Is hundi here to stay?

Hundi might be informal, but it is quite well-organised and more importantly, it is perceived to be much easier and more convenient in comparison to the formal banking system.

The statistics speak for themselves. Only 51 per cent of the remittances that come to Bangladesh comes through formal and legal ways and the rest, 49 per cent of the remittances, come through hundi, according to the finance minister.

Even though banks have recently begun offering incentives on money transfers from abroad, hundi continues to remain more lucrative and convenient than the banking system.

So, is hundi here to stay?

To understand the strong prevalence of hundi, we need to first understand the reason for its high demand.

Hundi agents offer senders more favourable exchange rates and in the case of the taka, the rates are higher than the official rates. 

Even though banks have recently begun offering incentives on money transfers from abroad, hundi continues to remain more lucrative and convenient than the banking system

If a sender agrees to the rate, an agent contacts another agent in the receiving country i.e., Bangladesh to deliver local funds to the sender's designee. Once the funds are delivered, the receiving agent makes a video call to the sending agent to confirm the transaction. The entire process can be completed within a few hours and is quite safe.

For Bangladesh, where 25.34 per cent (as per Population and Housing Census 2022) of its citizens are illiterate, who don't know how to write and sign, this is very convenient.

On the contrary, doing transactions through banks is deemed a complicated task, involving a lot of formalities, often taking days. Even the withdrawal of money ensues a conundrum of questions from bankers and delays. 

Furthermore, women from villages fear entering banks and find understanding the procedure of remittance encashment to be challenging. But hundi money reaches the family much faster than through banks, sometimes even at their very doorstep.

Another reason for the high demand for hundi is for facilitating under-invoicing of imports.

Our import-export traders usually tend to do under-invoicing and over-invoicing for tax evasion. Lower invoice cost means lower import tax. The importer pays for the import partly with a letter of credit and partly with a bank transfer facilitated by hundi agents.

Since there is such a significant preference for hundi, the authorities need to address it to overcome the problems and fix the issues within our own legal or formal system, which are deterring customers.

The dollar's value must be market-based and not artificially controlled. The hundi market sets its own price and so it can always adjust to increase the amount it takes off the remittance flows.

The point is that if hundi is so successful and widely preferred, it is time to learn from it and fix the existing formal system while also curtailing the illegal and unwanted activities of the system.

Coupled with this of course comes the political governance, as a significant amount of hundi money, not coming to the country, is used for the transfer of "corruption" or "easy money" earned by political cronies.

The author is an economic analyst.