992.
3.3 VISION OF EBL
‘To become the bank of choice by transforming the way we do business and developing a truly unique financial institution that delivers superior growth and financial performance and be the most recognizable brand in the financial services in Bangladesh.’
3.4 MISSION OF EBL
- We will deliver service excellence to all our customers, both internal and external.
- We will constantly challenge our systems, procedures and training to maintain a cohesive and professional team in order to achieve service excellence.
- We will create an enabling environment and embrace a team-based culture where people will excel.
- We will ensure to maximize shareholder’s
3.5 CURRENT BANKING SCENARIO IN BANGLADESH & EBL’S POSITION
From the beginning of the year 2006, the entire banking industry in Bangladesh started facing stiff competition to procure business, under the changed circumstances of the policy of Bangladesh bank to lower the rates of interest in lending and to go for syndication against large loan portfolios with the objective to ensure better operation and control of all functions of the bank.
Despite such situation the year was a remarkable one for Eastern Bank Limited (EBL) when the bank finally completed the introduction of a state-of-the art IT technology platform of Flexcube, a world class banking software. All of bank’s 34 branches were connected to this IT platform giving an enviable opportunity to all the EBL customers to obtain the most coveted services that no other bank could offer them yet.
Customers of new century are self-motivated, vigilant and informed about the market conditions, further more development of information technology and telecommunication systems created an environment whereby customers demand convenience, reasonably priced better quality financial products and personalized services. Customer demand together with technological advancement created new challenges and opportunities in the banking sector inBangladesh. Adapting realistic and timely business policies, investments in IT are now prejudicing to stay at the edge of this assertive and competitive banking business of the country. Invention of new financial products and services and introduction of new delivery methods are the key concern of staying close to customers.
FIGURE-1: BRANCHES OF EASTERN BANK LTD.
To cope with the status quo, Eastern Bank Limited welcomed these developments and restructured the bank to meet the challenges in future. The branches of the bank are now termed as the “Sales & ServicesCenter” which are solely concentrated providing service to the corporate and consumer clients and maintain relationship with them. The strategic changes that it initiated back in 2002 to face this changing circumstance has been completed in 2008. As a result, this new business structure supported with the robust banking solution will allow the bank to focus on customers’ needs and provide the best services and products to customer’s doorstep at an attractive price.
Keeping in mind such changed circumstances the bank concentrated not only on wholesale banking but also on other alternatives. For example, introducing new products; diversifying Bank’s activities in consumer and retail banking; simultaneously securing low cost deposits to sustain profitability, increase shareholders’ wealth; rationalizing the expenses and optimizing fruitful use of the funds. The cost to operating income ratio of the bank in 2006 was at the lowest bracket compared with other banks.
3.6 PERFORMANCE OF EBL IN RECENT YEARS
Eastern bank limited began its stressful journey in 1992 and shaped itself to this position as a healthy financial institution and enjoy today commendable reputation in all circles in the country as well as abroad due to transparency in all layers of its transactions following the rules of business set by the Finance Ministry and Bangladesh Bank without any lapse. It has thus culminated a spirit of honest teamwork amongst the management and staff to produce strong balance sheets, quality portfolios, maintain high capital adequacy, paid up capital and reserves.
Eastern Bank Limited today has a strongly motivated and dedicated management and staff who are the pathfinders for introduction of sophisticated products. It has introduce the Automated Teller Machine (ATM), Point of Sales, Internet Banking, Phone Banking, Debit Card, etc. and also new products. Already it has introduced ATM Machines in its branches. Debit Card has also been launched. Clients can also do their business transactions through Internet Banking. For example, they can pay their utility bills through Internet Banking. These positive things shall broaden its customer base and enable the bank to have a competitive edge on other banks.
3.7 REVIEW OF BANK’S OPERATION
As on31st December 2008total assets (excluding contingencies) went up to Taka. 53,971 million from Taka. 27,400 million of 2007. During the same period net profit before tax has increased to Taka 1,134 million from Taka. 967 million of 2007.
