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A Term Paper on

Remittance: National Banks Experience

(An Observation of Malaysia)

Dr. A. A. Mahbub Uddin Chowdury Professor & Chairman, Department Of Finance University Of Dhaka

Rakib Ahmed Saleh Md. Amanur Rahman Mahamudul Hasan Roni Ahmed Fazle Rabbi Pallab Sikder

14018 16053 17046 17056 18016

SUBMISSION DATE: December 11, 2011

Executive Summary
Economic development for the developing countries like Bangladesh is largely dependent on foreign remittances. The amount of money sent home by Bangladeshis living abroad are the countrys second-highest revenue earner after exports. In recent years, Bangladesh has been devoting efforts for attracting Bangladeshis living abroad to send remittance through proper channel. Though attempts taken to increase foreign remittance inflow, the result achieved is not appreciable enough for Bangladesh. NBL(National Bank Limited) on of the leading Private Commercial bank has taken some initiatives to promote the foreigners to send money through proper channel. This paper mostly based on secondary data will help us to have some idea how to increase the remittance flow from NBLs Malaysias experience. The fully owned subsidiary in the name of NBL Money Transfer Sdn Bhd, went into operation in Malaysia in October 2009.Tvvo more branches of the company were opened in the year 2010. The Bank obtained foreign remittance of USD 21.66 million (BDT 1,511.78 million) from Malaysia in 2010 through this company. The role of remittances in the economies of labour sending countries such as Bangladesh is assuming increasing importance. It is viewed as a very stable source of foreign exchange and even as being counter-cyclical .The effect of remittances on the macro-economy of a country has been well documented in the literature. The incoming foreign exchange helps receiving countries to pay import liabilities, improve their balance of payments position, strengthen foreign exchange reserves and finance external debt.

The main objectives of the study are to review the flows of remittances; and to identify constraints in the policy, regulatory, and institutional framework that impact these flows. The study then will develop proposals to address the identified problems and constraints with the goals of: (i) Increasing remittance volumes, if possible; (ii) Facilitating the shift from informal to formal channels; and (iii) Encouraging, where applicable, the use of remittance proceeds for sustainable poverty reduction.

The main assumptions are that sending remittances through formal channels would (i) Reduce the cost of serdcing these flows, while increasing net formal sector remittance flows; (ii) Strengthen the integrity of the financial syMeM by ensuring compliance with anti-money laundering (AML) and antiterrorist financing standards; (iii) Encourage the use of banking facilities to enfranchise OFWs and their families; and (iv)Mobilize savings for productive investments.

Introduction, Methodology and Limitations of the Study

1.1 Introduction
Remittance is the life line of Bangladesh economy. Some 4.5m nonresident Bangladeshis are working abroad [9], and sending home hard earned foreign currencies. It is believed that the actual number of Bangladeshi migrants, both legal and illegal, would be close to 7.5 million. The remittance market of Bangladesh has been showing a steady growth in terms of incoming remittance volume. Considering the current macro-economic indicators: it seems that this growth run will continue in the coming years. Currently the remittance process is mostly manual, partially automated. Migrants use different methods in sending remittance involving both official and unofficial channels. A major portion of remittance is being processed by Hawalas which is also known as hundi , which is an illegal process. And these Hawallas are getting market due to lengthy process of remittance management using banking channel

Foreign remittance in developing countries especially in Bangladesh takes a vibrant part of GDP acceleration and rapid economic growth Foreign remittance affects by some important determinants like as GDP per capita, average growth rate of GDP, foreign reserve, gross capital formation, human capital, terms of trade and others essential infrastructure. Foreign remittance inflows to Bangladesh have increased dramatically in recent years and have had some positive influence on development
The importance of foreign remittances in the economy of Bangladesh is widely recognised and requires little reiteration. Along with the readymade garment (RMG) sector and non-farm activities in the agricultural sector, remittances have been identified as one of the three key factors that have been responsible for reducing the overall incidence of poverty in Bangladesh

1.2 Methodology The report was prepared maintaining the following steps: Theoretical discussions are from the teachers lectures, text and reference books. Information collected from different websites and journals. Analysis of the information or data using M.S. Office. 1.3Limitations of the Study We have faced some usual constraints during the study. These are as follows:

Up to date foreign remittance data were not available for some analyses.

The study was conducted within a very limited time. So, a comprehensive study was not possible.

