Remittance Performance of Islami Banks and Conventional Banks : A comparative Study

Table of ContentsChapter 1: Introduction..............................................................................................................................3

1.1 Background of the study......................................................................................................................4

1.2 Objectives of the study.........................................................................................................................4

1.3 Scope of the study................................................................................................................................5

1.4 Rationale of the study..........................................................................................................................5

Chapter 2: Methodology..............................................................................................................................6

2.1 Sample design......................................................................................................................................7

2.2 Data collection.....................................................................................................................................7

2.3 Data analysis........................................................................................................................................7

Chapter 3: Literature review......................................................................................................................9

3.1 Theoretical review.............................................................................................................................10

3.2 Empirical review................................................................................................................................15

Chapter 4: Remittance Scenario of Bangladesh.....................................................................................18

4.1 Remittance and economic development in Bangladesh.....................................................................19

4.2 Cost and benefit of overseas employment.........................................................................................20

4.3 Remittance management by private commercial banks.....................................................................20

4.4 Remittance management system........................................................................................................21

4.5 Drawbacks in banks’ remittance programs........................................................................................22

Chapter 5: Overview of the Studied Organization.................................................................................23

5.1 Overview of the conventional commercial banks..............................................................................24

5.2 Overview of the Islamic banks..........................................................................................................25

Chapter 6: Analysis and Discussion.........................................................................................................26

6.1 Number of expatriate Bangladeshis and their remittances................................................................27

6.2 Country wise Remittances.................................................................................................................29

6.3 Country wise growth of remittance....................................................................................................31

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6.4 Country wise proportion of remittance..............................................................................................33

6.5: Remittance as a percent of GDP and Export....................................................................................35

6.6 Remittance forecasting.......................................................................................................................36

6.7 Total amount of remittance by types of banks...................................................................................37

6.8 Average remittance by types of banks...............................................................................................38

6.9 Comparative analysis of conventional and Islamic banks’ remittance (as a % of total remittance

collected by both types of banks..............................................................................................................39

6.10 Comparison of growth rate of remittance by Types of Banks (%)..................................................40

6.11 Comparison of total numbers of employees by types of banks.....................................................41

6.12 Comparison of Total Number of Branches by Types of Banks.......................................................42

6.13 Comparison of employee productivity of remittance by types of banks.........................................43

6.14 Comparison of branch productivity of remittance by types of banks..............................................44

Chapter 7: Regression Analysis................................................................................................................45

7.1 Multiple Regression Analysis of Remittance Position of Private Commercial Conventional Bank:46

7.2 Multiple Regression Analysis of Remittance Position of Islamic Banks..........................................50

Chapter 8: Findings and Conclusion.......................................................................................................53

8.1 Findings..............................................................................................................................................54

8.2 Conclusion and Recommendations....................................................................................................55

Appendices..................................................................................................................................................56

Appendix-A..............................................................................................................................................56

Appendix-B..........................................................................................................................................57

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Chapter 1: Introduction

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Bangladesh is one of the largest manpower exporting countries in the world and being a major manpower

exporting country Bangladesh earn substantial amount of remittance. Remittances earned have already

been emerged as a prime driving force to the economic growth and poverty alleviation in Bangladesh. It

has obtained second position among the foreign currency earnings sector of Bangladesh. Formally, the

export of manpower from Bangladesh has been started in 1976. In this year around fourteen thousand

people went to the Middle East for searching employment and they sent 5 crore USD remittance to

Bangladesh. After that, the numbers of migrant workers and the amount of remittance have been

increasing gradually. Thus the export of manpower has become one of the most significant foreign

currency earning sectors of Bangladesh. The foreign remittance income is not only increasing foreign

currency reserve but also playing a significant role to reduce poverty and to enhance the economic

development of Bangladesh. It contributes our national economy in a large measure by increasing foreign

exchange reserve, per capita income and employment opportunities. Remittance flows to our country

basically through formal channels and informal channels. And formal channel includes the banking

system which is again broadly categorized as Islamic and Financial banking system. This study is

concerned about the remittance performance of both type of banks in Bangladesh.

1.1 Background of the study

Remittance plays a significant role in the economic development of Bangladesh. Major portion of

remittance flow to our country through banking channel which is basically includes conventional banks

and Islamic banks. The remittance performance is not similar for both types of banking system. Thus

significant differences are found between these two systems in remittance performance. Therefore this

study is concerned with the comparative study of remittance performance by conventional commercial

banks and Islamic commercial banks.

1.2 Objectives of the study

Broad Objective:

The main objective of this study is to compare and contrast remittance performance of conventional banks

and Islamic banks and to identify the reasons behind such performance difference.

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Specific Objectives:

Some other supportive objectives of this report are as follows:

To explore the remittance scenario of Bangladesh.

To inspect various channels that facilitates the inflow of remittance.

To identify the growth rate of remittance by both types of banks.

To show how the amount of remittance is correlated to the number of branches and number of

employees of the selected banks

1.3 Scope of the study

The scope of this study is much broader. This study would help me to identify the basic distinction

between Islamic banking system and conventional banking system in remittance performance. This study

will also help me to identify the factors considered as success point for these two systems.

1.4 Rationale of the study

This study shed light on the remittance performance of Islamic banks and Conventional banks

of Bangladesh. Thus this study would be beneficial for the academicians, students and more

particularly for those who are working in the banking sector. It would help them to find out the

performance of remittances for each type of banking system which in turn would allow them to

identify the lacking in managing the remittance and take some proper steps to attract more

remittance flow through the formal banking channel.

1.5 Limitations of the study

I have tried my best to collect the relevant information and searched different websites to get the right

data. There are some limitations, which act as a barrier to conduct the program and for doing an empirical

research work. The limitations were:

Time is the main obstacle to come up with a good study

All data are not available in websites

In many cases, up to date information was not published

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Chapter 2: Methodology

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2.1 Sample design

My main objective is to compare between the performances of the conventional banks and Islamic banks

in terms of remittance. Thus we have considered the private commercial banks of Bangladesh. For this

act, we have used Intensity Sampling Design as we studied twenty three local private commercial banks

for which the last five to seven years data are available and seven Islamic banks operating in Bangladesh

to analyze Islamic banking system.

2.2 Data collection

In order to conduct the study secondary sources of data has been used. The following sources have been

used for the purpose of gathering and collecting data as required.

Secondary Data

a) Activities of Banks, Insurance and Financial Institutions –Ministry of Finance (People’s Republic

of Bangladesh)

b) Financial statements of scheduled bank

c) Bangladesh Bank Annual Report.

d) Bangladesh Economic Review.

e) Working papers.

f) Official records of Bangladesh Bank

g) Works done by others from the Internet.

2.3 Data analysis

In order to analyze the collected data, we adopted different techniques as follows.

1. Growth rate or percentage change- p 1−p0

p 0×100

Where,

P1= value of this year

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P0= value of previous year

2. Market share or percentage contribution- particular value

total×100

3. Average- ∑ total of observations

totalobservations

4. Employee productivity by types of banks –totalr emittance of particular bank

totlanumber of employees

5. Branch productivity by types of banks- totalremittance of particular bank

totalnumber of branc h es

6. Regression analysis-

Equation- Ŷ = a + b1X1 + b2X2

Dependent Variable Ŷ = Remittance

Independent Variable X1 = number of employee

Independent Variable X2 = number of branch

Here, b1 is the slope of X1 and b2 is the slope of X2.

7. Hypothesis testing-

a. Null Hypothesis- Ho: β 1=β 2=0

Number of Employees and Branches has no impact on amount of remittances received by

bank.

b. Alternative Hypothesis- β 1 ≠ β 2≠ 0

Number of Employees and Branches has impact on amount of remittances received by

bank.

β 1 is the estimator of b1 and β 2 is the estimator b2.

c. Confidence level- 5%

Hypotheses will be tested based on the Comparison of F distribution.

8. Graphical presentation- analyzed data will be presented through various types of charts

appropriate to the results, for example; histogram, bar charts, pie charts and cone etc.

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Chapter 3: Literature review

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3.1 Theoretical review

Remittance

Remittance refers to the portion of migrant income that, in the form of either funds or goods, flows back

into the country of origin, primarily to support families back home. The greater share of these largely

monetary flows benefits developing countries.

An ‘International remittance transfer’ refers to the portion of the earnings that an international migrant

worker earns in the country of employment, and sends back to another individual, often a family member

who remains in the home country. Therefore, they are cross border person to person payments of

relatively low value. The majority of recipients largely depend on remittances to meet day to day living

expenses, emergency needs, housing, education of children, healthcare, investments in small businesses,

repayment of debt etc. Accordingly, remittances play an important role in improving the standard of

living of recipients.