3.8 SHAREHOLDERS’ EQUITY
Eastern Bank Limited is one of the largest capital based banks inBangladeshwith an Authorized Capital of Taka 3,300 million and maintained a strong capital position in the year 2008. At the end of year the total shareholders’ equity of the bank was above Taka 3,314 million. Details of the changes in shareholders’ equity are as below:
|(Taka in Million)|
|Paid up Capital|
Reserve Fund & Other Reserves
Less: Pre-takeover loss of BCCI828
(1,224)Total Equity (above)26303,0703,314
TABLE-1: SHAREHOLDERS’ EQUITY OF DIFFERENT FYs
Bank’s Capital Adequacy Ratio (CAR) on the basis of Risk Weighted Assets (RWA as per Bangladesh Bank guidelines), both in terms of Tier-I & Tier-II was 14.02% as onDecember 31, 2007as compared to 18.76% in the year 2006. Compared to the minimum requirement of CAR 9%, the Bank had sufficient surplus capital for growth and development.
FIGURE-3: PAID-UP CAPITAL STRUCTURE
FIGURE-4: CAPITAL ADEQUACY RATIO
3.9 FINANCIAL STANDING OF THE BANK:
The bank, a policy, discouraged high-cost term deposits and focused on reducing cost of funds by increasing low-cost deposits. Rates of interest were revised from time to time in response to internal as well as external market conditions. Even under these extreme situations deposit base has increased to 25734.34 million onDecember 31 2008from TK 17981 million of 2007.
FIGURE-5: GROWTH OF DEPOSITS
Total assets of the bank stood at Taka 35,971million as on December 31, 2008 as against Taka 27,400 million as onDecember 31, 2007.
FIGURE-6: GROWTH OF ASSETS
3.10 CORPORATE GOVERNANCE & REGULATORY COMPLIANCE
Eastern Bank Limited practiced the principles of good corporate governance over the years that covered compliance of regulatory requirements, responsive to various stakeholders. Spirit of corporate governance also included practicing of the corporate culture within the organization and shared this by the employees.
Eastern Bank Limited complied with all the regulatory guidelines prescribed by the Banking Companies Act, Bangladesh Bank, National Board of Revenue and Securities & Exchange Commission, International Accounting Standards, etc.
3.11 COMPARATIVE FINANCIAL STATEMENTS
Table-2: EBL at a Glance: (2004- 2008) (figures in million)
|Authorized CapitalPaid-up CapitalReserve
Deposit & Other Accounts
Loans & Advances
Book Value per share (Taka)
Market values per share (Taka)
Earning per share (Taka)
Dividend per share (Taka)
Return on Equity (Average)
Return on Assets (Average)
Classified loan as a % of total Loans
Capital Adequacy Ratio
Cost: Income Ratio
Net Interest Margin
Number of Branches
Number of Employees
3.12 EASTERN BANK’S VALUE
Eastern Bank Limited Values Statement “Simple Math”.
3.13 MANAGEMENT AND ORGANIZATIONAL STRUCTURE OF EBL
The board of directors being at the highest level of organizational structure plays an important role on the policy formulation. The board of directors is not directly concerned with the day-to-day operation of bank; it has delegated authority to its management committee. The board establishes the objectives and policies of the bank. The board has the authority to declare dividend, to approve the balance sheet, etc. The Chairman informs the board of directors on the progress of the bank and implements the policies established.
There are three committees of the board for different purposes, which are:
- Executive committee comprises seven members of the board
- Committee of the board for Administrative matter
- Committee to examine Bad Loan Cases
3.13.1 Management hierarchy: EBL Eastern Bank Limited
|BOARD OF DIRECTORS|
|DEPUTY MANAGING DIRECTOR|
|EXECUTIVE VICE PRESIDENT|
|SENIOR VICE PRESIDENT|
|SENIOR ASSISTANT VICE PRESIDENT|
|FIRST ASSISTANT VICE PRESIDENT|
|SENIOR PRINCIPAL OFFICER|
|MANAGEMENT TRAINEE OFFICER|
3.14 departments of EBL
3.14.1 Branch Banking
EBL operates through a network of 31 branches around the country. 17 of those branches are located inDhaka, 7 inChittagong, 3 in greater Sylhet and the rest in other four commercially important cities (Khulna, Bogra, Rajshahi & Jessore).