A Literature Overview of Remittance

2.1 What

is Remittance?

A remittance is a transfer of money by a foreign worker to his or her home country.

Remittances are playing an increasingly large role in the economies of many countries, contributing to economic growth and to the livelihoods of less prosperous people (though generally not the poorest of the poor). According to World Bank estimates, remittances totaled US$414 billion in 2009, of which US$316 billion went to developing countries that involved 192 million migrant workers.[2] For some individual recipient countries, remittances can be as high as a third of their GDP.[2] As remittance receivers often have a higher propensity to own a bank account, remittances promote access to financial services for the sender and recipient, an essential aspect of leveraging remittances to promote economic development. The top recipients in terms of the share of remittances in GDP included many smaller economies such as Tajikistan (45%), Moldova (38%), and Honduras (25%).

Top recipient countries

Country Remittances 2006 Remittances 2007 Remittances * 2008 Remittances 2009 Remittances* 2010


$ 13.5 billion

$ 14.4 billion

$ 16.6 billion

$ 20.2 billion



$ 26.9 billion

$ 27 billion

$ 45 billion

$ 55.06 billion

$ 55 billion


$ 22.52 billion

$25.7 billion

$ 40.5 billion


$ 51 billion

Philippines $ 12.7 billion

$ 14.4 billion

$ 16.4 billion

$ 17.3 billion

$ 21.3 billion


$ 25.6 billion

$ 26.1 billion

$ 25.1 billion

$ 21.2 billion

$ 22.6 billion


$ 8.5 billion

$ 12.5 billion

$ 13.75 billion


$ 9.1 billion

Bangladesh $ 5.5 billion

$ 6.6 billion

$ 9.0 billion

$ 10.7 billion

$ 11.7 billion


$ 5.1 billion

$ 6.0 billion

$ 7.0 billion

$ 8.7 billion

$ 11.2 billion

*World Bank estimated Central Bank data for: Bangladesh, Mexico, Pakistan, Philippines

2.2 The importance of remittances


The increasing attention paid to the question of migrant remittances comes from the realization of the important role they play in poverty alleviation and, circumstances permitting, economic development more broadly. The former is most obvious in the way the circumstances of individuals are directly transformed; the latter operates via a collective response much dependent on the existence of institutions that can leverage remittances to create true development finance. Individual poverty alleviation Remittance payments directly alleviate the poverty of the individuals and households to whom they are sent. The ways in which remittances alleviate the poverty of individuals are, in the first round of effects, direct and fairly obvious. They include the following. Survivalist income supplementation. For many recipients, remittances provide food security, shelter, clothing and other basic needs. Consumption smoothing Many recipients of remittances, especially in rural areas, have highly variable incomes. Remittances allow better matching of incomes and spending, the misalignment of which otherwise threatens survival and/or the taking on of debt. Education In many developing countries, education is expensive at all levels, whatever the formal commitments of the State. Remittances can allow for the payment of school fees and can provide the wherewithal for children to attend school rather than working for family survival. Housing The use of remittances for the construction, upgrading and repair of houses is prominent in many widely different circumstances. Health Remittances can be employed to access preventive and ameliorative health care. As with education, affordable health care is often unavailable in many remittancerecipient countries. Social spending Day-to-day needs include various social expenditures that are culturally unavoidable. Remittances can be employed to meet marriage expenses and religious obligations and, less happily but even more unavoidable, funeral and related costs.

2.3 Broader concerns: remittances and economic development

Remittance income does not benefit just individual recipients; it benefits the local and national economies in which they live. Indeed, the spending allowed by remittances has a multiplied effect on local economiesas funds subsequently spent create incomes for others

and stimulate economic activity generally. Beyond such multiplier effects, however, are other factors conducive to economic growth and stability. Remittances can provide receiving countries with much-needed foreign exchange. Adding to the appeal of remittance flows to local and national economies is the fact that their frequency and magnitude tend to be counter-cyclical. Economic distress in the home countryprecisely the scenario least conducive to other financial flows such as FDIinspires migrant workers to increase the volume of funds they remit.


Channels of Remittances Inflow

3.1 Channels of Remittances in Asia

We broadly identify two types of remittance systems: (i) Formal and (ii) Informal.