Types of remittance

Foreign remittance means remittance of foreign currencies from one place or persons to another place or

person.

All foreign remittance transactions are grouped into two broad categories-

I. Outward Remittance and

II. Inward Remittance

Outward Remittance:

Outward remittance refers to the sending of remittance to the foreign country. When the employees send

their earning to their home country then this transfer is considered as outward remittance for the country

where they are working.

Inward Remittance:

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Inward remittance refers to the inflow of foreign currency in a country sent by the employees working

outside the country.

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Steps in a typical remittance transaction

Any person or institution providing remittance services as a business is known as a remittance service

provider (RSP). The sender, the recipient and the remittance service provider (RSP) constitute the nexus

in a remittance transfer. Generally two RSPs are involved in a remittance transfer.

I. The RSP operating in the sending country is called the ‘capturing RSP’,

II. The other RSP in the receiving country is called the ‘disbursing RSP’.

Both RSPs work jointly to provide the service, with or without own offices/branches/agents. The RSPs

are networked to send and receive remittances. Each has physical or virtual access points in the

remittance delivery chain.

A typical remittance transaction takes place in three steps.

Stage 1

The sender/remitter pays the remittance to the capturing RSP (Remittance Service Provider) using cash,

cheque, money order, debit card or a debit instruction. The channel of instructions could be sent by e-

mail, phone or through the Internet, providing the essential information to the capturing RSP, enabling it

to forward the same along with the funds to the recipient. The funds transfer relating to a remittance too

involves a messaging arrangement to channel information from the capturing RSP to the disbursing RSP

and a settlement arrangement for the fund movement. These arrangements vary between different types of

remittance services, but will always have common features, i.e., a network and a procedure to interact

with access points to capture and disburse funds, depending on the way the network of access points is

created and linked.

Stage 2

After getting funds from remitters the capturing RSP instruct delivering RSP to deliver fund to the

recipients. This instruction may be given through mail, message, phone or letter.

Stage 3

After getting instruction from capturing RSP, delivering RSP makes payment to the recipients. Here

recipients need to show code or pin given by capturing RSP.

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General Principles governing International Remittance Services

The ‘General Principles for International Remittance Services’ have been designed with the public policy

objective: Remittance services should be safe and efficient.

In order to achieve this public policy objective, the markets for the remittance services should be

contestable, transparent, accessible and sound. Such market should give remitters and receivers:

clear information about the price and other features of the remittance services (the remittance

industry should be transparent);

easy access to remittance services (the remittance industry should be accessible); and

reasonable protection from operational failures and criminal abuse (the remittance industry

should be sound and safe).

Channel of Remittances

Migrant workers generally transfer their remittances either through formal or informal channels.

Formal channels

Formal channel refers to the official Wage Earner’s Scheme (WES) and to all recorded foreign exchange

transactions. It includes principally demand drafts, telegraphic transfers and postal orders, channeled

through banks or post offices. Officially, transfer of remittance takes place through demand draft issued

by a bank or an exchange house; travelers’ checks ;telegraphic transfer; postal order; account to account

transfer; automatic teller machine (ATM) facilities; electronic transfer and in kind.

TT-Telegraphic Transfer

TT is the quickest method of transferring funds from one place to another. The remitting branch

sends a telegraphic/ telephonic/ Fax message to the branch at the other end, to pay a certain sum

of money to a named payee.

DD-Demand Draft

Remittances are frequently sent through demand draft in Taka issued by a bank or an exchange

house in favor of a nominee of migrant. Usually the draft is sent by post or in emergency by

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courier service. The sender in the host country takes out a demand draft from a bank or from an

exchange house and sends it to the receiving party in Bangladesh through regular postal services

or other means. The bank or the exchange houses in the destination country charges a

commission, which varies from bank to bank, for their service. So, the transaction cost of the

sender is the service charge plus the postal expenses

PO-Pay Order

It is process of money transfer from payer to payee within a certain clearing area through banking

channel. Pay Order can be issued in favor of the payee with commissions paid. The Pay Order

can be made either from the account of the issuer or by giving the account to the Bank if the

issuer has no account with Bank

Other Formal channels

There have some other official channel to transfer remittance. Those are as follows:

Account to account transfer.

Electronic transfer.

Automatic teller machine (ATM) facilities.

Informal channels

Informal channels refer to various means and ways of sending remittances in cash or kind into

Bangladesh with no official approval or record. These secret flows do not appear in government statistics

nor do they figure in government policy making.

Transfer in cash:

Available devices in the informal channel are hundi, home bound friends and relatives, personally

hand carried cash without declaration, and in the form of visa/work permit. Hundi is the most

popular method of transfer among the unofficial channels.

Informal transfer can be broadly classified into two types: cash and kind.

Cash/ Traveler's cheques:

Travelers’ cheques are also used as a means to send remittance. However they will be treated as

official transaction when they are encashed through banks. Migrants or their friends and relatives

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bring foreign exchange without declaring it to the appropriate authority. This can be in the form

of cash or traveler’s cheques. This foreign exchange can either be sold to black market dealers in

foreign exchange or kept for personal use.

Hundi system:

Hundi/ Money Courier is the most common among the unofficial channels of transfer. The Hundi

operator/agent is, in fact, an illegal foreign exchange dealer.

Steps in Hundi operation

Transfer in kind

(i)Under Baggage Rules, Bangladeshis are allowed to bring about consumer durables, gold,

electronics items, etc. for personal use. Many migrants subsequently sell most of these consumer

goods for Taka, even though this is prohibited

(ii) Gold and consumer durables are transferred to Bangladesh through different Seaports and

Airports.

Compared to formal channels, the informal channels are not only less expensive but also more convenient

and easily accessible. The fact that informal agents can deliver money on short notice with almost no

paper work and minimal commission requirement and can reach remote areas of the country very easily

makes the unofficial channels attractive to migrant workers and their families.

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Remitter gives the Hundi operator in host country

the currency of that country or any acceptable currency by the operator.

The agent in home country is contacted by Hundy

agent in the Host country

The sub-agent pays the money to the relative of the

remitter.

3.2 Empirical review

Determinants of Remittances

A number of factors might determine remittances. Remittances may be motivated by self-interest. For

example, people might send remittances to enhance their social status or keep a connection with parents

in the hope of inheriting their wealth. Remittances could also be viewed as repayments of loans that

financed the cost of migration.

Remittances might also be motivated by altruism or family arrangements. An insurance motive is a good

example: If some family members are located elsewhere, the welfare of the family would be less affected

by economic fluctuations in a given country. When family members in one country are hit by an adverse

shock, family members in another could help them to overcome this hardship.

In this situation migrants would decide how much to send home depending on both their own income and

the income of their family at home. Aggregate remittances would therefore depend on wages in the host

economy, income in the home economy, and the total number of migrants.

Elbadawi and Rocha (1992) examine data for four North African and two European countries and find

that remittances are positively associated with the income level of the host country and the stock of

migrants. Similarly, El-Sakka and McNabb (1999) find in data from Egypt that remittances are positively

associated with host county income.

Remittance and economic development:

The official recorded remittances are much lower than the actual remittances that take place through

official and unofficial channels. Remittances through informal channels could add at least 50 percent to

the globally recorded flows (World Bank, 2006, ibid. 85). In times of economic distress, remittances may

actually be countercyclical to the extent that migrants are motivated by altruism and send more money

home. The stability of these inflows also opens up an opportunity for developing countries to borrow at

lower cost in international capital markets by securitizing future flows of remittances (International

Monetary Fund (IMF), 2007).

Link between remittances and household development

Rapoport and Docquier (2006) show how the household members who are left behind, use migrants’

remittances. Remittances are used to repay loans taken to finance migration or education, and insurance

and strategic motives. It also directly contributes to household income, allowing households to purchase

more assets; enables higher investment in business; and facilitate buying more goods, including education

and health inputs.

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Yang (2004), and Woodruff and Zenteno (2001) suggest that, at the household level, remittances can spur

entrepreneurial activity.

Link between remittances and GDP

Studies examining the relationship between remittances and GDP growth show mixed results. Faini

(2002, 2003) finds a positive relationship between growth and remittances using cross-country data.

Similarly, positive relationship between the two is also supported by several studies for Mexican

economy. For example, Adelman and Taylor (1990) find that “every dollar Mexican migrants send back

home or bring back with them increases Mexico’s GNP from anywhere between $2.69 and $3.17,

depending on which household income group received the remittances”. Durand et al(1996) suggest that

for every $2 billion in remittances that entered Mexico, production in the economy increased by over a

$6.5 billion.

