Final Presentation sharif mahmud 8 - AIT Banking and Finance...remittance, exchange rate offered by...
Transcript of Final Presentation sharif mahmud 8 - AIT Banking and Finance...remittance, exchange rate offered by...
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 TechnologyAsian 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
official 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 gapcould be reduced further. It would ultimately reduce our dependency on foreigncurrency loans.
� To reduce the propensity of unofficial remittance it is very important to find outthe reasons that lead many wage earners to use informal channels to remitmoney home.
� Addressing each of the factors ought to be part of overall strategy to reduce thepropensity of unofficial channels while increase remittance through officialchannels.
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
0
50000
100000
150000
200000
250000
2000 2002 2004 2006 2008 2010 2012
KSA
0
100000
200000
300000
400000
500000
2000 2002 2004 2006 2008 2010 2012
UAE
2000 2002 2004 2006 2008 2010 20122000 2002 2004 2006 2008 2010 2012
-50000
0
50000
100000
150000
200000
250000
300000
2000 2002 2004 2006 2008 2010 2012
Malaysia
-10000
0
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
0
5000
10000
15000
20000
Professional
0
50000
100000
150000
200000
250000
300000
350000
Skilled
0
50000
100000
150000
200000
Semi Skilled
0
100000
200000
300000
400000
500000
Unskilled
MANPOWER EXPORT ACCORDING TO
SKILL
� Professional personnel usually go USA, Canada, Australiapermanently.
� Recent economic recession caused unemployment in thedeveloped countries.
� At the same time immigration procedure become harder which� At the same time immigration procedure become harder whichcause reduction in manpower export to developed countries.
� From 2007 to 2010 skilled and semi skilled manpower export fallsdramatically .
� The middle east countries are the main destination of skilled andsemiskilled manpower of Bangladesh.
� Political unrest in many countries of Middle east as well aseconomic recession may be the main reason behind the reductionof 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 insignificantmanpower 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
0
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
0
100
200
300
400
500
600
0
2000
4000
6000
8000
2000 2002 2004 2006 2008 2010 2012
Re
mit
tan
ce
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 official 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 arecipient.
� When a remitting party wants to send money for examplefrom Riyadh to Dhaka, he makes a payment in Riel orfrom Riyadh to Dhaka, he makes a payment in Riel oranother convertible currency to a remittance agent ormiddleman in Riyadh.
� The service provider contacts a partner service provider inDhaka and relays necessary information.
� The partner service provider thus arrange payments in localcurrency to remitter’s family or other beneficiary on theproduction of pre agreed reference.
D IFFERENT COUNTRY D IFFERENT 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 mostimportant factors that lead the wage earners to sendmoney 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 idealcountry for wage earners to represent all the factors.
� Recommendations are based on the findings inThailand. It might vary with the wage earners live inKSA, Malaysia or other countries.
� The sample size was also small which may notrepresent the whole population
DATA COLLECTION
� Primary data was collected from a small survey on Bangladeshiexpatriates 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 informalchannels to remit money.channels to remit money.
� A close end questionnaire mentioning 13 factors behind use ofinformal channels was used for survey.
� Respondents were asked to rank the factors from 1 to 13 where 1is 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 booksjournals, 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)
0
2
4
6
8
RESPONDENTS’ PREFERENCES OF FACTORS ACCORDING TO AGE
LIMIT
0
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
0
2
4
6
8
10
12
14
Ranking of factors according to male respondents
0
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
02468
101214
Ranking of the factors according to respondents
having Bachelor degree
0
2
4
6
8
10
12
14
Ranking of the factors according to respondents
having HSC degree
0
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
0
2
4
6
8
10
12
14
Ranking of factors according to respondents working
as a company staff
0
2
4
6
8
10
12
14
Ranking of factors according to respondents
working as hotel manager
0
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 of remittance, speed of
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 overallstrategy to reduce the propensity of unofficial channels whileincrease 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 throughbetter rules and regulations. The demand of unofficial foreignexchange is high in Bangladesh due to under invoicing practice ofthe importer. If central bank as well as the ministry of tradestrengthen their supervision to reduce such illegal practice then thedemand for informal foreign exchange could be reduced.
Transaction time
� Incorporation of chain store like Singerbd, Walton etc. as aremittance service provider to get the extended time beyond thebanking transaction time. These shops remained open upto 10 pmand have distribution channels all over Bangladesh.
RECOMMENDATION (CONTD….)
Speed:
� Speed could be ensured through technological advancement ofthe remittance channels.
� Establishing ATM booth in remote areas could increase thespeed of remittance.
� Remittance through mobile network could be encouraged moreto get remittance with more speed.
Urgency:
� Hundi channels often provide credit facility to the recipient ofthe remittance in case of urgency. To reduce the dependency oninformal channels the credit facility to the rural people must beincrease.
THANK YOUTHANK YOU