Formal system Formal systems are those that operate under the regulated financial system. In formal systems the institutions involved in money transfers are supervised by government agencies and laws Informal system

International Labor Organization (ILO) reveals that "In Bangladesh, 46 percent of the total volume of remittance has been channeled through official sources, around 40 percent

through hundi, 4.61 percent through friends and relatives and about 8 percent of the total was
hand-carried by migrant workers themselves when they visited home. Others include the sale of work visas." Considering the above statistics of the IMF and ILO, it is evident that 40 to 59 percent of remittances were made into Bangladesh through hundi

Remitting Channels

Hand Carried Friend


Official Source Official Source Hundi Friend Hand Carried others Hundi

Source (Bangladesh enterprise institute)


Bangladesh Scenario: Export-Import-Remittance and Overseas Employment

4.1 Bangladesh Scenario: Export-Import-Remittance and Overseas Employment

Export-Import-Remittance Information


We do not have the exact data of how many of the remitters are workers and how many are immigrants but from the remittance inflow shows that more than 75% of the total remittance came from middle east, Malaysia, Singapore and Italy where the remitters are mostly worker. Most of their family in Bangladesh is wholly dependent on the remitted money sent by them.

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Import 8.54 9.66 10.90 13.15 14.75 17.16 20.37 21.44 23.74 33.66

Export 5.99 6.55 7.60 8.65 10.53 12.18 14.11 15.57 14.76 20.31

Remittance 2.50 3.06 3.37 3.85 4.80 6.00 7.91 9.69 10.99 11.65

4 .0 0 0 3 .0 5 0 3 .0 0 0 2 .0 5 0 2 .0 0 0 1 .0 5 0 1 .0 0 0 5 0 .0 2002-03 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 0 0 .0 2010-11 2001-02 2003-04 Im o p rt E o xp rt

Rm e itta

Fig: Export-Import-Remittance Information

4.2 Bangladesh Scenario: Overseas Employment

Year wise Bangladeshi Overseas employment
Year 1976 Worker 6087 Year 1988 Worker 68121 Year 2000 Worker 222686


1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987

15725 22809 24495 30073 55787 62762 59220 56714 77694 68658 74017

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

101724 103814 147131 188124 244508 186326 187543 211714 231077 267667 268182

2001 2002 2003 2004 2005 2006 2007 2008 2009

188965 225256 254190 272958 252702 381516 832609 875055 475278

Last ten years overseas employment

Overseas workers from Bangladesh
1000000 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


Country wise overseas employment


Top Ten Countries

4.2 Bangladesh Scenario: Remittance and Foreign Exchange reserve


Foreign exchange reserve and remittance marked an important milestone in Bangladesh economy in last couple of years and in 2010-11 they sent 11.65 billion US dollar. In ten years, foreign currency reserve grew from $1 billion to cross the $10 billion mark this year for the first time.Both foreign exchange reserve and remittance were broadly immune to the global recession that has been lingering for around two years now.Surprised at the successes, experts also cautioned the government against any inflationary pressure that may be caused by the achievements in remittance and foreign exchange reserve. A few years ago, Bangladesh received remittance of $2 billion to $3 billion annually. The amount crossed $5 billion in fiscal 2006-07. The remittance inflow was $10.99 billion in the last fiscal year with a growth of 13.41 percent. In the year 2010 the main reasons behind the increase in foreign exchange reserve are a decline in import and the boost in remittance. Normally import increases every year but the trend is negative now. Bangladesh Bank Governor Dr Atiur Rahman told: "Banking sector is much active now. And so remittance increased. Many exchange houses and bank branches opened in different countries to send remittance. With the cooperation of NGOs, the system of remittance delivery to the recipients has improved. Now we think of introducing payment through mobile phones." (Source: The Daily Star) If we analyze the date we find in the last 10 year on an average 35% of Import payment could be meet up with inward remittances.


Remittance Observation From National Bank Limited.


5.1 Remittance Observation From National Bank Limited.

Overseas Operations and Foreign Remittance
National Bank Limited exerted highest emphasis on overseas operation and handling a sizeable quantum of homebound foreign remittance since beginning. By this time, it has earned a reputation as the leader in providing such remittances not only among the customers but also among the regulators. In 1985 the Bank established exchange house with equity ownership and management in Oman. Subsequently many arrangements have been made with different exchange houses and also by establishing subsidiaries abroad for expanding the Bank's overseas network in places with high concentration of Bangladeshi expatriates. National Bank Limited in 1993 introduced Western Union Money Transfer, a global leader in money transfer services in Bangladesh remained lone agent till 2002. It was a breakthrough in getting prompt payment of foreign remittances by the beneficiaries which encouraged remitters to use legal channel. In 2010, foreign remittance brought through NBL was USD 708.67 million with an increase of USD 62.70 million over the previous year showing a growth of 9.70%.

