Worker Remittances through Banks: Key Concerns

April 25, 2020
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Decelerating Trends in Worker Remittances through Banking Channels- One of the Key Banking Concerns of 2017

(Published in the Financial Express in 2018)

Dr. Shah Md Ahsan Habib[1]

Ensuring adequate and continuous flow of remittances is a major policy concern for the developing countries. It is true that recorded remittance flows have surged over last few years mainly driven by a combination of factors such as better data collection, greater awareness of the development potential of remittances, concerns about money laundering and terrorist financing, lower costs and time, etc. Moreover, congenial policies to improve banking access and the technology of money transfers have helped brining positive changes in the market as a whole. Banks and Money Transfer Organizations (MTO), the major remittance service providers (RSPs), have been very active in recent years to adopt new technology in the pursuit of offering quality and cost effective services.  However, in spite of the greater risk involvement, the informal channels are popular among the remitters/recipients because of ‘less time requirement’ and almost ‘no formality and documentation’, as the common perception goes. 

Experiments in a number of developing countries have been producing evidences that use of modern and innovative technology may push remittance price/fees downward and improve quality of remittance services in terms of quick and secured transfer that might work as an incentive for the migrants to use formal channels in remitting funds in place of informal channels. In a major development in recent time, mobile technology has become popular as one of the most exciting forces shaping how people send and receive international remittances. This is helping to reduce costs, improving speeds, and resulting comforts to the senders and receivers. However, the positive changes are also bringing in associated challenges and unforeseen risks. On the one side, the technology has challenges of the lack of enabling regulation, limited understanding of the business models of new digital players, low levels of customer trust, and the established nature of cash-based transfers. And on the others, the use of technology might even make the scenario more difficult for the formal sector to compete with informal sector, and there might be greater scope for regulatory oversight. There are also growing concerns of using mobile technology for financial crime like illicit fund transfer and money laundering. The critical dilemma to the policy maker is –augmenting remittance flows using formal channels by ensuring safe, efficient and affordable services using modern technology in a complaint environment.  

International remittances are critical to the livelihoods of hundreds of millions of people in the developing world.  Since early 1980s, international labor migration has been an integral part of Bangladesh’s economic and social development since the 1980s that are contribution in the form of creating employment, ensuring stability to foreign exchange reserve, and offering additional avenues to the government to attain its long term developmental goals. Especially, worker remittances have been a consistent source of foreign exchange in Bangladesh that has been playing an important role in improving supply side in the foreign exchange market and reducing poverty level. Thus, negative growth of remittance flows during last almost three years became a cause of concerns to the policy makers of the country. In spite of several recent policy initiatives, the remittance flows are yet to receive due push. There are suppositions that changes in global policy and regulatory environments and leakage of remittances from formal to informal channels might be the reasons. It is very difficult to estimate the magnitude and volumes of true size of the remittance flows as a considerable portion of the foreign remittances are believed to be entering into the country through the informal channel; and it is extremely difficult to estimate the volume of informal flows with accuracy. There are evidences that informal remittance channeling remained popular for sending money to rural Bangladesh to a section of expatriate Bangladeshi workers. The system has proved to be efficient and dependable in general over the period that involves significantly less time, less or no formalities, and require comparatively less cost in channeling fund as compared to official channel such as banks. Lack of knowledge about banking procedures and involvement of paperwork and documentation are also notable hindrances for using official channels. In spite of the growing use of information technology, it seems not easy for banks to compete with the informal sector money remitters. In the present scenario, the policy makers are facing a key challenge to augment remittances through formal banking channels and thus integrate remitters with the development process of the country lawfully and productively.  

According to the most recent published data, over 250 million migrants are working and living in countries far from home and they are supporting their families and friends through global money transfers. Available data and evidences indicate handy facts that reflect the significant contribution of migrants to their families and their home country. In 2017, the top five remittance recipient countries are India, China, the Philippines, Mexico, and Nigeria; and as the share of gross domestic product (GDP) the top five recipients are basically the smaller countries – the Kyrgyz Republic, Haiti, Tajikistan, Nepal, and Liberia. In terms of volume, Bangladesh is amongst the top ten recipient countries of the world as of 2017.

In regard to the trends, for the first time in recent history, remittance flows to developing countries registered a decline for two successive years. Cyclical factors affecting remittance flows, especially to South Asia and Central Asia, include low oil prices and weak economic growth in the Gulf Cooperation Council (GCC) countries and the Russian Federation. Weak growth in Europe also affected flows to North Africa and Sub-Saharan Africa, as observed by the World Bank. The decline in remittances is further accentuated when expressed in U.S. dollars because of the weakening of the euro, the British pound and the ruble against the U.S. dollar. Remittance flows to the Europe and Central Asia region registered a significant decline for the third consecutive year; Latin America and the Caribbean was the only region to register an increase in remittance flows, supported by strengthening employment levels in the United States, as revealed in a recent World Bank estimation.

About the status of remittances in South Asian countries, India receives lion share followed by Pakistan. Bangladesh is the third most remittance receiving record by 11.52 percent among the South Asian counties in 2017. However, the market share of Bangladesh even amongst South Asian countries decelerated sharply during last three years. The South Asian region remains significantly dependent on remittances. Remittances exceeded 5 percent of GDP in 2016 for Pakistan, Bangladesh, Sri Lanka, and Nepal. For India, remittances are not large as a proportion of GDP. However, there are subnational variations in the impacts of remittances. There are indications that remittances to the South Asia region declined by in 2016 in the face of lower oil prices; fiscal tightening; and ‘nationalization’ policies in some host countries Moreover, remittance growth in the region is projected to remain muted, because of low growth and fiscal consolidation in GCC countries. Especially, the economic slowdown in Saudi Arabia and Kuwait and lower demand from Malaysia and some GCC countries have caused difficulties, as observed by the World Bank.

Global published data clearly indicate slowdown of remittance inflows in the Global economy as a whole. Almost all developing economies are experiencing stationary state in terms of remittance inflows during 2015-2017. South Asian countries in general and Bangladesh are no different. However, the available data reveal shirking of market share of Bangladesh in the Globe and also in South Asia. It indicates greater fall of remittance flows to Bangladesh as compared to other developing and neighboring countries. Though it is not easy to identify whether this is true decline of remittance inflows to the country or it is an outcome of leakage of remittances from legal to informal channels; the evidences point towards growing popularity of informal channels in recent time.


[1] Professor and Director (Training), BIBM ([email protected]).

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