Link between remittance, consumption and investment

Developing countries should capitalize the amount of remittance inflows and use it for investment to

promote development and inclusive growth. Empirical evidence in this regard shows that the inflow of

remittances by the migrant workers and professionals from a developing

country helps in increasing the investment activities in the recipient country.

Adams (2005a) examines the impact of remittances on the spending behavior of households for

consumption and investments. The findings show that the households receiving international remittances

spend more at the margin on investment goods, especially, on housing and education, and spend less, at

the margin, on food items.

Link between remittances, poverty and welfare

Adams and Page (2005) used household surveys of 71 developing countries to examine the impact of

international migration on poverty. Controlling for the level of income, income inequality, and

geographical region, they find that international remittances have a strong statistically significant negative

impact on poverty. A 10 per cent increase in the share of remittances in a country’s GDP, lead to a

reduction of 1.6 per cent of people living in poverty.

Link between remittances and foreign exchange

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Remittances constitute important sources of foreign exchange earnings for many households in

developing countries. While remittances cannot be considered as a substitute for FDI and other official

development assistance, it may ease short-run foreign exchange constraints at times other financial flows

decline due to external factors. Ranjan and Subramanyam (2005) find that remittances have constituted an

important stimulus to domestic demand.

Link between remittances and employment

Frank (2001) argues that the families receiving international remittances severely curtail their work

efforts. Similarly, Rodriguez and Tiongson (2001) for Manila and Funkhouser (1992) for Managua

conclude that remittances reduce employment. Tiongson (2001) conclude that, when migration occurs,

non-migrant relatives receive remittances, which they perceive as additional non-labor income. An

increase in non-labor income then reduces their participation in local labor markets.

In contrast to these studies, Cox-Edwards and Rodriguez-Oreggia (2006) find that remittances have no

impact on the labor supply of household members in Mexico. However, at macro level, when the inflow

of remittances is used for the investment, the non-migrated families get benefited by seeking

employment.

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Chapter 4: Remittance Scenario of Bangladesh

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4.1 Remittance and economic development in Bangladesh

Since 1976, remittance earnings have been playing a significant role in the economic development of

Bangladesh. The role of inward remittance on the economy has in fact been gradually increasing during

the last two decades. Flow of workers’ remittances in Bangladesh exhibited a continuously increasing

trend over the last 30 years in both absolute and relative terms. Total remittance to Bangladesh was only

USD 24 million in 1976. Bangladesh was the 10th largest recipient of remittances among the developing

countries considering the average for the period 1990 to 2005 (IFS, October 2007). It ranked 14 th among

all of the remittance-recipient countries in terms of the amount of remittances received in 2005 (Global

Economic Prospects, GEP 2006, WB). Flow of worker’s remittances in Bangladesh reached new heights

at the end of fiscal year, FY07 as the remittance-GDP ratio jumped to 9.4 percent from 7.7 percent in

FY06. Average remittances relative to imports and exports increased to 38 and 49 percent respectively

during FY02-FY07 period from 22 and 31 percent respectively in FY97-FY01 period.

A sizeable number of Bangladeshi labor forces are employed in different parts of the world including the

Middle East. A total of 6.91 lakh Bangladeshi workers went abroad for employment during FY 2011-12.

Remittance during 2011-12 is about US$ 12.84 billion which is more than 10.24 percent that of the

average of the last year.

The role of remittances in the economies of labor sending countries such as Bangladesh is assuming

increasing importance. The growth in remittance is likely to remain one of the key factors in

maintaining a healthy level of foreign exchange reserves. The growing contribution of inward remittance

towards maintaining a healthy foreign exchange reserve (FER) has been helping Bangladesh to make up

the deficit between total export and import and maintaining the balance of payment (BOP) situation,

thereby ensuring macroeconomic stability.

The overall economic development of Bangladesh is very much dependent on increasing productive

investment opportunities and reducing poverty. Remittance has helped Bangladesh to make investments

in expanding the manufacturing sector and modernizing its agriculture. These have helped the country to

increase its exports of manufactured goods. Therefore, remittance being used as an important source of

investment has been a key driver of economic development for Bangladesh.

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4.2 Cost and benefit of overseas employment

Worker migration results in a mixture of benefits and costs for Bangladesh.

The costs may include

The loss of the labor supply in which substantial amounts of human capital are invested,

Possible distortions in the age structure of the population, rural depopulation and,

A “brain drain” to developed countries.

On the other hand benefits are,

A reduction in social tensions caused by unemployment and/or underemployment,

Skill acquisition of returning migrants and,

Most significantly, money transfers from migrants to their families back home.

4.3 Remittance management by private commercial banks

To assist and make it simple for the remitter to remit hard earned money to Bangladesh, both Private

conventional and Islamic banks started providing remittance services through their local & foreign

correspondents. Remittance has become a good source of income for some of the banks with strong

network abroad. They collect remittance through their global partners and disburse them to the customers.

In order to make the remittance transfer process speedy and smooth they build widespread network,

install updated software, and train their employees.

Earlier the Nationalized Commercial Banks (NCBs) were the main official channels to transfer

remittance. The NCBs have some overseas branches in United States, Europe and Middle East. Moreover,

NCBs have agreement with the foreign banks in many countries for smooth transferring of remittance.

But the process of transferring remittance through NCBs is lengthy and takes some days. So, now a day

the private commercial banks (PCBs) have become more aggressive in remittance business providing

quick and reliable services and attracting the Bangladeshi wage earners to send money home through

banking channel. Currently, Islamic Banks have over 120 international correspondents, mostly in the

Middle East, who assist in channeling inward remittances

Features of Banks one-stop remittance delivery services are as follows:

Deliver money without any charges

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Assure confidentiality in transactions

On line account credit facilities to those who have accounts with bank

EFT/TT Services

Assist in opening Wage Earners Accounts

Assist in opening accounts under different types of Savings Schemes

Inward foreign remittance is one of major sources of the foreign currency reserve of the country and in

order to encourage inflow of remittances through banking channel from the Non-resident Bangladeshis,

Private commercial Banks provide quality service for repatriation and collection of remittances with the

help of its foreign correspondents and trained personnel.

4.4 Remittance management system

It is a customized process of Private commercial Banks. This is totally bank’s own system where foreign

remittance was processed. Basically bank collects the remittance from the exchange houses of different

foreign countries. This exchange house collects money from the customers and then sends information

about the customers to the bank. There are two processes for sending the information to the bank.

I. EFT (Electronic Fund Transfer)

II. SWIFT (Society for worldwide interbank fund telecommunication)

After receiving this data bank process this data with the help of customized software which is prepared

for process this data. This software is called Remittance Management System (RMS) software. Some

high quality, energetic, IT specialist and dynamic young group are engage to ensure the faster and swift

service to the customers.

The exchange house collect information from the customer’s regarding their -

PON (Payment Order No)

Date

Beneficiary Name

Account Name

Amount

Remitter Name

Beneficiary Branch Name etc.

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Typically, the cost consists of expenses on the channel and network involved in transaction processing,

franchise licensing, compliance with regulatory requirements, marketing and administration (staff cost,

security and rental of premises). Remittances are attracted not only by lower prices, but also by safety.

Since banks are regulated, they offer safer methods to send money.

4.5 Drawbacks in banks’ remittance programs

First, most programs are available only to customers who have bank accounts. This requirement poses a

barrier for immigrants who are reluctant to open bank accounts for reasons such as unfamiliarity, distrust

of banks, the cost of maintaining an account, or identification restrictions.

Second, banks tend to have limited business hours, a limited presence in immigrant communities, and less

institutional commitment to meet language and cultural needs.

Third, banks have relatively weaker distribution networks in receiving countries and longer processing

times than money transfer operators.