3.14.2 Corporate Banking Division
Corporate Banking is an integrated specialized area of the Bank, which addresses the diverse financial needs of Corporate Customers.
3.14.3 Credit Risk Management Department
All sorts of Credit facilities need to be approved by the Credit Risk Management (CRM) department. This department monitors the risk aspects of the various credit facilities and the clients and then decides whether to allow a particular client to avail the credit facilities. Its objective is to ensure better management of asset relationships. This department has made significant progress in upgrading the asset portfolio of the bank by booking high quality accounts (blue chip local corporate and multinational). Other functions include introducing new monitoring standards, periodical portfolio review, credit approval guidelines and initiating the process to establish a separate Credit Administration Unit to ensure greater control. This brought better management of assets.
3.14.4 Trade Service Department
The Trade Service Department consists of three sub-units. The sub-units are Import Unit, Export Unit and Guarantee Unit. These three units handle all the necessary import-export transactions and provide guarantee.
3.14.5 International Division & Treasury Support Unit
Treasury unit is a Core banking unit with its leading-edge technology and steadily growing volume of activity in the markets, EBL’s treasury unit and currency dealing desks have consolidated its position as a well-known and well established counterpart in the newly transformed Free Floating rate, dealing daily with a wide circle of both bank and non-bank customers all over Bangladesh.
3.14.5 .1 Money market:
Money market desk deals with Bangladesh Taka in Inter bank market from Liquidity and Arbitrage perspective. Everyday EBL lends and borrows a substantial amount of money, which make EBL a strong contender for market maker
- Overnight and term placement/borrowing.
- Repo (Repurchase Agreement) of Security scrip with Central Bank & other Commercial Banks.
- Government bond purchase and sales on behalf of customers
3.14.5 .2 Foreign Exchange:
Foreign Exchange dealing desk deals with USD (US Dollar), EUR (Euro), GBP (Great Britain Pound), JPY (Japanese Yen), SGD (Singapore Dollar) in the Inter-bank market, from Liquidity and Arbitrage perspective. Everyday EBL offer competitive rates for these foreign currencies against BDT.
Key Areas to Focus:
- Offer greater customer convenience and speed up growth in transaction volume.
- Ensure strict control of all risks by closely monitoring market movements
In addition to foreign exchange and money market activities, EBL’s treasury continues to chair Bank’s Assets & Liabilities Committee (ALCO) and pursue its successful management of the Bank’s liquidity position by optimum utilization.
EBL Deals with inward/outward remittance in SD/GBP/EUR/JPY/SGD. We have 3 USD settlement a/c inNew York, 6 USD settlement a/c inSouth-east Asia, 2 EUR a/c inLondonandFrankfurt, 1 JPY a/c inTokyo, 1 SGD a/c inSingapore.
Eastern Bank Limited has established formal relationship with two exchange houses to facilitate its foreign remittance business into a new dimension.
3.14.6 Special Asset Management
In terms of quality, assets (loans) are classified into 7 categories. These categories are good, acceptable, marginal/ watch list, special mention, sub-standard, doubtful, bad and loss, when loans are classified, asset management starts supervising the loan: loan monitoring, persuasion of clients, negotiation, pursue legal options, inspecting mortgaged assets (land & building), auction of mortgaged assets in case of non-repayment, reschedule loans, monitor client’s performance after rescheduling, Provide regular feedback to top management.
3.14.7 Consumer Banking
EBL Consumer Banking deals with the day-to-day financial wants of the consumer clients. EBL’s consumer banking products are designed keeping in mind the financial necessities and affordability of the clients. The new IT platform of EBL has enabled its Consumer Banking to offer world class and comprehensive range of financial products and services. And with EBL’s Internet banking service, the client can now have access to his/ her EBL accounts and EBL’s services at the click of the computer-mouse.
3.14.8 Human Resource Division
Human Resources Division (HRD), unlike any other department, integrates and communicates the standard operation procedure (SOP) of the entire EBL. The motto of HR of EBL is:
“Employer of Choice”
The HR mission statement of EBL is –
“We will inculcate a high performance culture where we will work with fun and pride.”
