D ETERMINANTS B EHIND THE U SE OF I NFORMAL C HANNELS FOR R EMITTING M ONEY F ROM O VERSEAS BY THE W AGE E ARNERS OF B ANGLADESH Presented by A.S.M. Sharif Mahmud st112285 Asian Institute of Technology Asian Institute of Technology Examination Committee: Dr. Sundar Venkatesh (Chairperson) Dr. Juthathip Jongwanich (Member) Dr. Yuosre Badir (Member)
C ONTENTS OF P RESENTATION � Rational and objectives of the project. � Facts regarding manpower export and remittance � Reasons behind use of informal channels � Loopholes of formal channels � Data Analysis and Result � Recommendations to channelize the remittance to official channels
R ATIONALE OF THE STUDY Wage earners remittance is the second largest source of foreign exchange supply. � Export earning of Bangladesh is less than the import payment. � � Wage earners remittance meet the trade gap to a large extent. � Unofficial remittance comprises of 40% of total official remittance. (Ray.S, 2007) If this unofficial remittance could be channelized then the remaining trade gap � could be reduced further. It would ultimately reduce our dependency on foreign currency loans. To reduce the propensity of unofficial remittance it is very important to find out � the reasons that lead many wage earners to use informal channels to remit money home. � Addressing each of the factors ought to be part of overall strategy to reduce the propensity of unofficial channels while increase remittance through official channels.
O BJECTIVES OF THE R ESEARCH � To have a clear understanding about the money transfer mechanism both formal channel and informal channel. � To find out the loopholes in the formal channels � To find out why people use informal channels to remit money home � To identify top most important factors which need to be addressed first � To make some policy recommendation to divert the flow of remittance from informal to formal channel
C OUNTRY WISE O VERSEAS E MPLOYMENT OF B ANGLADESH Source: Bureau of manpower export and training
T RENDS OF MANPOWER EXPORT TO MAJOR REMITTER COUNTRIES KSA UAE 250000 500000 400000 200000 300000 150000 200000 100000 100000 50000 0 0 2000 2000 2002 2002 2004 2004 2006 2006 2008 2008 2010 2010 2012 2012 2000 2000 2002 2002 2004 2004 2006 2006 2008 2008 2010 2010 2012 2012 Malaysia Kuwait 300000 50000 250000 40000 200000 30000 150000 20000 100000 10000 50000 0 0 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 -50000 -10000
T RENDS OF MANPOWER EXPORT TO MAJOR COUNTRIES � Manpower export to KSA drops significantly from 2007 to 2009. This is due to reluctance of KSA to take manpower from Bangladesh. � Due to some reason the image of Bangladeshi � Due to some reason the image of Bangladeshi workers is impaired in KSA. � Malaysia and Kuwait also follow the similar pattern. � Only UAE shows a positive trend. But most wage earners from Bangladesh go to UAE as labor.
M ANPOWER EXPORT ACCORDING TO SKILL Professional Skilled 20000 350000 300000 15000 250000 200000 10000 150000 5000 100000 50000 0 0 Semi Skilled Unskilled 200000 500000 150000 400000 300000 100000 200000 50000 100000 0 0
M ANPOWER EXPORT ACCORDING TO SKILL Professional personnel usually go USA, Canada, Australia � permanently. Recent economic recession caused unemployment in the � developed countries. At the same time immigration procedure become harder which At the same time immigration procedure become harder which � � cause reduction in manpower export to developed countries. � From 2007 to 2010 skilled and semi skilled manpower export falls dramatically . The middle east countries are the main destination of skilled and � semiskilled manpower of Bangladesh. Political unrest in many countries of Middle east as well as � economic recession may be the main reason behind the reduction of manpower export to those countries
C OUNTRY WISE REMITTANCE P ROPORTION Remittance Proportion According to Countries 35.00% 30.00% 25.00% 20.00% 2008-09 15.00% 2009-10 2010-11 10.00% 5.00% 0.00%
C OUNTRY WISE REMITTANCE P ROPORTION Almost 30% of total official remittances come from Kingdom of Saudi Arabia � UAE contribute 17% of total official remittance. � � 16% of total official remittances comes form USA though the number of manpower in USA is very insignificant manpower in USA is very insignificant � The average income in USA is very high compare to income in Middle east and KSA. Kuwait, Malaysia, Singapore, Italy are also important countries for Bangladesh as � remittance from those countries are also significant. Data of the last three years show that the contribution of those countries � towards remittance is more or less same.