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Chapter 5: Overview of the Studied Organization

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5.1 Overview of the conventional commercial banksThis section is concerned with the overview of the studied organizations for this report. Here all the local

private commercials bank and Islamic banks are sampled to analyze the issue. The brief knock of the

establishment of the banks and their generation is given below table:

Table 1: Overview of the conventional commercial banks

Serial No. Name of Bank Date of

Establishment

Generation

1 Pubali Bank Limited 1984 First Generation

2 Uttara Bank Limited 1972 First Generation

3 Arab Bangladesh Bank Limited 1982 First Generation

4 National Bank Limited 1983 First Generation

5 The City Bank Limited 1983 First Generation

6 IFIC Bank Limited 1983 First Generation

7 United Commercial Bank Limited 1983 First Generation

8 Eastern Bank Limited 1992 Second Generation

9 NCC Bank Limited 1993 Second Generation

10 Prime Bank Limited 1995 Second Generation

11 Southeast Bank Limited 1995 Second Generation

12 Dhaka Bank Limited 1995 Second Generation

13 Dutch Bangla Bank Limited 1996 Second Generation

14 Mercantile Bank Limited 1999 Second Generation

15 Standard Bank Limited 1999 Second Generation

16 One Bank Limited 1999 Second Generation

17 Bangladesh Commerce Bank Limited 1999 Second Generation

18 Mutual Trust Bank Limited 1999 Second Generation

19 The Premier Bank Limited 1999 Second Generation

20 Bank Asia Limited 1999 Second Generation

21 Trust Bank Limited 1999 Second Generation

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22 Jamuna Bank Limited 2001 Third Generation

23 BRAC Bank Limited 2001 Third Generation

5.2 Overview of the Islamic banksThe following section shows the overview of seven selected Islamic banks operating in Bangladesh

Table 2: Overview of the Islamic banks

Serial No. Name of Bank Date of

Establishment

Generation

1 Islami Bank Bangladesh Ltd 1983 First Generation

2 ICB Islamic Bank 1987 First Generation

3 Al-arafah Islami Bank Limited 1995 Second Generation

4 Social Islami Bank Limited 1995 Second Generation

5 First Security Islami Bank Limited 1999 Second Generation

6 Exim Bank Limited 2004 Second Generation

7 Shahjalal Islami Bank Limited 2001 Third Generation

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Chapter 6: Analysis and Discussion

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The analysis portion of the report starts with the overview of the number of expatriates of Bangladesh

over different period of time. And it also shed light on the amount of remittances over year and from

different countries of the world. Then a broad discussion is conducted on the comparative analysis of

selected conventional private commercial banks and Islamic banks in terms of total remittance earned,

percentage of remittance by both types of banks, growth rate of remittance and the productivity of

remittances.

6.1 Number of expatriate Bangladeshis and their remittances

This table shows the number of expatriate Bangladeshis and their remittances

Table 3: Number of expatriate Bangladeshis and their remittances

Fiscal Year

Number of yearly employment aboard (000)

Amount of remittance

Million US$ Percentage change (%)

Crore Tk. Percentage change (%)

2006-2007 564 5978.47 24.5 41298.5 27.962007-2008 981 7914.78 32.39 54293.2 31.472008-2009 650 9689.16 22.42 66674.9 22.812009-2010 427 10987.4 13.4 76011 14.152010-2011 439 11650.3 6 82992.9 9.042011-2012 691 12843.4 10.24 101883 22.762012-2013 409 14461.1 12.6 108006.93 6.01

Source: Bureau of Manpower, Employment & Training and Bangladesh Bank.

* % change over the same point of time previous year

28 | P a g e

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

0100200300400500600700800900

1000

Number of yearly employment aboard (000)

Number of yearly em-ployment aboard (000)

As evident from the above table and graph, the number of expatriate was highest in the fiscal year 2007-

2008. But it declined in the subsequent years. Even though the fiscal year 2011-12 lit the candle of hope

with an increase in the number of expatriate in that year but the following year, number of expatriate

declined due to visa closure in some countries in middle east and decline in immigration in Malaysia.

2005-

2006

2006-

2007

2007-

2008

2008-

2009

2009-

2010

2010-

2011

2011-

2012

2012-

2013

0

2000

4000

6000

8000

10000

12000

14000

16000

Amount of remittance ($)

Amount of remittance

29 | P a g e

2005-

2006

2006-

2007

2007-

2008

2008-

2009

2009-

2010

2010-

2011

2011-

2012

2012-

2013

05

101520253035

Percentage change (%)

Percentage change (%)

The total amount of remittance flow to Bangladesh increased over the years as indicated by the amount of

remittance and supporting graph due to the increase in number of expatriate over the years. The growth

rate of remittance, on the other hand, shows how the growth of remittance flow changed over the years. In

consistency with the high number of expatriate in the FY 2007-08, the growth rate was also high while it

drastically fell in the subsequent years till 2010-11. In the fiscal year 201-12 and in 2012-13 remittance

flow has increasing growth rate.

6.2 Country wise Remittances

It has been observed that most of the expatriates are working in Saudi Arabia, U.A.E, Kuwait, Oman,

Malaysia and Singapore. As a result significant amount of remittance is received from these countries and

the amount is increasing over the years. Number of expatriates in USA has also increased over the years

though declined significantly in the year 2009-10 and the effect is felt of the amount of remittance but in

subsequent years remittance flow regained its former glory in USA. Besides, new employment

opportunities have also been created for Bangladeshi workers in Bahrain, Qatar, Jordan, Lebanon, South

Korea, Brunei, Mauritius, United Kingdom, Ireland and Italy and other countries. Analyzing the data of

manpower export since 2012 to 2013 it reveals that more than 80 percent of total export was in different

countries of Middle East. The table below shows the amount of remittance Bangladesh received from

different countries from FY 2006-07 to 2012-13.

30 | P a g e

Table 4: Country wise remittances (in million US$)

FY 2006-07 2007-08 2008-09 2009-10 2010-11 2011-2012 2012-2013

KSA 1734.7 2324.23 2859.09 3427.1 3290.03 3684.37 3829.45

UAE 804.84 1135.14 1754.92 1890.3 2002.63 2404.78 2829.40

Qatar 233.17 289.79 343.36 1019.18 319.35 335.25 335.26

Oman 196.47 220.64 290.06 170.14 334.32 400.93 610.11

Bahrain 79.96 138.2 157.45 193.46 185.92 298.47 361.70

Kuwait 680.7 863.73 970.75 587.09 1075.7 1190.13 1186.93

USA 930.33 1380.08 1575.22 349.08 1848.52 1498.45 1859.76

UK 886.9 896.13 789.65 360.91 889.6 987.45 991.59

Malaysia 11.84 92.44 282.2 827.51 703.73 847.49 997.43

Singapore 80.24 130.11 165.13 1451.89 202.32 311.47 498.79

Others 339.32 444.38 501.33 453.86 798.14 884.61 960.71

Total 5978.47 7914.87 9689.16 10730.5

2

11650.26 12843.4 14461.13

Source: Bureau of Manpower, Employment & Training and Bangladesh Bank.

KSA

UAE Qata

rOman

Bahrai

n

Kuwait USA UK

Malaysi

a

Singa

pore

Others0

5001000150020002500300035004000

Country Wise remmittance

2010-112011-20122012-2013

Countries

rem

mitt

ance

31 | P a g e

Middle Eastern countries together constitute the major sources of total remittances for Bangladesh.

Highest amount of remittance is received from Saudi Arabia. Expatriates of United Arab Emirates supply

the second highest amount of remittance. The remittance from the United States comes next to UAE.

Country-wise growth of remittances of expatriate Bangladeshi workers over the last few years is shown in

Table 5.

6.3 Country wise growth of remittance

Table 5: Country wise growth of remittance

FY 2007-08 2008-09 2009-10 2010-11 2011-2012 2012-2013

KSA 34% 23% 20% -4% 12% 4%

UAE 41% 55% 8% 6% 20% 18%

Qatar 24% 18% 197% -69% 5% 0%

Oman 12% 31% -41% 96% 20% 52%

Bahrain 73% 14% 23% -4% 61% 21%

Kuwait 27% 12% -40% 83% 11% 0%

USA 48% 14% -78% 430% -19% 24%

UK 1% -12% -54% 146% 11% 0%

Malaysia 681% 205% 193% -15% 20% 18%

Singapore 62% 27% 779% -86% 54% 60%

Others 31% 13% -9% 76% 11% 9%

Total 32% 22% 13% 6% 10% 13%

The above table shows the growth rate of remittance flow from different countries over the years. If we

compare the growth rates in FY 2007-08 with that of FY 2012-13 we can observe some significant

changes. In 2007-08 remittance from Saudi Arabia had 34% growth rate but it amounted to only 4% in

2012-13. This is the direct impact of visa closure for Bangladeshis in KSA and forceful return of many

expatriates from that country. UAE, Qatar, Bahrain and Malaysia also show the same trend. On the other

hand, remittance growth from Oman and Singapore increased over the time.

