Informal channels must be plugged to keep growing inflow of remittance

In FY 2024-25, Bangladesh's remittance inflow reached $31.31 billion, marking a record for the nation's foreign exchange reserves. This accomplishment indicates an increasing reliance on official banks, agent outlets, and mobile financial services (MFS) for sending remittances; yet, approximately fifty per cent of the nation's remittance potential remains untapped, instead being transited through unregulated informal channels, such as hundi. To capitalise on this momentum, Bangladesh must now concentrate on resolving persistent difficulties, including the financial marginalisation of migrant workers, restricted digital access in rural regions, ineffective exchange rate mechanisms, and insufficient interoperability among financial platforms. Through integrated changes, the nation can aspire to enhance legal remittance inflows by an additional $3-5 billion each year.

The Dual Challenges: Hundi, also called hawala, is an informal, trust-based mechanism to send money that still takes about half of Bangladesh's remittance inflows away from traditional banking channels. About 51% of remittances are sent through legal channels, while the other 49% are sent through hundi networks, according to estimates. 

One of the main reasons migrants choose hundi is that the exchange rates are better. While the official interbank dollar taka rate stands around Tk?120.6 per USD, as of June 2025 -informal hundi operators often offer significantly higher rates, contributing to the continued appeal of unregulated remittance flows. This larger return, along with speedier service and little paperwork, makes hundi very appealing to migrants with low incomes and little education. A lot of these people also reside in isolated rural locations where they can't easily get to banks. 

Also, illegal immigrants, or those who have overstayed their visas or don't have legal work permits, often can't use the formal financial systems in the countries where they live. For them, hundi is the only option that makes sense. It is estimated that Bangladesh loses about $15-16 billion a year in foreign currencies as a result. This money doesn't go into the central reserves or help regulated financial systems. Not only does this loss make things less clear, but it also makes it harder for the government to use remittances for constructive investments and long-term economic growth.

Current Barriers: Banks make senders fill out paperwork, go through compliance checks, and get their information verified, which can make them less likely to send money, especially lower-income migrants.There aren't many bank branches in rural Bangladesh; therefore, rural families employ informal couriers instead. There are telco-based mobile wallet solutions like Bkash and Nagad. Both Bkash and Nagad have made impressive strides; they now receive cross-border remittances in real time through partnerships with global transfer services like Payoneer, WorldRemit, MoneyGram, TerraPay, and Tranglo. However, limited digital infrastructure in remote areas, such as poor internet connectivity, lack of smartphone access, and digital literacy gaps, still constrains the full utilization of these mobile remittance services among rural and low-income populations.Migrants may not trust banks because they take too long, charge hidden costs, or are afraid of being watched.

Key Mechanisms: Agent banking lets banks hire local store owners to be service points. This makes it easier to get to and cuts down on travel and red tape. As of March 31, 2025, agent banking in Bangladesh has seen remarkable expansion, far surpassing the figures from 2022:Agent banking outlets: approximately 21,023, served by 15,838 agents, consistently spread across rural and urban areas. Agent banking accounts: 24.67 million, a substantial rise from the previous 16?million-85.5% of these accounts are held in rural regions.Total deposit accounts via agents reached 24.67 million by March 2025. By the end of March 2025, inward remittances channeled through agent banking outlets reached a whopping Tk?1.812?trillion (181,204.73?crore), marking a 20.87% increase from the Tk?1.499?trillion recorded in March 2024. As of 2025, about half of all formal remittances are processed through agent banking-a dramatic rise reflecting its rapid growth.

To maximise the efficacy of agent banking, authorities must guarantee its seamless and continuous functioning nationwide, especially in rural and economically disadvantaged regions. Simultaneously, strengthening agent networks internationally-particularly in prominent migrant-receiving nations such as the UAE, Saudi Arabia, and Malaysia-via strategic alliances can substantially enhance formal remittance inflows.

Unified Formal Channels and Rewards: Tiered incentives for higher and frequent remitters (e.g., bonuses beyond 2.5% for recurring senders or large-value transactions).Unified digital remittance platforms that integrate banks, agent outlets, and MFS under a single interoperable system for smoother, faster transfers.India's Unified Payments Interface (UPI) is a prime example of an interoperable payment platform. It connects all Indian banks, fintech apps, and wallets under a single system, allowing users to send and receive money instantly using mobile numbers, UPI IDs, or QR codes-regardless of the bank or wallet provider. Similarly, Bangladesh can develop a "Remittance Interoperability Gateway" namedlike  'OneRemit BD'  to unify its fragmented digital payment ecosystem.Bangladesh Bank moved to a crawling peg system in late 2024, allowing the exchange rate to be modified more flexibly based on market demand. By early 2025, the official rate rose to Tk?120-122/USD,narrowing the gap with the informal market and contributing to a record $3.3?billion monthly remittance in March 2025. Maintaining a competitive, transparent, and market-aligned exchange rate policy is essential. This will not only discourage hundi transactions but also build migrant trust in formal channels and increase overall remittance volume.

Plan to Increase Remittances by 5% to 10%: Bangladesh may feasibly increase official remittances by an extra $3-5 billion per year by combining the following measures. This would raise inflows to the $35-36 billion level.

Increasing the number of overseas agents: Bangladesh government can take the initiative to put thousands of agent banking partners in the GCC, Malaysia, and Singapore. After signing MoUs with banks, telecom companies, or labour authorities in the host nation, the responsible department can offer remittance services that are easy for people living abroad to use.

Realigning incentives and exchange rates: The current 2.5% incentive on official remittances has made hundi less appealing, but it is still not enough to close the gap in exchange rates. For example, banks give Tk 122 per USD plus 2.5%, which is Tk 125. Hundi, on the other hand, often gives Tk 127-128, which means there is a gap of Tk 2-3 per dollar. When the incentive goes up to 4%, the effective rate goes up to Tk 126.88, which is very close to the informal prices. This small change might make more migrants want to use legal means, especially when combined with agent banking, smartphone transfers, and the promise of fast, safe delivery.

Legislative & Monitoring: The government can empower the Bangladesh Financial Intelligence Unit (BFIU) and commercial banks to swiftly freeze hundi-linked mobile financial service (MFS) accounts, as has been done previously. Additionally,the authorities can take the initiative to deploy advanced AI and Anti-Money Laundering (AML) platforms to detect suspicious transaction patterns and trace informal remittance flows across digital financial networks.

Notwithstanding record inflows, approximately fifty percent of remittances continue to evade formal routes through hundi. Facilitating financial inclusion, enhancing incentives, utilising technology, and fostering trust among migrants are crucial. Enhanced policies by Bangladesh Bank, BFIU, and other stakeholders might increase legal remittances by $3-5 billion, fortifying households and augmenting national economic resilience.

The writer is from Department of International Relations, University of Dhaka