SURVEY P URPOSE OF THE SURVEY The purpose of the survey is to find - - PowerPoint PPT Presentation

DETERMINANTS BEHIND THE USE OF INFORMAL CHANNELS FOR REMITTING MONEY FROM OVERSEAS BY THE WAGE EARNERS OF BANGLADESH

Presented by A.S.M. Sharif Mahmud st112285 Asian Institute of Technology Asian Institute of Technology Examination Committee:

• Dr. Sundar Venkatesh (Chairperson)
• Dr. Juthathip Jongwanich (Member)
• Dr. Yuosre Badir (Member)

CONTENTS OF PRESENTATION

Rational and objectives of the project. Facts regarding manpower export and remittance Reasons behind use of informal channels Loopholes of formal channels Data Analysis and Result Recommendations to channelize the remittance to

• fficial channels

RATIONALE OF THE STUDY

• Wage earners remittance is the second largest source of foreign exchange supply.
• Export earning of Bangladesh is less than the import payment.
• Wage earners remittance meet the trade gap to a large extent.
• Unofficial remittance comprises of 40% of total official remittance. (Ray.S, 2007)
• If this unofficial remittance could be channelized then the remaining trade gap

could be reduced further. It would ultimately reduce our dependency on foreign currency loans.

• To reduce the propensity of unofficial remittance it is very important to find out

the reasons that lead many wage earners to use informal channels to remit money home.

• Addressing each of the factors ought to be part of overall strategy to reduce the

propensity of unofficial channels while increase remittance through official channels.

OBJECTIVES OF THE RESEARCH

To have a clear understanding about the money

transfer mechanism both formal channel and informal channel.

To find out the loopholes in the formal channels To find out why people use informal channels to remit

money home

To identify top most important factors which need to

be addressed first

To make some policy recommendation to divert the

flow of remittance from informal to formal channel

COUNTRY WISE OVERSEAS EMPLOYMENT OF BANGLADESH

Source: Bureau of manpower export and training

TRENDS OF MANPOWER EXPORT TO MAJOR REMITTER

COUNTRIES

50000 100000 150000 200000 250000 2000 2002 2004 2006 2008 2010 2012

KSA

100000 200000 300000 400000 500000 2000 2002 2004 2006 2008 2010 2012

UAE

2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012

• 50000

50000 100000 150000 200000 250000 300000 2000 2002 2004 2006 2008 2010 2012

Malaysia

• 10000

10000 20000 30000 40000 50000 2000 2002 2004 2006 2008 2010 2012

Kuwait

TRENDS OF MANPOWER EXPORT TO MAJOR COUNTRIES

Manpower export to KSA drops significantly from

2007 to 2009. This is due to reluctance of KSA to take manpower from Bangladesh.

Due to some reason the image of Bangladeshi Due to some reason the image of Bangladeshi

workers is impaired in KSA.

Malaysia and Kuwait also follow the similar

pattern.

Only UAE shows a positive trend. But most wage

earners from Bangladesh go to UAE as labor.

MANPOWER EXPORT ACCORDING TO SKILL

5000 10000 15000 20000

Professional

50000 100000 150000 200000 250000 300000 350000

Skilled

50000 100000 150000 200000

Semi Skilled

100000 200000 300000 400000 500000

Unskilled

MANPOWER EXPORT ACCORDING TO

SKILL

• Professional

personnel usually go USA, Canada, Australia permanently.

• Recent economic recession caused unemployment

in the developed countries.

• At the same time immigration procedure become harder which
• At the same time immigration procedure become harder which

cause reduction in manpower export to developed countries.

• From 2007 to 2010 skilled and semi skilled manpower export falls

dramatically .

• The middle east countries are the main destination of skilled and

semiskilled manpower of Bangladesh.

• Political unrest

in many countries of Middle east as well as economic recession may be the main reason behind the reduction

• f manpower export to those countries

COUNTRY WISE REMITTANCE PROPORTION

25.00% 30.00% 35.00%

Remittance Proportion According to Countries

0.00% 5.00% 10.00% 15.00% 20.00% 2008-09 2009-10 2010-11

COUNTRY WISE REMITTANCE PROPORTION

• Almost 30% of total official remittances come from Kingdom of Saudi Arabia
• UAE contribute 17% of total official remittance.
• 16% of total official remittances comes form USA though the number of

manpower in USA is very insignificant manpower in USA is very insignificant

• The average income in USA is very high compare to income in Middle east and

KSA.

• Kuwait, Malaysia, Singapore, Italy are also important countries for Bangladesh as

remittance from those countries are also significant.

