Hundi cartels still going strong

A report published in The Business Post yesterday, quoting Finance Minister AHM Mustafa Kamal, stated that remittance inflow through the legal channel and hundi is still almost the same in Bangladesh. Speaking to reporters after attending meetings of the cabinet committee on public purchase economic affairs, he said, “When I was the planning minister, I conducted a study. It showed that Bangladesh was receiving 51 per cent remittance through the official channel, and 49 per cent through hundi. I think this trend continues till this very day.”

The news, while disconcerting, comes as no surprise. It is hardly a secret that a huge number of migrant workers prefer sending home their hard-earned money through hundi rather than the official channel. This practice is hurting the national exchequer. However many believe that there are genuine reasons that many of the migrant workers are using the hundi system.

During the height of the pandemic remittance sent through official channels saw a surge. The cash flow took place through formal channels as informal channels like hundi could not operate due to the travel restrictions and shutdown of economies in different countries. Remittances to banking channels increased, not just increased, new records were set. However, as the impact of the pandemic slowed down, things started going back to square one.

Many migrant workers send remittances to the country through hundi as there are many problems in sending money legally. The main reason people opt for hundi is to get money quickly. It has become popular because people from any region get money through hundi quickly. Those who have gone abroad illegally and staying there are being forced to send remittances through hundi.

Economists say sending money through informal channels like hundi leads to the rise of siphoning money out of the country. This is happening even though the government has declared a 2 per cent incentive on remittances coming through legal channels such as banks.

We may look at the construct of hundi in the light of history. Early documents say that hundi is a form of an 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 it 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. 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. Sending money through the banking channel will insulate the foreign exchange reserves, which are now facing a decreasing trend.

There should be sufficient barriers in place to resist this type of illegal money transfer. Also, a fool proof system needs to be developed so that this illegal system can be put to a stop. If the cancer of hundi in the economy is not stopped in its tracks, it will continue to spread its tentacles in the economic development and progress of the country. For this, the authorities concerned have to take active measures.