Hundi frustrates legal money transfer

The age-old ‘hundi’ system of illegal cross-border transfer of money is thwarting all government attempts to encourage people to use the legal channels for the purpose.

This is not only true in the case of inflow of legally earned remittance by Bangladeshis working abroad, hundi is also used when people want to send cash in terms of millions to destinations abroad. Every year remittance worth billions of dollars is being transferred to Bangladesh through legal channels, but a substantial amount is also sent through hundi.

Economists say sending money through informal channels like hundi leads to the rise of siphoning money out of the country. In this connection, it has been reported by the officials concerned that the remittance inflow dropped for the fourth consecutive month (June to September) as more people opted for the illegal transaction system hundi. This is happening despite the fact that the government has declared 2 per cent incentive on remittances coming through legal channels such as banks.

The grim facts regarding hundi have been presented by the Bangladesh Bank. The BB data showed the inflow fell by 19.74 per cent year-on-year in September to $1.72 billion. In July-September of this fiscal, expatriates sent home $5.40 billion, a fall of 19.44 per cent compared to the same period of the last FY.

Interestingly, because of lockdown, observed in all sectors including the informal ones, remittance inflow had shown an upward trend in the last two years during the pandemic. Understandably, expatriates sent more money to their relatives during the pandemic considering the family crisis as elders lost jobs or regular work. Travel ban was also a factor that contributed to the increased use of formal channels.

While searching for the reasons for the drop in remittance inflow, experts are of the opinion that a substantial number of  migrants have come back home permanently during the pandemic. A large number is also waiting to go abroad to join work. Some researchers feel the inflow would not increase in the upcoming months because of these reasons. Some economists believe mobile banking is also helping hundi to spread in society. The Bureau of Manpower, Employment and Training, Bangladesh (BMET) says that during the lockdown and movement restrictions, the number of outgoing workers was 96,912 during April-June of this year.

Bangladesh Bank’s statements show that last month, private commercial banks received $1,320.02 million, state-run banks $361.43 million, foreign banks $7.60 million and specialised banks $37.24 million in remittance. Bangladesh received the highest remittance from Saudi Arabia, followed by the USA and UAE. A World Bank report in May this year shows that inward remittance flows to South Asia increased by about 5 per cent last year, when India received $83.1 billion, Pakistan $26.1 billion and Bangladesh $21.1 billion.

We may look at the construct of hundi in the light of history.  Early documents say that hundi is a form of informal monetary instrument developed under the economic expansion and consequent monetisation processes of the Mughal economy. It referred to financial instruments used in trade and credit transactions. Hundi was used as remittance instruments (to transfer funds from one place to another); as credit instruments (to borrow money; and for trade transactions (as bills of exchange). Technically, a hundi is an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order.

But this has to be noted that hundi being a part of the informal system has no legal status and is not covered under the negotiable instruments Acts of the government. The advent of banking system resulted in traders relying more on formal channels.

Transaction of money through hundi is one form of money laundering and this is punishable under the laws of the land. All money transferred by hundi is purportedly black unless otherwise. We understand, most financial companies have anti-money-laundering (AML) policies in place to detect and prevent this activity.

 Therefore, the government anti-laundering agencies must be more vigilant in tracking down the hundi operators and putting them on trial.