• Data of the last three years show that the contribution of those countries

towards remittance is more or less same.

TRENDS OF REMITTANCE FROM

MAJOR COUNTRIES

2000.00 3000.00 4000.00 5000.00 6000.00 7000.00 8000.00

KSA

500 1000 1500 2000 2500

UAE

0.00 1000.00 2000.00 2000 2002 2004 2006 2008 2010 2012 500 2000 2002 2004 2006 2008 2010 2012 0.00 100.00 200.00 300.00 400.00 500.00 600.00 700.00 800.00 2000 2002 2004 2006 2008 2010 2012

Malaysia

0.00 500.00 1000.00 1500.00 2000.00 2500.00 2000 2002 2004 2006 2008 2010 2012

Kuwait

MANPOWER EXPORT VS REMITTANCE

700 800 900 1000 10000 12000 14000

Trend Comparison-Manpower export and Remittance

100 200 300 400 500 600 2000 4000 6000 8000 2000 2002 2004 2006 2008 2010 2012 Remittance Remittance (Million USD) Manpower (,000)

MAGNITUDE OF REMITTANCE THROUGH INFORMAL CHANNEL

• In 2011 total wage earners remittance stands at 11.65 billion USD

which is about 10% of GDP.

• In the same year remittance amounting about 5.00 billion USD

come through informal channels. (considering 40% of official remittance)

• Total informal remittance is about 4.5% of GDP of Bangladesh.
• Though manpower export is disturbed but the formal remittances

shows a steady trend over periods.

• In 2011 our Export is 207 billion USD, Import 337 billion USD while
• fficial remittance is 117 billion USD.
• Our trade gap is 130 billion USD. If all the formal remittance is used

to pay the import dues , then the rest 13 billion USD (130-117) is the deficit. This deficit could be covered to some extent if the informal remittances could be channelized.

DETERMINANTS OF REMITTANCE

• The stock of migrant population
• Nature and size of demand for the Bangladeshi Migrant worker in

the overseas market

• Competition from the migrants of other countries.

Competition from the migrants of other countries.

• National Labor laws and economic condition
• Income potential in the host countries
• Job credential issues that downgrade migrant wages
• The migrants’ propensity to remit
• Efficiency of the remitting channels.

BASIC MODEL OF MIGRANT REMITTANCE

Source: Ray, S. (2007)

CHANNELS USED IN REMITTANCE

Formal Channel

Banks

Informal Channel

Hundi Banks Exchange Houses Travelers' Cheque Telegraphic Transfer Automatic teller machine Electronic Transfer Hundi Home bound friends and

relatives

Personally hand carried

cash without declaration

TRANSACTION PROCESS THROUGH HUNDI

• Involvement of four parties
• One remitter, two remittance service provider and a

recipient.

• When a remitting party wants to send money for example

from Riyadh to Dhaka, he makes a payment in Riel or from Riyadh to Dhaka, he makes a payment in Riel or another convertible currency to a remittance agent or middleman in Riyadh.

• The service provider contacts a partner service provider in

Dhaka and relays necessary information.

• The partner service provider thus arrange payments in local

currency to remitter’s family or other beneficiary on the production of pre agreed reference.

DIFFERENT COUNTRY DIFFERENT NAME

BUT

MECHANISM IS ALMOST SIMILAR

REASONS FOR USING INFORMAL

CHANNELS

Exchange rate Urgency of remittance Freedom to remit without time constraints High speed of remittance High speed of remittance Lower cost. Avoidance of local tax Illiterate/ Semi literate people etc. Availability of channels Legal access to the banking system

REASONS FOR USING FORMAL

CHANNELS

Legitimate way of transferring money Wage earners can show their income properly Money is deposited directly in the bank account of home

country thus ensure safety and security. country thus ensure safety and security.

Wage earners can buy wage earners development bond if

they send money through formal channels.

Illegal money is used for illegal activities like terrorism,

under invoicing , over invoicing etc.

LOOPHOLES OF FORMAL CHANNELS

• Obligation to have a bank account (most time)
• Complex procedure
• Longer time requirement
• Hassle by bank officials
• Non availability of banks in remote areas.
• Noncompetitive exchange rate offering compare to that of

informal channels

SURVEY

PURPOSE OF THE SURVEY

• The purpose of the survey is to find out the most

important factors that lead the wage earners to send money through informal channels.

• The survey has limitations also.
• The survey is based on Thailand which is not a ideal
• The survey is based on Thailand which is not a ideal

country for wage earners to represent all the factors.

• Recommendations are based on the findings in
• Thailand. It might vary with the wage earners live in

KSA, Malaysia or other countries.