But one very important term, used here to turn these missions into reality, is ‘WE’; i.e., the Human Resource. So, in order to maintain a strong human resource base, we need to bring into the picture words like motivation, accountability, employees’ social values and ethics.
The HRD of EBL used to do many common HR related jobs, like other companies’ HRD do, along with some special tasks, which are particularly unique for EBL.
Some of the customary tasks, what HR of EBL does, are: Leave Management, Performance appraisal, Recruitment and selection, Circular Communication, Ensure Compliance of Standard Operation Procedure, Preparation and distribution of Salary Statement, Employee loan management, Training & Development, etc.
3.14.9 IT Department
A world class banking software “Flexcube” was selected to provide Online Banking, Internet Banking, Automated Teller Machine (ATM), Telephone Banking, Point of Sales (POS) dispenser, Debit Card facility, etc., to the customer to satisfy their demand of the 21st century. Necessary steps were taken by the IT Department to select and procure the compatible hardware, software, communication links, network system equipment (LAN, WAN), etc.
EBL’s strength is the state of the art technology, which gives the institution an edge over the competitors in the market. EBL’s Main back bone is the software “FLEXCUBE” of ‘I-FLEXCO.” Flexcube has two modules, one is Flexcube Retail and another is Flexcube Corporate. IT department also takes care of the IT related inventory management. The main backbone of IT department depends on the servers of EBL which are thirty nine in numbers. The main categories of the servers are live, mail, file, support, transaction, Internet banking, ATM, intranet, and OBU (Off-shore Banking Unit) server is on the process of installation.
- Desk Services
FIGURE-11: IT SUPPORT OPERATIONS
3.14.10 Finance & Accounts Department
Finance & Accounts is a support division of EBL. It gives services to the other departments of EBL. Every day it checks the pulse of the bank.
3.14.11 SERVICE Delivery Department
Service Delivery (SD) Department overlooks the delivery of different services to the bank’s client. This department mainly performs the back-end office functions as mentioned below:
- Cheque clearing,
- Issuance and encashment of Sanchaypatra and coupons,
- Foreign remittance transfer,
- Pay Order, Demand Draft, etc.
Administration department is responsible for performing the tasks related to the logistics support of the organization. The smooth flow of the operations depends on the skill and performance of the administration department. The administration department maintains the inventory of all types of logistics of the organization.
- Managing logistics support
- Managing the bilateral and unilateral lease contracts
- Other conventional and routine administrative tasks
CHAPTER-04: LITERATURE REVIEW
Remittance and flow of funds from migrant workers to their home countries have become a major source of resource in the developing and emerging economies. In case ofBangladeshthe remittance from Non-Resident Bangladeshis (NRBs) and the deposits maintained by them with banks inBangladeshform a substantial part of our external reserves. According to a recent World Bank Report, the top destination for migrants is the European Union, currently with 71 million, followed by theU.S.A.with more than 40 million. However, in case ofBangladesh, the majority of the migrants would be to theMiddle Eastand theUSA. Amongst the top recipient countries of recorded remittances during 2008 wasBangladeshwith US$ 5 billion (Apro.).
4.1 CONTEXT AND DEFINITIONS
DEFINITION OF REMITTANCES
The term “remittances” has generally come to refer to the transfers, in cash or in kind, from a migrant to household residents in the country of origin. The International Monetary Fund
(IMF) has a broader definition and includes three categories, namely:
- Workers remittances or transfers in cash or in kind from migrants to resident households in the country of origin;
- compensation to employees or the wages, salaries and other remuneration, in cash or in kind, paid to individuals who work in a country other than where they legally reside; and
- Migrant transfers which refer to capital transfers of financial assets made by migrants as they move from one country to another and stay for more than one year.
4.2 THE GROWING IMPORTANCE OF REMITTANCES
Today, along with everything else, the household and the job market have gone global. Cross border households are increasingly common, generating incomes where there is work to be found and spending it closer to home where the elderly and more dependent members remain. Many migrant workers do not intend to remain their entire lives in the host country, just their productive years. Remittances are merely a way of getting the money from where it is earned to where it is most needed. Contributing to this phenomenon are the vast improvements and declining costs in modern international travel, communications and financial transactions.
