Leveraging Digital Economy for an Improved Remittance System in Bangladesh

Written By: Minhaj Papon and Munshi Forsythia Amin

The remittance industry plays a crucial role in Bangladesh’s economy, as it is one of the largest recipients of remittances in the world (10.49 Billion USD in the last 6 months of 2022). However, the traditional remittance system in the country has been plagued with issues such as use of illegal channels like hundi, lengthy processing times, and limited accessibility. In recent years, the digital economy has emerged as a potential solution to these problems, offering faster, cheaper, and more secure remittance services. 

Current situation and challenges with the traditional remittance system in Bangladesh

Bangladesh ranked as the seventh-highest beneficiary of remittances sent by migrant workers worldwide. Remittance from migrant Bangladeshis has become a very substantial source of foreign reserve. Still, The remittance sector in Bangladesh is mired with problems. 

Sending money through official channels still remains a very complicated and difficult process for migrant workers. This leads them to send money through unofficial channels like Hundi. It can be challenging for the government to track exchanges and identify fraudulent activity when migrants use informal channels like hundi and hawala. It is seen that still 50% of total remittances are coming through these channels. Since these remittances are not recorded, Bangladesh keeps losing a great chunk of USD reserves, which is very much needed to stabilize the economy. The Bangladeshi government is attempting to advance management and oversight of the remittance segment to create a more secure and clear structure to allay these worries. 

The government of Bangladesh has already proposed several initiatives to lessen the financial toll that remittance administrations have borne, including encouraging banks through advertising and other budgetary education to cut costs. The government is now providing 2.5% of monetary incentives to those who are using the legal channel to send remittances. The growing use of modern financial services is one of the factors influencing the growth in the number of new residents moving to the area. MFS platforms like bKash and Nagad are becoming more popular for sending remittance, especially in rural areas where access to traditional financial services is constrained. These platforms give users a more transparent, reasonable, and secure way to send and receive money.

Exploring the impact of leveraging the digital economy 

The digital economy has been developing quickly in Bangladesh for a long time and can potentially transform the country’s remittance framework. Remittances are an important source of foreign currency for Bangladesh, and they play a vital role in the country’s economy. The traditional remittance framework in Bangladesh is ruled by casual channels, such as hundi, which are regularly associated with higher exchange costs, extortion, and a need for straightforwardness. The rise of digital innovations, such as mobile money and online payment platforms, has created modern openings for formalizing and progressing the remittance framework.

Advanced technology may help to reduce exchange costs, increase speed, and advance to better security, making the process of sending and receiving remittances less difficult and more accessible to both senders and beneficiaries.

Another advantage of leveraging the digital economy on the Bangladesh Remittance framework is that it can help to expand and get easy access to financial services digitally which can also be termed as Financial integrity or inclusion. Numerous individuals in Bangladesh don’t have access to formal money-related administrations, making it troublesome for them to get remittances and take an interest in the formal economy. 

Digital remittance services can offer assistance to overcome this obstruction by providing an easy-to-use platform for people to get cash and get to a range of financial management where transparent and reliable digital records of the remittance transaction will be kept so people who are transacting can keep track and do not fall into the fraudulent situation. For example, Nagad, Bkash and Upay propelled a remittance benefit that permits clients to get cash specifically into their accounts. This benefit can offer assistance to extend transactions by providing a secure and available platform for individuals to get and utilize the remittance money.

The Landscape of Digital Integration of Remittance Services in Other Countries 

Remittances are a major source of income for many individuals in Asia and the Pacific. In 2019, Asia was the biggest remittance-receiving locale, with $325 billion in formal Remittance, or 45% of worldwide streams. 

Examples from the Philippines, Malaysia, and Pakistan provide insight into improving the environment of remittances using digital payments. In the Philippines, the National Retail Payments System (NRPS) has made it easier and more affordable for Filipinos to send and receive remittances and has helped promote financial inclusion by providing more people with access to formal financial services.

In Pakistan, the SBP has launched Roshan Digital Account, a digital bank account for non-resident Pakistanis, which allows users to open and operate bank accounts in Pakistan remotely without visiting a physical branch.

Malaysia has integrated digital technology into its remittance industry by introducing innovative digital solutions to support cross-border transactions, offering convenience, speed, and security for users. These include mobile apps like TransferWise, Azimo, WorldRemit, etc. and online remittance platforms such as InstaReM, Remitly and TransferGo. Blockchain technology is used in Malaysia to facilitate money transfers, providing users with greater security and transparency.

Examples of countries outside of Asia pacific can be started with Mexico, which has implemented the “CoDi” system, which allows for the instant transfer of money between bank accounts. Kenya has led digital financial innovation, launching the M-Pesa mobile money platform in 2007. 

Another major example of an integrated Digital remittance system of Asia is India. India is working to integrate its remittance system by not using Hundi and promoting digital payment channels. The Reserve Bank of India (RBI) has launched Unified Payments Interface (UPI), a real-time payment system that allows users to transfer funds between bank accounts using mobile phones instantly. 

Recommendations for a Smooth Transition to Integrate Digital Economy for Remittance System
  1. First and foremost, there is a need to create an enabling environment for digital transactions. This can be done by establishing regulations that allow for the safe and secure transfer of funds. The government can work closely with financial institutions and payment gateway providers to ensure that there are appropriate measures in place to prevent fraud and protect customer data.
  2. Educating the public on the benefits of digital transactions, such as speed, convenience, and cost-effectiveness. The government can work with financial institutions and payment gateway providers to launch campaigns to promote the use of digital platforms.
  3. Build infrastructure to support digital transactions. This includes investing in technology and improving connectivity in remote areas.
  4. Develop partnerships between financial institutions and payment gateway providers. This will help to create a seamless and efficient payment ecosystem. The government can encourage the establishment of partnerships by offering incentives to financial institutions and payment gateway providers that collaborate on digital remittance projects.
  5. Develop a regulatory framework that supports innovation and ensures consumer protection. This will require the government to work closely with stakeholders to establish guidelines and regulations that promote competition and protect consumers’ interests.


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