32 | P a g e

KSA

UAE Qata

rOman

Bahrai

n

Kuwait UK

Malaysi

a

Singa

pore

Others

-100%

-50%

0%

50%

100%

150%

200%

Country wise growth of remmittance

2010-112011-20122012-2013

The above graph postulates country wise remittance growth over the last three years. Blue line represents

remittance growth in 2010-11, red line represents remittance growth in 2011-12 and the green line

represents remittance growth in 2012-13. As USA has an extreme value in 2010-11 it is excluded from

this chart to indicate true picture for other countries. The year 2010-11 had significant fluctuation for all

countries in remittance growth. Remittance growth declined in KSA, UAE, Qatar, Bahrain, Malaysia and

Singapore in that year. Except for Kuwait and Oman all the countries of Middle East have showed decline

in that year. Remittance growth has increased in the following year in all countries except from Oman,

Kuwait and UK. In the year 2012-13, remittance growth in Middle East countries declined again except in

Oman and Kuwait. All these results indicate that even though most of the remittance comes from Middle

East, the growth is very unstable. The reasons can be the political unrest and visa and immigration

problem with these countries due to the involvement of Bangladeshi immigrants in criminal activities in

these countries.

33 | P a g e

6.4 Country wise proportion of remittance

Table 6: Country wise proportion of remittances

FY 2007-08 2008-09 2009-10 2010-11 2011-12 2012-2013

KSA 29% 29% 30% 32% 28% 26%

UAE 13% 14% 18% 18% 17% 20%

Qatar 4% 4% 4% 9% 3% 2%

Oman 3% 3% 3% 2% 3% 4%

Bahrain 1% 2% 2% 2% 2% 3%

Kuwait 11% 11% 10% 5% 9% 8%

USA 16% 17% 16% 3% 16% 13%

UK 15% 11% 8% 3% 8% 7%

Malaysia 0% 1% 3% 8% 6% 7%

Singapore 1% 2% 2% 14% 2% 3%

Others 6% 6% 5% 4% 7% 7%

Total 100% 100% 100% 100% 100% 100%

The above table and the graphs below represent the proportion of remittance received from different

countries. As can be seen from the above table that more than 25% of the total remittance comes from

Saudi Arabia, although it has declined in the last year but it is still above 25%. The second highest

amount of remittance comes from UAE and it has increased over the years. USA holds third position in

supply of remittance to Bangladesh. Proportion of remittance from UK, Kuwait and Qatar have declined

as the number of expatriates to these countries declined over the years.

34 | P a g e

29%

14%

4%3%2%

11%

17%

11%1%

2%6%

2007-08KSA UAE QatarOmanBahrainKuwaitUSAUKMalaysiaSingaporeOthers

30%

18%

4%3%2%

10%

16%

8%3%

2%5%


32%

18%9%

2%2%

5%3%

3%

8%14%

4%


28%

17%

3%3%2%

9%

16%

8%6%2% 7%


29%

19%

3%3%2%

9%

12%

8%7% 2% 7%


26%

20%

2%4%3%

8%

13%

7%7%3%7%


35 | P a g e

6.5: Remittance as a percent of GDP and Export

Table 7: Remittances as percent of GDP and Export

Fiscal Year As Percent of GDP As percent of Export

2005-2006 6.89 45.622006-2007 8.74 49.092007-2008 10.02 56.092008-2009 10.84 62.252009-2010 11.77 63.482010-2011 10.43 50.822011-2012 11.11 52.922012-2013 8.32 60.87

Source: BBS, EPB, Bangladesh Bank.

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

0

10

20

30

40

50

60

70

8.74 10.02 10.84 11.77 10.43 11.11 8.32

49.0956.09

62.25 63.48

50.82 52.92

60.87

Remittance as percentage of GDP and Export

As Percent of GDP As percent of Export

The table and graph above shows remittances as a percentage of GDP and export. The chart signifies

growing importance of remittance in the economy of Bangladesh. Remittances are the 2nd most

contributing factor to our economy. The ratio of remittances to GDP and export earnings also increased

over the years. In FY 2005-06 remittances as percent of GDP and export stood at 7.75 percent and 45.62

36 | P a g e

percent respectively. In FY 2011-12 remittances as percent of GDP and export were approximately

11.11 percent and 52.92 percent respectively. In FY 2012-2013 the same was 8.32 and 60.87 percent.

6.6 Remittance forecasting

The future growth of Bangladesh will depend on promoting export, sustaining remittance growth, and

attracting an increased level of foreign direct investment (FDI). But among this three key factors,

remittance growth has been considered as the most important factor for future economic development of

the country.

According to a study conducted by Centre for Policy Dialogue (CPD), the required level of remittance in

FY2020 for a consistent 4.0 per cent, 6.0 per cent or 8.0 per cent annual GDP growth, will be US$8.9

billion, $16.4 billion and $29.9 billion respectively. In other words, remittance in FY2020 will have to be

8.86 per cent, 11.69 per cent or 15.21 per cent of GDP to achieve a consistent GDP growth of 4.0 percent,

6.0 per cent or 8.0 per cent respectively. So, we have to try to further increase the official inflow of

remittance as soon as possible. Increased level of remittances may be obtained through supply of skilled

manpower.

Table 8: Forecasted Remittance

Year Remittance Required (million US$) to Achieve

Remittance Required (as% of GDP) to Achieve

4% GDP Growth

6% GDP Growth

8% GDP Growth

4% GDP Growth

6% GDP Growth

8% GDP Growth

2013 5311.58 7759.70 11193.89 7.01 8.31 9.762014 5711.55 8636.54 12880.81 7.25 8.73 10.402015 6141.63 9612.47 14828.95 7.50 9.16 11.082016 6604.09 10698.68 12055.62 7.75 9.62 11.812017 7101.38 11907.63 19625.90 8.02 10.10 12.582018 7636.11 13253.19 22583.52 8.29 10.61 13.402019 8211.11 14750.83 25986.86 8.57 11.14 14.282020 8829.41 16417.64 29903.08 8.86 11.69 15.21

Source: Study conducted by Centre for Policy Dialogue (CPD)

37 | P a g e

6.7 Total amount of remittance by types of banks

Table 9: Total Amount of Remittance by Types of Banks

Year 2007 2008 2009 2010 2011 2012 2013

Private Commercial Conventional Banks

220675 306098 358007 379164 471339 526629 589963

Islamic Banks 75552 156563 218208 230868 259093 346320 388386

Total 296227 462661 576215 610032 730432 872949 978349

Source: Activities of Banks, Insurance and Financial Institutions –Ministry of Finance (2006-2012).

2007 2008 2009 2010 2011 2012 20130

100000

200000

300000

400000

500000

600000

Remittance by type of banks

Conventional Banks

Islamic Banks

year

Rem

ittan

ce

This graph shows the total amount of remittance collected by Private conventional banks and Islamic

banks. We can infer from the graph that conventional bank collected higher amount of remittance as

compared to Islamic banks but this doesn’t necessarily mean that Islamic banks collects less remittance

than conventional banks because the data of conventional banks is the sum total of 23 banks while the

same for Islamic bank is only the sum total of 7 banks.

38 | P a g e

6.8 Average remittance by types of banks

Table 10: Average remittance by types of banks

Year 2007 2008 2009 2010 2011 2012 2013

Conventional Banks

9594.57

13308.61

15565.52

16485.39

20493 22896.91

25650.57

Islamic Banks

10793.14

22366.14

31172.57

32981.14

37013.29

49474.29

55483.71

Total 20387.71

35674.75

46738.09

49466.53

57506.29

72371.2

81134.28

2007 2008 2009 2010 2011 2012 20130

10000

20000

30000

40000

50000

60000

Average Remittance by types of Bank

Conventional Banks

Islamic Banks

year

Rem

ittan

ce

As the total amount of remittances of 23 conventational bank and 7 Islamic banks don’t provide a rational

data for comparing performance in remittance flow of the two bank, the above table and chart incorporate

average remittances by each type of bank. This data is free of number of sample bias. We can say from

this table and graph that on an average Islamic banks collected significantly higher remittances than

Islamic banks. The difference between remittance receipt between the two types of bank also increased

over time.Islamic banks collected more remittances over the years than the conventional bank.

39 | P a g e

6.9 Comparative analysis of conventional and Islamic banks’ remittance (as a % of total remittance collected by both types of banks

Table 11: Remittance by both types of banks as a % of total remittance

Year 2007 2008 2009 2010 2011 2012 2013

Conventional Banks 74% 66% 62% 62% 65% 60% 60%Islamic Banks 26% 34% 38% 38% 35% 40% 40%Total 100% 100% 100% 100% 100% 100% 100%

2007 2008 2009 2010 2011 2012 20130%

10%

20%

30%

40%

50%

60%

70%

80%74%

66%62% 62% 65%

60% 60%

26%34%

38% 38% 35%40% 40%

Percentage of remittance by both types of bank

Conventional Banks

Islamic Banks

The above chart shows the proportion of remittances received by each type of bank over the years. We

can see from the table and graph that in the financial year 2005-06 Private Commercial Conventional

Banks collected 74% of the total remittance collected by both types of banks in that year while Islamic

banks received only 25%. In FY 2012 Islamic Banks received 40% of the total remittance of that year

while conventional bank received 60%. FY 2012-13 shows the same trend as previous year. Even though

Conventional banks still receives higher amount of remittances but the share have decreased over the

years while the share of Islamic banks increased over the years. This is why; the trend line of

conventional bank is downward sloping while that of Islamic bank is upward sloping. It also shows that

the gap between the two types of bank also decreased over the years.

