The Bangladesh Bank's Policy Analysis Unit (PAU) has recommended legalisation of hundi business by bringing it under a proper regulatory framework. Millions of dollars earned by the Bangladesh expatriates are transacted through hundi or illegal channel. "However, bringing the informal remittance-service providers into the formal structure under a proper regulatory environment may be considered a challenging issue for the policy makers," the PAU said in its first financial sector review. The review said: "Several strategies can be adopted, such as formalising the informal Hawladers in the system where they can collect remittance abroad and disburse the equivalent amount of domestic currency instantly to the home-country recipients given that they are subject to declare the collected foreign currency within a stipulated period of time as determined by the regulatory authority." A senior BB official told the FE that some countries including the United Arab Emirates (UAE) had already adopted such policy guidelines to legalise the hundi business. Quoting two studies conducted by the International Monetary Fund (IMF) and the International Labour Organisation (ILO), the review said that between 40 per cent and 49 per cent of workers' remittance is transferred to Bangladesh through hundi. Bangladesh received US$4.80 billion as remittances in fiscal 2005-06. "If this huge amount of remittances was made through the official banking channel, the foreign reserve position of the country would have been substantially higher," the APU observed. Besides, the PAU proposed to allow micro-finance institutions (MFIs) to operate as remittance service providers in order to ensure proper monitoring. Currently, the MFIs are not allowed to deal in foreign exchange and remittances, which with their country-wide network can reach the door of migrant families. The MFIs, which enjoy the economies of scale and, are characterised by a robust financial base and strong rural networks, can be utilised to channel remittances to the families of migrant workers, the review added. "Initially, two or three major institutions can be allowed to operate in providing remittance services in order to ensure proper monitoring," the APU noted. The review said the selected MFIs may be given the facility to enlist themselves with foreign banks as correspondent agencies. Their activities must comply with the anti-money laundering and combating financial terrorism laws in order to ensure legal regulatory requirements. However, the share of nationalised commercial banks (NCBs) has declined over the years and that of private commercial banks (PCBs) has increased significantly, while the role of foreign commercial banks (FCBs) has remained almost unchanged. The review said NCBs tend to offer lower exchange rate for inward remittances than their counterparts -- the PCBs and the FCBs.
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