• The sample size was also small which may not

represent the whole population

DATA COLLECTION

• Primary data was collected from a small survey on Bangladeshi

expatriates living in Thailand

• Sample size was 20 of which 15 male and 5 female
• Age range from 22 years to 45 years
• Samples were collected within the group who use informal

channels to remit money. channels to remit money.

• A close end questionnaire mentioning 13 factors behind use of

informal channels was used for survey.

• Respondents were asked to rank the factors from 1 to 13 where 1

is most important and 13 is least important factor.

• Average value of the ranking was used to analysis the data.
• The 13 factors were identified by going through various books

journals, research papers and also from personal experience.

DESCRIPTION OF THE FACTORS

Serial No. Factor Name Description

1 Exchange Rate Conversion rate of local currency against per unit of foreign currency 2 Urgency Very urgent to remit money home 3 Speed How long it will take time to send money home 4 Transaction time Office hour of remittance service provider 5 Cost Fees, commissions etc. associated with remittance 6 Convenience Convenience of the remitter as well as the recipient 6 Convenience Convenience of the remitter as well as the recipient regarding sending and collection of money 7 Trust Whether the people are trustworthy or not 8 Availability Whether the channels are available to the wage earners as well as the recipient in home countries 9 Reliability Whether the channels are reliable or not 10 Complexity Unable to understand the remittance procedure of the formal channels 11 Illiteracy Lack of basic education 12 Illegal Worker Working without valid visa or work permit 13 Anonymity Whether the sender want to disclose his or her identity

DATA ANALYSIS

10 12 14

Mean value of the ranking by the total sample (smaller number greater importance)

2 4 6 8

RESPONDENTS’ PREFERENCES OF FACTORS ACCORDING TO AGE

LIMIT

2 4 6 8 10 12 14

Ranking of factors according to sample age below 30 (25% of total sample)

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Ranking of factors according to sample age above 30 (75% of total sample) Most important: Transaction time, Exchange rate ,Speed, Urgency

PREFERENCE OF RESPONDENTS ACCORDING TO GENDER

2 4 6 8 10 12 14

Ranking of factors according to male respondents

2 4 6 8 10 12 14

Ranking of factors according to female respondents

Most important factor: Urgency, Transaction time, Speed, Ex rate

RANKING OF FACTORS

ACCORDING TO EDUCATION

2 4 6 8 10 12 14

Ranking of the factors according to respondents having Bachelor degree

2 4 6 8 10 12 14

Ranking of the factors according to respondents having HSC degree

2 4 6 8 10 12 14

Ranking of the factors according to respondents having SSC degree Most important factors: Transaction time, Speed, Urgency, Ex rate

PREFERENCE OF RESPONDENTS ACCORDING TO

EMPLOYMENT

2 4 6 8 10 12 14

Ranking of factors according to respondents working as a company staff

2 4 6 8 10 12 14

Ranking of factors according to respondents working as hotel manager

2 4 6 8 10 12 14

Ranking of factors according to respondents working money changer office

RESULT

The samples, on an average, thinks that the most important

factors should be urgency

• f

remittance, speed

• f

remittance, exchange rate offered by the channels and transaction time of the remittance service providers. On the other hand average sample think anonymity,

On the other hand average sample think

anonymity, illiteracy, illegal worker and complexity are the least important factors to consider regarding sending money home through informal channels.

Segregation of data according to demography of the sample

such as age, gender, education and employment shows the similar result regarding the ranking.

RECOMMENDATIONS

• Addressing the most important factors ought to be part of overall

strategy to reduce the propensity of unofficial channels while increase remittance through official channels. Exchange Rate

• Black market premium on Exchange rate could be reduced through
• Black market premium on Exchange rate could be reduced through

better rules and regulations. The demand of unofficial foreign exchange is high in Bangladesh due to under invoicing practice of the importer. If central bank as well as the ministry of trade strengthen their supervision to reduce such illegal practice then the demand for informal foreign exchange could be reduced. Transaction time

• Incorporation of chain store like Singerbd, Walton etc. as a

remittance service provider to get the extended time beyond the banking transaction time. These shops remained open upto 10 pm and have distribution channels all over Bangladesh.

RECOMMENDATION (CONTD….)

Speed:

• Speed could be ensured through technological advancement of

the remittance channels.

• Establishing ATM booth in remote areas could increase the

speed of remittance.

• Remittance through mobile network could be encouraged more

to get remittance with more speed. Urgency:

• Hundi channels often provide credit facility to the recipient of

the remittance in case of urgency. To reduce the dependency on informal channels the credit facility to the rural people must be increase.

THANK YOU THANK YOU