40 | P a g e

6.10 Comparison of growth rate of remittance by Types of Banks (%)

Table 12:Growth Rate of Remittance by Types of Banks

Year 2007 2008 2009 2010 2011 2012 2013Conventional Banks 22% 39% 17% 6% 24% 12% 12%Islamic Banks 24% 107% 39% 6% 12% 34% 12%

2007 2008 2009 2010 2011 2012 20130%

20%

40%

60%

80%

100%

120%

22%

39%

17%6%

24%

12% 12%

24%

107%

39%

6% 12%

34%

12%

Growth rate of remittance by types of bank

Conventional Banks

Islamic Banks

The above graph indicates the growth rate of remittance both Private conventional banks and Islamic

banks. The growth rate of both bank had ups and downs over the years. Both the banks remittances

declined from 2088-10 while increased in the subsequent two years. In the last FY the growth rate of

remittances of conventional bank remained unchanged while that of Islamic banks declined.

Although the growth rate of remittance in both types of bank shows similar pattern, except for the FY

2011, Islamic banks had higher growth rate of than conventional banks. In FY 2010 and in 2013 the

growth rate of remittances in both types of bank was equal.

41 | P a g e

6.11 Comparison of total numbers of employees by types of banks

Table 13: Total Number of Employees by Types of Banks

Year 2009 2010 2011 2012 2013Conventional Banks 42715 49094 53800 59102 59706Islamic Banks 15965 17747 20251 22491 24594Total 58680 66841 74051 81593 84310


2009 2010 2011 2012 20130

10000

20000

30000

40000

50000

60000

No. of Employees by types of Bank

Conventional Banks

Islamic Banks

year

This graph shows the number of employee of both Private Commercial Conventional and Islamic Banks

during the financial year 2009-2013. Employee is an important factor as they come to direct contact of

client and thus make customer satisfied. Both of the banking systems show increasing trend in this case.

So we can say both of the banking systems are contributing in our economy by creating employment. The

number of employees of conventional bank is almost twice that of Islamic banks. We cannot compare the

two types of bank on the basis of the given values as the number of conventional bank and Islamic bank

are not equal in this study.

42 | P a g e

6.12 Comparison of Total Number of Branches by Types of Banks

Table 13: Total Number of Branches by Types of Banks

Year 2009 2010 2011 2012 2013Conventional Banks 1868 2122 2272 2475 2608Islamic Banks 502 600 682 751 812

Total 2370 2722 2954 3226 3420


2009 2010 2011 2012 20130

500

1000

1500

2000

2500

3000

No. of Branches by types of Banks

Conventional Banks

Islamic Banks

year

Above graph indicates the number of branch of both Private Commercial Conventional and Islamic

banks. The table and the graph suggest that the increase in number of branches of bank is higher in

conventional bank than in Islamic banks. On an average each conventional bank had 143 branches while

each Islamic bank had 72 in the year 2009. In the year 2013 each conventional bank had 200 branches

and Islamic banks had 116 on average.

Variables r2 F-test Value P-value of F-test

Remittance Vs Employee, Branch 97% 63.661 .001

43 | P a g e

6.13 Comparison of employee productivity of remittance by types of banks

Table 15: Employee Productivity by types of banks

Year 2009 2010 2011 2012 2013

Conventional Banks 8.38 7.72 8.76 8.91 9.88Islamic Banks 13.67 13.01 12.79 15.40 15.79

2009 2010 2011 2012 20130.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Employee productivity by types of Bank

Conventional Banks

Islamic Banks

year

Per e

mpl

oyee

rem

ittan

ce

This graph illustrates employee remittance productivity of both types of banks. It measures amount of

remittance collected by employees. Both types of banks had increasing trend in terms of employee

remittance productivity, but Islamic Banks employees were more productive in generating remittances

than that of Private conventional banks which implies that employees of such kind of banks contributing

more in case of collecting more remittance efficiently.

44 | P a g e

6.14 Comparison of branch productivity of remittance by types of banks

Year 2009 2010 2011 2012 2013

Conventional Banks 191.65 178.68 207.46 212.78 226.21Islamic Banks 434.68 384.78 379.90 461.15 478.31

2009 2010 2011 2012 20130.00

50.00100.00150.00200.00250.00300.00350.00400.00450.00500.00

Branch productivity by types of Bank

Conventional Banks

Islamic Banks

year

per b

ranc

h pr

oduc

tivity

The data and the graph above shows the productivity of branches for both Private Commercial

Conventional and Islamic Banks. It measures amount of remittance collected by branch. In case of

productivity of branches both of the banking systems are showing increasing trend, which is a good sign.

From the bar chart we can see that Islamic banks are in better position than conventional banks. Islamic

banks experienced more branch productivity than that of Private conventional banks which implies that

Islamic Banks are collecting more remittance through their branches compared to Private Commercial

Conventional Banks. In all of the last five years, branch productivity of Islamic banks is twice more than

conventional banks.

45 | P a g e

Chapter 7: Regression Analysis

46 | P a g e

7.1 Multiple Regression Analysis of Remittance Position of Private Commercial Conventional Bank:

Variables Regression Equation r2 F-testValue

P-valueOf F-test

Remittance Vs Employee, Branch

Remittance = -193637.234 - 4.49 *Employee + 390.198*Branch

95% 19.665 .048

R (coefficient of correlation):

It is the coefficient of correlation. It shows the positive or negative correlation between remittance and

number of employee and number of branch. Here the value of R is .976 which indicates that the

independent variables (employee and branch) are strongly positively correlated with the dependent

variable (remittance).

R 2 ( coefficient of determination):

It is the coefficient of determination. R2 indicates the degree or extent of explicability of the change in

dependent variables by the independent variables. Here the value of R2 is .95 meaning that 95 % changes

in the dependent variable can be explained or attributable to the changes of the independent variables.

And the least part (1 - .95) = 0.05 is changed by other factors which are not considered. But it can’t show

the practical and logical change of the dependent variable happened by the independent variables.

Adjusted R 2 :

It is the actual coefficient of determination. If we add an independent variable then the R changes and

Adjusted R2 shows logically how much value change is possible and that’s why the value of Adjusted R 2

is always less than the value of R2. From our accepted date the value of Adjusted R2 is .903. This value

which is close to the value of R2 indicates goodness of fit of the model.

Standard Error of Estimate:

It shows how much error or variability stands between the predicted result and actual observed result.

Here the value is 30429.16 which show the amount of variability of our predicted result and the actual

result acquired from the real observation.

47 | P a g e

ANOVA

ANOVAa

Model Sum of Squares df Mean

Square

F Sig.

1 Regressio

n

3.641 2 1.82 19.665 .048b

Residual 1.852 2 9.26

Total 5.493 4

a. Dependent Variable: Remittance

b. Predictors: (Constant), Branch, employees

Regression Sum of Squares (SSR):

How much error are 3.641 reduces by using regression rather than mean is shown by SSR. The value

comes showing the extent to which we are able to minimize the error through using the multiple

regression tools.

Error Sum of Squares (SSE):

Here the Residual is SSE. It is shown how much error is not possible to remove by using regression

because of some independent factors, which is not considered. The value comes 1.852 showing the extent

to which error is remaining after the regression and can be minimized with the increment of the dependent

variable.

Total Sum of Squares (SST):

The sum of SSR and SSE together forms the SST. In this observation the value is 5.493 that come after

adding the SSR and SSE.

Degrees of Freedom (df):

Here, the value 2 is degrees of freedom for the numerator and the value 3 is degrees of freedom for the

denominator.

F Distribution:

F Distribution shows whether our taken model is rejected and accepted as a whole or on an average, but

not individually. So it is showing whether there is any relation between dependent variable and

independent variables as a whole.

48 | P a g e

Interpretation of F value:

Our Null Hypothesis (Ho: Beta1 = Beta2 = 0) is that the (branch and employee) are not related to

Remittance. It means if we give any value to X1 and X2 then the value of remittance became constant.

The Remittance is not dependent on number of employee and number of branch .So Alternative

Hypothesis (Not Equal to Zero) is that the employee and branch are related to Remittance. It means if we

give any value to X1 and X2 then the value of remittance became changed. The Remittance is dependent

on number of employee and number of branch.