As a result, remittances tend to be more stable flows nowadays that do not drop off after a certain number of years. While there is a consensus that remittances are growing fast, with total international remittance flows estimated to surpass USD 200 billion for 2008, there is at the same time an underlying feeling that the statistical evidence is sketchy and that we are dealing more in the realm of orders of magnitude than accurate statistical measurement. There is also a presumption that the high growth rates we are witnessing in recent years may be overestimating the actual situation, since they are probably also reflecting improved measurement procedures.
The economic importance of remittances flows, both at the micro and macro levels, must be taken into account by policy-makers in view of their positive development impact in various ways:
- First and foremost, by permitting remittance recipients to accede to higher levels of consumption and improved living standards, including better health and education, these flows are contributing to the long-term development potential of the economy.
- Secondly, and given the role played by the banking sector as either a direct or indirect intermediary in the remittance process, these flows represent an opportunity for broadening the financial inclusion of beneficiaries, providing access to bank credit for housing and microfinance to the lower-income population segments.
- Last but not least, by strengthening the balance of payments and relaxing the traditional foreign exchange constraint faced by these economies, the a-cyclical nature of remittance flows improves creditworthiness and access to international capital markets, while reducing the cost of new debt.
4.3 REMITTANCE FLOW: EFFECT ON HOUSEHOLDS
Remittances play an important role for households by increasing income and savings, improving the standard of living; and reducing poverty. Households receiving remittances are often among the poorest segment of the population, which makes this an effective buffer against earnings disparity. Poor recipients mainly use remittances to finance subsistence consumption. For many families, remittances constitute an essential source of extra income, allowing them to meet some basic necessities such as health and education; and open up opportunities for households to invest in productive activities or small businesses. This contributes to poverty reduction, both directly through transfers to low-income groups, and indirectly through the effects of remittances on the demand for labor and labor-intensive goods and services. It holds the potential to be a source of finance for developing SMEs in geographically dispersed locations. Most SMEs inBangladeshstill have difficulty obtaining loans from banks and other formal financial institutions, and have to rely on family borrowing for financing. Remittances can play a critical role in partly closing this gap. They can also finance the cost of sending other members of the recipient families for employment abroad.
FIGURE-12: THE DEVELOPMENT PERSPECTIVE ON MIGRATION
Despite many benefits, remittances have some shortcomings. They often result in rise in consumption and not always in investment. Although remittances are pro-cyclical, causing higher likelihood of consumer price inflation, the relationship between remittances and inflation inBangladeshis not strong. But as a sizable part of the remittances is used to purchase land, they may lead to increased land prices in small villages with a high concentration of remitters. Farmers and other low-income groups involved in agriculture, livestock, fisheries, horticulture, or similar activities that rely heavily on the availability of land may suffer if a large area of land is owned by a few families. To make the best use of remittances, most needs to be diverted into productive uses such as SME development.
4.4 REMITTANCE MARKET: SCENARIO OF BANGLADESH
4.4.1 RECENT FLOW IN MIGRATION
More than 381,500 workers migrated for foreign employment in 2006, which was 51% more than in 2005 (figures 13 and 14). About 335,400 left the country during the first half of 2007, an average of more than 1,850 a day. Remittances increased by 25% annually in FY2006 and FY2007, a result of the rise in oil price, some policy actions and improvement in banking, and stringent anti–money laundering activity worldwide.
SHAPE * MERGEFORMAT
FIGURE-13: ANNUAL LABOR MIGRANTS FROMBANGLADESH
Bangladesh Bank has taken a number of measures to address bottlenecks in sending remittances through official channels. Steps have been taken to facilitate remittances from the major migrating countries including the US, United Kingdom, Italy, and Middle-Eastern countries through electronic fund transfer systems. Local bank have improved their networks through affiliations with international money transfer agencies and some foreign banks. Foreign remittance monitoring cells have been opened in different banks to track inflows of remittances and address obstacles to the smooth flow of remittances. Actions were also taken against hundi, the major unofficial (also illegal) mode of money transfer. Under this system, the hundi operators receive foreign currency from migrant workers, and their relatives receive local currency at home. This deprives the receiving country of the economic benefits of remittance as the foreign currency is likely to remain outside the country.
