Hundi is a way of money transaction outside the conventional banking system. It can also be called an informal document of commercial exchange and transaction. Technically, hundi is a written unconditional order recorded by one person to another person as per the instructions, and a specified amount is paid to the person mentioned in the instructions.
Hundi originated in the sub-continent during the Mughal period. The distance of the provinces from the capital Delhi was very high. As the roads were very difficult and dangerous, the Mughal administrators of various provinces took the help of local money-lenders to remit the revenue collected from the provinces to Delhi.
These local money-lenders had their own networks across India. They exchanged money among themselves by means of a kind of acceptance or document, which can be compared to a check in modern banking. This document was called hundi.
This network of money-lenders developed in different cities of India was again maintained through their acquaintances, long dealings, and mutual trust. Mughal administrators depended on these money-lenders to send revenue to Delhi. These money-lenders used to deliver the money to the desired destination through their own network.
In continuation of the Mughal period, hundi also gained popularity during the British period. Because of its effectiveness, the British also adopted it as a domestic system of money transactions.
A hotly debated issue in the country in recent times is the reserve crisis. In addition to the fact that imports exceed exports as a result of the reserve problem, the subject of illegal money transfers from abroad and money laundering within the nation is also being discussed.
With this, hundi is also being mentioned. It is said that money laundering from the country and illegal remittances from abroad are entering the country mainly through hundi. As a result, the government is deprived of a huge amount of revenue. Also, even if the expatriates send their income to the country, it is not added to the foreign exchange reserves of the central bank because of the hundi.
Despite the good remittances made through the banking system during the coronavirus outbreak, transferring money through the illegal channel has resumed once things have returned to normal.
In the last fiscal year 2020-21, expatriates sent remittances worth $24.8 billion through the banking channel. Surprisingly, it broke all previous records even in the midst of the coronavirus, which represented an increase of 36.1% or $6.6bn from the previous year.
But now, the picture is completely different. Every month, remittances are declining. According to Bangladesh Bank, expatriate income has decreased in the fifth month of the current fiscal year 2022-23. In the first month of July, due to Eid-ul-Adha, the amount of remittances stood at $209 million. In the next month, even though there was no festival, remittances came in at $203m. But since then, this stream of expatriate income has been decreasing regularly.
Remittances have caused the biggest surprise in September. In that month, remittances fell by $500m. Similarly, in the entire month of October, expatriates sent less remittances.
A review of the Central Bank's report shows that a total of $1,594.73m of remittances have come in during November. Among them, $268m came through state-owned banks, $32.17m through specialized banks, $1,289.32m through private banks, and $5.24m through foreign banks.
On the other hand, a recent report from the World Bank published on December 1 stated that Bangladesh's remittance or expatriate income may decline by $1bn in the current year compared to last year.
Hundi is most responsible for this negative impact of expatriate income. In order to improve the overall situation of the country, there is a need to increase the vigilance in the areas that encourage hundi. In this case, initiatives can be taken such as:
- Bank exchange rate should be increased. Domestic commercial banks, country money exchange, foreign banks, and hundi have different rates for foreign currency exchange in the country. Expatriates are interested in sending money in hundi as it offers better exchange rates compared to banks. Even after the 2.5% incentive announced by the government, expatriates get a much higher exchange rate in hundi. That is why they are leaning towards hundi instead of banks
- Bank transfer should be made easier. Because it is common, customers have to face various hardships when redeeming expatriate income in the bank. Many times, the lack of a legitimate identity card/NID or lack of knowledge about the importance of carrying an identity card is a significant barrier to increasing expatriate income from banks. There is no fee for sending money to hundi, unlike bank charges. In many cases, remittances are sent to the country through the bank legitimately, but the bank does not inform the relatives immediately. After the expatriates inform their families, when they go to the bank, they have to wait for hours at the counter, and get much less money than at hundi rates. In fact, in order to send remittances through the bank to the country, one has to fill up the form in the bank, and sometimes important documents need to be provided, which is often time consuming.
- Monitoring of freelancers should be increased. Freelancers face many problems when bringing money earned abroad to the country, and do not get the desired rate. For this, they choose hundi.
- Expatriates shall not be treated rudely at the airport. Airports do not treat expatriates gracefully. Due to harassment, there is a kind of hatred and fear among expatriates towards Dhaka and Chittagong airports. Many expatriates protest silently by sending money through hundi.
- Money laundering laws should be made strict. Expatriate income sent through hundi is collected by hundi traders. The money is handed over to the representatives of the country's money smugglers abroad. The hundi clique receives money from those who smuggle it out of the nation, and hundi clique transfers the same amount of money to the agents of money smugglers abroad. This means that the money does not come into the country.
A strong crackdown on hundi requires making remittances easier and taking tougher measures against money laundering. According to a Global Financial Integrity report, from 2009 to 2018, $4,965m has been smuggled from Bangladesh under the guise of foreign trade. This is very alarming for the Bangladeshi economy.
Rokibul Huda Majumder is a postgraduate student of economics at the University of Dhaka.