Table Value:

At a 5% significance level, for 2 numerator degrees of freedom which is regression and for 3 denominator

degrees of freedom which is residual, the table value is 9.55.

Acceptance Criterion and Rejection Criterion

If the calculated value of F is less than the table value of F then the null hypothesis is accepted

subsequently the alternative hypothesis is rejected.

If the calculated value of F is greater than the table value of F then the null hypothesis is rejected

subsequently the alternative hypothesis is accepted.

As calculated value of F is 19.665, which is greater than the table value of F 9.55, so our Null hypothesis

is rejected and alternative hypothesis is accepted. Hence the conclusion comes that the number of branch

and employee are related to Remittance.

Multiple Regressions:

Ŷ = a + b1X1 + b2X2

Ŷ = -193637.234 - 4.49 *Employee + 390.198*Branch

In this multiple regression equation, we have demonstrated the relationship between Remittance with

number of branch and number of employee.

Dependent Variable Ŷ = Remittance

Independent Variable X1 = number of employee

Independent Variable X2 = number of branch

Here, b1 is the slope of X1 and b2 is the slope of X2. If the number of branch and number of employee is

zero then,

49 | P a g e

Ŷ= -193637.234

The value has no economic explanation as remittance cannot be negative if bank has no employees or

branches.

Now, the value of b1 or the slope of X1 is -4.49 it means if the number of employees increase by 1person

then the remittance of the Bank decreases by 4.49 million taka assuming all other variables is constant. It

indicates the inefficiency of the bank’s employees and any addition of employees will reduce banks

remittance earning.

Next, the value of b2 or the slope of X2 is 390.198. It means if the number of branches increase by 1 unit

then the remittance of the Bank increases for 390.198 million taka assuming all other things is remaining

same.

Coefficientsa

Model Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

B Std. Error Beta

1 (Constant) -193637.234 168528.048 -1.149 .369

employees -4.489 6.690 -.219 -.671 .571

Branch 390.198 109.643 1.163 3.559 .071


The betas of the independent variables represent the degree of the influence of the independent variables

on the dependent variables. From the coefficient table, the following facts were pointed out,

β Employee = -.219

β Branch = 1.163

Here, beta for branches is higher than the beta of employees. So, branches exerts more influence on

Remittance.

50 | P a g e

7.2 Multiple Regression Analysis of Remittance Position of Islamic Banks

Variables Regression Equation r2 F-testvalue

P-valueOf F-test

Remittance Vs Employee, Branch

Remittance = -166926.77 + 54.86*Employee -975.84*Branch.

97.2%

34.95 .028

R

Here the value of R is .986 that indicates that the independent variables (branch and employee).are

strongly positively related with the dependent variable (Remittance).

R 2 :

Here the value of R2 comes .972 meaning that 97.2 % changes in the dependent variable are happening

for the changes of the independent variables. And the least part (1 - .972) = 0.028 is changed by other

factors which are not considered. But it can’t show the practical and logical change of the dependent

variable happened by the independent variables.

Adjusted R 2 :

In this regression the Adjusted R2 is .944. It shows actually how much dependent variable (remittance) is

changed for the changing of independent variables (branch and employee).

Standard Error of Estimate:

It shows how much error or variability stands between the predicted result and actual observed result.

Here the value is 17670.38 that show the amount of variability of our predicted result and the actual result

acquired from the real observation.

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ANOVA:

ANOVAa

Model Sum of

Squares

df Mean

Square

F Sig.

1 Regressio

n

2.182 2 1.091 34.946 .028b

Residual 6.244 2 3.122

Total 8.488 4


b. Predictors: (Constant), branch, Employees

Regression Sum of Squares (SSR):

The value of SSR is 2.182 showing the extent to which we are able to minimize the error through using

the multiple regression tools.

Error Sum of Squares (SSE):

The value SSE 6.244 showing the extent to which error is remaining after the regression and can be

minimized with the increment of the dependent variable.

Total Sum of Squares (SST):

In this observation the value is 8.488 that come after adding the SSR and SSE.

Degrees of Freedom (df):

Here, the value 2 is degrees of freedom for the numerator and the value 3 is degrees of freedom for the

denominator.

Table Value:

At a 5% significance level, for 2 numerator degrees of freedom which is regression and for 3 denominator

degrees of freedom which is residual, the table value is 9.55.

As our calculated value of F is 34.946, which is greater than the table value of F 9.55, so our Null

hypothesis is rejected and alternative hypothesis is accepted. Hence the conclusion comes that the number

of branch and employee are related to Remittance.

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Multiple Regressions:

Ŷ = a + b1X1 + b2X2

Ŷ = -166926.77 + 54.86*Employee - 975.84*Branch.

In this multiple regression equation, we have demonstrated the relationship between Remittance with

number of branch and number of employee.

Here, b1 is the slope of X1; b2 is the slope of X2. If the number of employee and branch is zero then,

a = Ŷ= -166926.77

The above value has no economic interpretation.

Now, the value of b1 or the slope of X1 is 54.86 it means if the number of employee increases by 1 person

then the remittance of the Bank increases for TK. 54.86 assuming all other variables is constant.

Next, the value of b2 or the slope of X2 is - 975.84. It means if the number of branch increases by 1 unit

then the Remittance of the Bank decreases for TK 975.84 assuming all other things is remaining same.

Therefore, Islami banks branches are performing inefficiently in terms of remittance.

Model Unstandardized Coefficients Standardized Coefficients t Sig.

B Std. Error Beta

1 (Constant) -166926.766 56140.013 -2.973 .09

7

Employees 54.862 20.928 2.550 2.621 .12

0

branch -975.849 595.112 -1.595 -1.640 .24

3


The betas of the independent variables represent the degree of the influence of the independent variables

on the dependent variables. From the coefficient table, the following facts were pointed out,

β Employee = 2.550

β Branch = -1.595

Here, beta for employee is higher than the beta of other independent variable. So, employee exerts more

influence on Remittance.

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Chapter 8: Findings and Conclusion

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8.1 Findings

The major findings of the study are as follows:

Countries of Middle East are the major sources of remittances. Around 80% of the remittances

come from Middle East countries, where more than 25% remittance comes from KSA.

Though KSA and UAE are in the top position in year 2012 but the growth rate of Bahrain and

Singapore are very higher than that of UAE and KSA. The growth rate of Bahrain and Singapore

are 61% and 54% respectively whereas those of KSA and UAE are 12% and 20%. In the year

2013 remittance growth in all countries declined except for USA, Oman and Singapore.

There is no basic difference in remittance management by conventional banking system and

Islamic banking system. As the dealings in remittances don’t defy any Shariah rules.

Both types of banks gets commission for the transferring of fund which may vary from bank to

bank based on quality of performance but not for the compliance with Islamic Shariah

Both branch productivity and employee productivity of Islami banks are higher than that of

conventional bank.

Per employee productivity of Islami banks are 6 million more than conventional banks while the

branch productivity of Islami banks is almost double than that of conventional banks and the gap

between productivity is increasing in each year forward.

From regression analysis we found that employee and branch are strongly positively related with

Remittance in conventional banks. Strong relationship between employees, branch and remittance

is also found in Islamic banks. But according to the regression coefficient, increasing branch

brings more remittance for conventional bank. On the other hand, increased number of employees

brings more remittances.

Proportion of remittances received by Islami banks is increasing while that of conventional bank

is decreasing over the years.

Though the main motive of this study is to identify the distinction of remittance performance by

the conventional banks and Islamic banks but there is no operational difference. But from

quantitative analysis it is found that the Islamic banks perform better than conventional banks.

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8.2 Conclusion and Recommendations

Remittance earnings have been playing a significant role in the economic development of Bangladesh

through increasing the foreign reserves which is 21283.5 till August, 2014. In the fiscal year 2012-13

remittances were 94.4 % of the total foreign currency reserve. Remittances generally reduce the level and

severity of poverty and lead to higher human capital accumulation, greater health and education

expenditures; better access to information and communication technologies; improved access to formal

financial sector services; enhanced small business investment; more entrepreneurship; better preparedness

for adverse shocks such as droughts, earthquakes, and cyclones. It has been observed that most of the

expatriates are working in Saudi Arabia, U.A.E, USA, Kuwait, Oman, Malaysia and Singapore. Besides,

new employment opportunities have also been created for Bangladeshi workers in Bahrain, Qatar, Jordan,

Lebanon, South Korea, Brunei, Mauritius, United Kingdom, Ireland and Italy and other countries. Total

Amount of Remittance injected in Bangladesh in 2013 was 9,78,349 million taka in which the injection of

remittance through Private Commercial Conventional Banks was 5,89,963 million taka and through

Islamic Banks was 3,88,386 million taka. The average inflow of remittance through Private Commercial

Conventional Banks is less than that of Islamic Banks because most of the workers tend to migrant to

Middle East. Private conventional Banks collected more remittance compared to Islamic banks so it can

be said that private conventional banks are more capable to attract customers. However, currently, Islamic

Banks have over 120 international correspondents, mostly in the Middle East, who assist in channeling

inward remittances. So in near future Islamic banks have wide range of opportunity to enlarge their

remittance market. According to our conducted analysis, proportion of remittances received by

conventional bank is decreasing over the years while the same is increasing in Islamic banks. Banks have

to overcome a number of challenges to develop banking based remittance services. Though both types of

banks are experiencing higher trends in remittance growth, they should provide much competitive

services than other channels. Private Commercial Banks should build a widespread network especially in

Middle East to deliver remittance in a convenient way. Both the private conventional banks and Islamic

banks should make the remittance transfer more transparent regarding cost, service charges and safety.