T RENDS OF REMITTANCE FROM MAJOR COUNTRIES UAE KSA 2500 8000.00 7000.00 2000 6000.00 1500 5000.00 4000.00 1000 3000.00 2000.00 2000.00 500 500 1000.00 0 0.00 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Malaysia Kuwait 800.00 2500.00 700.00 600.00 2000.00 500.00 1500.00 400.00 1000.00 300.00 200.00 500.00 100.00 0.00 0.00 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012
M ANPOWER EXPORT V S R EMITTANCE Trend Comparison-Manpower export and Remittance 14000 1000 900 12000 800 10000 700 600 8000 Remittance 500 6000 400 300 4000 200 2000 100 0 0 2000 2002 2004 2006 2008 2010 2012 Remittance (Million USD) Manpower (,000)
M AGNITUDE OF REMITTANCE THROUGH INFORMAL CHANNEL � In 2011 total wage earners remittance stands at 11.65 billion USD which is about 10% of GDP. � In the same year remittance amounting about 5.00 billion USD come through informal channels. (considering 40% of official remittance) Total informal remittance is about 4.5% of GDP of Bangladesh. � � Though manpower export is disturbed but the formal remittances shows a steady trend over periods. In 2011 our Export is 207 billion USD, Import 337 billion USD while � official remittance is 117 billion USD. Our trade gap is 130 billion USD. If all the formal remittance is used � to pay the import dues , then the rest 13 billion USD (130-117) is the deficit. This deficit could be covered to some extent if the informal remittances could be channelized.
D ETERMINANTS OF R EMITTANCE � The stock of migrant population Nature and size of demand for the Bangladeshi Migrant worker in � the overseas market Competition from the migrants of other countries. Competition from the migrants of other countries. � National Labor laws and economic condition � � Income potential in the host countries Job credential issues that downgrade migrant wages � � The migrants’ propensity to remit Efficiency of the remitting channels. �
B ASIC M ODEL OF M IGRANT R EMITTANCE Source: Ray, S. (2007)
C HANNELS USED IN R EMITTANCE Informal Channel Formal Channel � Banks � Banks � Hundi � Hundi � Exchange Houses � Home bound friends and relatives � Travelers' Cheque � Personally hand carried � Telegraphic Transfer cash without declaration � Automatic teller machine � Electronic Transfer
T RANSACTION PROCESS THROUGH H UNDI Involvement of four parties � One remitter, two remittance service provider and a � recipient. � When a remitting party wants to send money for example from Riyadh to Dhaka, he makes a payment in Riel or from Riyadh to Dhaka, he makes a payment in Riel or another convertible currency to a remittance agent or middleman in Riyadh. The service provider contacts a partner service provider in � Dhaka and relays necessary information. The partner service provider thus arrange payments in local � currency to remitter’s family or other beneficiary on the production of pre agreed reference.
D IFFERENT C OUNTRY D IFFERENT N AME BUT M ECHANISM IS ALMOST SIMILAR
R EASONS FOR USING INFORMAL CHANNELS � Exchange rate � Urgency of remittance � Freedom to remit without time constraints � High speed of remittance � High speed of remittance � Lower cost. � Avoidance of local tax � Illiterate/ Semi literate people etc. � Availability of channels � Legal access to the banking system
R EASONS FOR USING FORMAL CHANNELS � Legitimate way of transferring money � Wage earners can show their income properly � Money is deposited directly in the bank account of home country thus ensure safety and security. country thus ensure safety and security. � Wage earners can buy wage earners development bond if they send money through formal channels. � Illegal money is used for illegal activities like terrorism, under invoicing , over invoicing etc.
L OOPHOLES OF FORMAL CHANNELS � Obligation to have a bank account (most time) Complex procedure � � Longer time requirement Hassle by bank officials � Non availability of banks in remote areas. � � Noncompetitive exchange rate offering compare to that of informal channels
SURVEY
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