How can we increase our transfers?
Remittances sent by overseas Bangladeshis are one of the vital sources of foreign currency for the country’s economy. Needless to say, remittances play a crucial role at macro and micro levels. At the macro level, remittances improve the balance of payments position, help pay import bills, build foreign exchange reserves, help service debt, and stimulate economic growth, thereby promoting employment. At the micro level, remittances increase domestic household income, help improve living standards, reduce poverty, promote savings and investment, and develop human capital through productive investments in education. .
Apparently, over the past few months, the overall official remittance inflow is showing a moderate upward trend in both US dollar and local currency terms, amid some fluctuations. It should be noted that remittances are sensitive to external shocks. For example, about 60% come from temporary migrant workers in oil-exporting Middle Eastern countries. Rising and falling crude oil prices in world markets exert positive and negative influences on inputs, respectively. In the post-pandemic period, the number of temporary migrant workers has increased significantly, which is good for Bangladesh. In 2021-22, the number increased sharply to 877,371 (through May) from 280,258 in 2020-21 – from 530,578 in 2019-20 and 692,978 in 2018-19. The reasons include the depreciation of the local currency and the granting by the government of a cash bonus of 2.5% to the beneficiaries. These two measures are likely to motivate expatriates to send more money through official channels.
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Another corrective measure to further increase the number is to offer guaranteed bank loans at reduced rates to potential temporary migrant workers to cover all travel-related costs. Notably, Probashi Kallyan Bank (PKB) has financed Tk 1,793 crore to 98,754 migrant workers since its inception. Other banks have also financed them to a limited extent, but their role should be strengthened. In this way, people will not be forced to sell their properties at abnormally low prices and borrow on the informal market at exorbitant interest rates to go and earn a living abroad. This will save them from local loan sharks and property price manipulators. Such measures are imperative as official inward remittances make enormous positive contributions to the economy of Bangladesh.
In contrast, remittances passing through unofficial channels such as hundi and other illegal means are not directly productive at the macro level. The volume of remittances flowing through unofficial channels is anyone’s guess. Thus, substantial amounts of key foreign currencies are available in the parallel market for illicit capital outflows and financing of illegal business activities. Reducing illegal capital inflows is imperative and should be an urgent policy concern.
The reasons for going through unofficial channels can be manifold: many temporary migrant workers live in remote areas of labor-importing countries, without access to banking services; a significant number of them do not have legal status, which deters them from transferring through official channels; some may not have a National Identity Card (NID); they may lack financial literacy; and time and travel costs can be high, among other things. Hundi economic operators unduly take advantage of the above through their large informal door-to-door or person-to-person network.
In terms of remedies, banks and exchange offices in host countries should require migrant workers to install apps on their mobile phones, through which they can send money electronically whenever they wish. The migrant workforce’s financial knowledge and familiarity with the benefits of mobile banking before going abroad is of the utmost importance to increase the inflow of funds through the formal channel. Teaching them how to open and manage bank accounts should be considered before sending them overseas. To this end, some sort of in-person and/or online training should be given special consideration.
At the same time, they must be made aware of the potential pitfalls of illegal transfers. Thus, vocational training centers offering training to potential temporary migrants in urban and rural areas can include financial literacy in their curriculum. The Bureau of Manpower Employment and Training (BMET) can provide training on relevant financial matters before granting immigration clearance. Aspiring temporary immigrants can take part in this training at any time well before their trip. Banks and financial institutions can design more innovative deposit and investment products with financial and non-financial benefits to meet the requirements and choices of expatriates. Also, networking with temporary migrant workers abroad should be significantly expanded to make it easier for them to obtain NID cards. Illegal immigrants as well as business people whose income exceeds the allowable limit may be allowed to send money from legal immigrant accounts until their legal status is confirmed.
Migrant workers should be treated well at airports back home and should not be harassed when receiving necessary services inside and outside the country. In particular, they deserve more humane treatment from Bangladesh embassies and consular offices abroad. Bureaux de change and correspondent banks in host countries should be more active and maintain regular contact with them. They must bear in mind that these hard workers form the backbone of a budding Bangladeshi economy.
To spell out some of the current financial measures, the government in conjunction with the Bangladesh Bank has created an opportunity for Non-Resident Bangladeshis (NRB) to invest in various bonds. The Employee Development Bond (WEDB), US Dollar Premium Bond and US Dollar Investment Bond are popular investment instruments for qualified and professional shippers living abroad. However, the prevailing cap on the purchase of bonds up to Tk 1 crore and limits on reinvestment opportunities are likely to demotivate them. In this regard, my view is that they may be allowed to invest more foreign currency in these covered bonds, if necessary, by reducing the interest/coupon rate by a few basis points.
Strengthening diaspora communities would also help attract greater inflows of foreign currency. These communities should be encouraged to increase foreign direct investment (FDI) as well as foreign portfolio investment (FPI). Direct investment opportunities exist in sectors such as textiles, ICT, light engineering, jute, leather, pharmaceuticals, ceramics, bicycles and shipbuilding. The ICT sector is a sector with great potential. Computer experts among the NRBs can be motivated to invest in this sector. They have the option of investing directly individually or in joint ventures with their favorite local entrepreneurs.
The FPI can also be a useful channel for attracting investment from diaspora communities. However, making investment safer, offering hassle-free services and adopting a one-stop shop for investors would be conducive. Introducing innovative equities and other financial products to the capital market, such as preferred shares, diaspora bonds, etc., may be the need of the hour to attract investment from NRBs. For example, the exchange rate-adjusted return in Bangladesh to dollars for NRBs in the United States should be greater than the return on investment in the United States, since the returns in two different currencies are not comparable.
It should be noted in particular that Bangladesh Missions abroad could play a major role in increasing remittances by communicating all benefits and relevant policies as well as technical support available to diaspora communities. . The organization of discussions, seminars and workshops by the missions from time to time will be beneficial in this regard. They must remember that traditional foreign diplomacy has now turned into economic diplomacy.
Dr Prashanta Kumar Banerjee is a professor at the Bangladesh Institute of Bank Management (BIBM).
The author thanks Professor Matiur Rahman of McNeese State University, USA, and Dr Md Akhtaruzzaman, CEO of BIBM, for their comments in this article.