The crackdown on illegal money transfers in the context of the war on terrorism and the anti-money laundering law, has also led to an increase in the flow of remittances through formal routes. People are now becoming more cautious about the rules and regulations in the sending countries in fear of funds being frozen or confiscated in suspect of terrorism financing or money laundering.
FIGURE-14: DESTINATION OF EMIGRANTS FROMBANGLADESH(CUMULATIVE: 1976 TO JUNE 2007)
4.4.2 THE STRUCTURE OF REMITTANCES MARKETS:
The following Figure-16 illustrates in a very schematic manner the various channels through which personal remittances may flow from origin to destination. As with international trade, a primary distinction is drawn between institutional and informal channels, the former comprising the delivery of remitted funds through established business entities whether or not they are authorized to engage in such activity. The informal channels consist mainly of the physical transportation of cash or gifts brought into the home country by individuals (the actual remitter, friends and relatives, or couriers), or the use of non-established outfits such as the “Hundi” type systems.
Within the institutional channels there are registered and unregistered intermediaries, the latter consisting of entities formally established for other commercial purposes that offer money transfer services as an irregular side activity to their own cross-border transactions. They should not be confused with the agent network of the registered intermediaries, which usually consists of small commercial establishments on both sides of the border operating under contractual, commission-based arrangements.
The registered intermediaries themselves are banks (as well as other depository institutions) that offer international money transfer services in their product menu, and the specialist money transfer companies (MTCs) such as Western Union or Moneygram. Some MTCs use banks for the actual cross-border transfer of funds from the gathering points to the distribution centre, as illustrated by the diagonal arrow in Figure-16.
SHAPE * MERGEFORMAT
FIGURE-16: POSSIBLE CHANNELS OF DELIVERY FOR PERSONAL REMITTANCES
4.4.3 HURDLES OF OFFICIAL TRANSFERS
The remitters encounter numerous problems in sending their remittances through the official channel, especially to remote areas of the country. The process of sending remittances through banks is slower and more cumbersome than with the informal channels. Paper work and documentation requirements are heavy, which the workers find difficult to accomplish. Lack of knowledge of banking procedures is a hindrance, particularly for the less educated; while many recipients do not even have bank accounts. In addition, remittance documents (e.g., drafts and money orders) may get lost in transit. But the process of sending money through informal channels is simpler and quicker; and involves less paperwork. According to various estimates, remittances sent through the official channels constitute only 50% of total remittances including that remitted through Hundi. While a week, on average, might be required to receive remittances sent through the banks, most informal channels do not take more than 3 days. The Hundi system relies on trust and goodwill; and is efficient. Hundi operators maintain complete secrecy of transactions. The system requires much less documentation, speeding up the whole process. It is also more profitable as the remitters get a premium exchange rate, which is often significantly higher than the official rate. A prime reason why Hundi is a thriving activity is the demand for hard currency to finance smuggling and other illegal trade. Despite improvement, the Hundi-smuggling nexus still exists; and a large proportion of foreign exchange sent through informal channels supports a sizable illegal trade in goods. It is also believed to be aiding the process of capital flight out ofBangladesh. Absence of investment opportunities, political instability, and inadequate social security is also discouraging the inflow of remittances through the official channels.
4.4.4 CHALLENGES AND THREATS
Remittances have increased very rapidly during the last decade. If the country can sustain the present pace in migration, remittances will continue to rise. But some challenges exist. The global economic slowdown, particularly in the developed countries andMiddle East, may have an adverse impact on labor recruitment from labor-exporting countries. Future economic downswings may result in layoffs or depressed wages for low-skill labor. Mostly unskilled and semiskilled laborers migrate fromBangladesh(Figure-17). This type of labor is available in other least developed countries too. UnlessBangladeshcan slowly move to exporting skilled labor, a potential threat of losing to other countries always exists.
FIGURE-17: TYPES OF WORKERS MIGRATING FROMBANGLADESH(CUMULATIVE: 1976