Private Commercial Banks and Islamic Banks have to adhere to regulations to limit money laundering

and terrorist financing to make sure that the remittance channels are not abused by criminals or terrorists.

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Appendices

Appendix-A

References

1) Committee of Payment and Settlement Systems, The World Bank, 2007 ‘General

Principles for International Remittance Services’.

2) INAFI Asia International Conference on Migration and Development.

3) Working Paper Series: WP1202, Behavior of Remittance Inflows and its

Determinants in Bangladesh.

4) International remittances and financial inclusion: Role of Banks by Rose

Siriwardhane.

5) Barua, S., Majumder, M. and Akhtaruzzaman, M. (2007) “Determinants of Workers’

Remittances in Bangladesh: An Empirical Study” Working Paper No. WP 0713,

Policy Analysis Unit, Bangladesh Bank.

6) Bangladesh Economic Review -2007-13.

7) Activities of Banks, Insurance and Financial Institutions –Ministry of Finance

(People’s Republic of Bangladesh); [2005-2013].

8) http://www.bangladesh-bank.org/econdata/wagermidtl.php

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Appendix-B

Data set

Remittances of Private commercial banks

Conventional Bank 2013 2012 2011 2010 2009 2008Uttara Bank 47237.2 43585.6 49844.7 43200.7 44635.3 36073.2AB Bank 237 255 250 210 198 186National Bank 69467 67513 59469.4 49145.3 44381.5 39877.8City Bank 37970 34800 30936 24496 17933 9828IFIC Bank 15,774 14,305 12,724 13455 13145 12277UCB Bank 81956.4 76848.3 68534.3 54522.1 4914 4466Estern Bank 44635.3 36073.2 33546.6 21635.3 17823.2 16647NCC Bank 16856 14861 13854 12502 13392 12098Prime Bank 32628 39890 36890 28433 26447 22699Southeast bank 38620 37990 36860 28436 23456 17543Dhaka Bank 21461 15,840 13,201 11,097 9,786 7,867Mercantile bank 9215.4 8305.8 9308.1 5108.1 5061.3 4722.9Standard bank 3496 4676 3815 1044 697 830One Bank 3437 2865 2491 1031 769 308Mutual Trust Bank 18447.4 16642.3 14832.43 8956.32 6400.42 5888.87Premier Bank 4872.4 4607.7 4745.12 2669.5 2223..10 2164.27Bank Asia 21443.6 27561.2 24441.71 18441.71 15555.1 11648.3Trust Bank 16443.3 15642.3 13832.43 8756.32 6000.42 5788.87Jamuna Bank 3787.09 3647.07 3360.03 1594.11 2657.64 3165DBBL 42856.5 41945.3 45813.2 27116.6 30400.3 36968.2Pubali Bank Ltd 40658.98 38746.3 30690.8 23057.15 26892.3 32968.2BCBL 527 525 367 253 223 208Brac Bank 17936.3 16863.6 13920.6 11867.4 9786.4 10889.1Total 589962.87 563988.7 523727.4 397027.6 320553.9 295111.7

Remittances of Islamic commercial banks

Islamic Bank 2013 2012 2011 2010 2009 2008 Islami Bank Bangladesh Ltd 369018 300915 236607 214629 194716 140404Social Islamic Bank 6740 6822.1 5134.9 1099.4 1923.5 2341.1Shajalal Islamic Bank 2583 5421 5340 6156 10473 9498Al-Arafa Bank 7042.5 23120.4 6876.2 4431.9 2832.28 2672.04First Security Islamic Bank 712.78 585.84 558.75 843.47 1011.8 4731.6EXIM Bank 2289.48 3112.12 3001.78 3036.42 2452.33 1428.46Total 388385.76 339976.5 257518.6 230196.2 213408.9 161075.2

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Number of employees of Private commercial banks

Selected Banks 2009 2010 2011 2012 2013AB Bank Lltd. 1952 2008 2096 2,070 2179Bank Asia Ltd. 1031 1237 1390 1485 1,600

BRAC Bank Ltd. 5907 7151 6619 7403 6624DBBL 1785 2794 4015 5268 4666Dhaka Bank Ltd. 924 1109 1240 1455 1450

Eastern Bank Ltd. 878 973 1214 1343 1498IFIC Bank Ltd. 2193 2315 2383 2,422 2,574Jamuna Bank Ltd. 1215 1511 1786 2006 2206Mercantile Bank Ltd. 1303 1526 1668 1981 1,814Mutual Trust Bank Ltd. 841 1050 1269 1,317 1,378National Bank 2960 3442 3758 4126 3919NCC Bank 1496 1622 1944 1,811 2,192One Bank Ltd. 1039 1247 1472 1608 1810Prime Bank Ltd. 1844 2139 2292 2544 2710Southeast Bank Ltd. 1254 1373 1526 1655 1704Standard Bank Ltd. 821 1018 1049 1270 1320Trust Bank Ltd. 1041 1026 1209 1265 1290The City Bank Ltd. 2424 2685 2772 2,765 2,647Pubali Bank 5115 5903 6219 6689 7362Premier Bank 893 965 1117 1259 1283Uttara Bank 3291 3262 3780 3986 4045UCB Bank` 2508 2738 2982 3374 3445Total 42715 49094 53800 59102 59716

Number of employees of Islamic banks

Selected Banks 2009 2010 2011 2012 2013

Al-Arafah Islami Bank Ltd. 965 1086 1842 2110 2387First Security Islami Bank Ltd. 995 1189 1535 2090 2367Islami Bank Bangladesh Ltd. 9588 10350 11465 12188 12,980ICB Islamic Bank 713 679 686 688 656Social Islami Bank Ltd. 965 1086 1375 1625 1802

Shahjalal Islami Bank Ltd. 1299 1671 1624 1,881 2,173Exim Bank Ltd 1440 1686 1724 1909 2229Total 15965 17747 20251 22491 24594

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Number of Branches of Private commercial banks

Selected Banks 2009 2010 2011 2012 2013AB Bank Lltd. 78 82 86 87 89Bank Asia Ltd. 41 49 63 73 86BRAC Bank Ltd. 70 79 81 86 88DBBL 79 96 111 126 136Dhaka Bank Ltd. 50 56 61 71 74Eastern Bank Ltd. 39 49 59 67 71IFIC Bank Ltd. 82 95 99 106 112Jamuna Bank Ltd. 54 66 73 83 91Mercantile Bank Ltd. 53 65 75 86 91Mutual Trust Bank Ltd. 44 67 76 86 92National Bank 131 145 154 165 171NCC Bank 65 79 87 93 101One Bank Ltd. 39 50 39 64 70Prime Bank Ltd. 84 94 102 113 117Southeast Bank Ltd. 56 76 84 94 103Standard Bank Ltd. 41 58 68 70 74

Trust Bank Ltd. 42 59 69 72 82The City Bank Ltd. 87 88 89 90 92Pubali Bank 386 399 406 419 423Premier Bank 38 52 64 79 86Uttara Bank 211 211 211 215 220UCB Bank` 98 107 115 130 139Total 1868 2122 2272 2475 2608

Number of Branches of Private commercial banks

Selected Banks 2009 2010 2011 2012 2013

Al-Arafah Islami Bank Ltd. 42 64 88 100 110First Security Islami Bank Ltd. 52 66 84 100 117Islami Bank Bangladesh Ltd. 231 251 266 276 286ICB Islamic Bank 32 33 33 33 33Social Islami Bank Ltd. 42 64 76 86 94Shahjalal Islami Bank Ltd. 51 63 73 84 92Exim Bank Ltd 52 59 62 72 80Total 502 600 682 751 812

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Remittance Performance of Islami Banks and Conventional Banks : A comparative Study

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