Drawing Arrangements
The bank presently has an extensive network of drawing arrangements with 43 exchange companies located in 15 countries including fully owned subsidiaries in Singapore and Malaysia and partially owned Exchange Company in Oman The other countries where we have built relationship with Exchange Companies are: Kuwait, Qatar, Bahrain, Saudi Arabia, the UAE, Switzerland, the UK, Italy, Canada, the USA, Greece and Jordan. Exchange Houses owned by NBL Oman: NBL invested 25% equity in Gulf Overseas Exchange Company LLC (GOEC), a joint venture Exchange Company in Oman, operating since November 1985 under NBL Management through 6 (six) branches in the remittance prone locations. During the year 2010 the Bank received foreign remittance of USD 59.08 million (BDT 4,165.37 million) through GOEC while it was USD 52.66 million (BDT 3,622.70 million) in 2009. Singapore Balaka Exchange Pte Ltd (BEPL), Singapore went into operation in September 1999 under the management of NBL. Subsequently to boost up its activities, National Bank acquired 100 percent ownership of BEPL in July 2007, as its first wholly owned subsidiary abroad. In the year 2010 the company was renamed as NBL Money Transfer Pte. Ltd, Singapore. In the year 2010 NBL received inward remittance of USD 45.88 million (BDT 3,192.45 million) through this subsidiary registering a significant increase over the previous year's figure of USD 39.33 million (BDT 2,998.40 million). Offshore Banking Unit Offshore Banking Unit (OBU) is a unique solution for Banks across the globe to carry out international banking business involving Non-resident foreign currency denominated assets and liabilities taking the advantages of low or nonexistent taxes/levies and higher return on investment. Alongside the presence in the important localities in every nook and corner of the country, NBL has taken the initiative to extend its network in the special export processing zones created for foreign investors and local entrepreneur invested in 100 percent export based industry. Under the license issued by Bangladesh Bank, NBL opened its first Offshore Banking Unit in 2008 at Mohakhali Branch, Dhaka. This venture added a new dimension in its innovative and customer friendly business activities.


Top ten remitting country to Bangladesh

Sl 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Country K.S.A. U.A.E. U.S.A. Kuwait U.K. Malaysia Qatar Others Oman Italy Singapore Bahrain Germany S.Korea Japan Australia Hongkong Iran Libya Total 20102011 3290.03 2002.63 1848.52 1075.75 889.60 703.73 319.35 486.13 334.32 215.58 202.32 185.92 25.65 23.95 15.21 12.99 11.12 2.32 5.20 11650.31 20092010 3427.05 1890.31 1451.89 1019.18 827.51 587.09 360.91 453.86 349.08 182.19 193.46 170.14 16.50 20.77 14.74 8.45 8.32 4.49 1.46 10987.40 20082009 2859.09 1754.92 1575.22 970.75 789.65 282.22 343.36 242.36 290.06 186.90 165.13 157.43 19.32 18.33 14.12 6.78 9.09 3.28 1.25 9689.26 20072008 2324.23 1135.14 1380.08 863.73 896.13 92.44 289.79 142.17 220.64 214.46 130.11 138.20 26.87 19.69 16.29 13.11 8.10 3.24 0.36 7914.78 20062007 1734.70 804.84 930.33 680.70 886.90 11.84 233.17 125.05 196.47 149.65 80.24 79.96 14.91 17.08 10.17 11.34 6.15 2.36 2.61 5978.47 Total 13635.10 7587.84 7186.04 4610.11 4289.79 1677.32 1546.58 1449.57 1390.57 948.78 771.26 731.65 103.25 99.82 70.53 52.67 42.78 15.69 10.88 46220.22

Source (BB report)

Lat 5 years total remittance

14000.00 12000.00 10000.00 8000.00 6000.00 4000.00 2000.00 0.00 K.S.A. U.A.E. U.S.A. Kuwait U.K. Malaysia Qatar Oman



Remittances from Malaysia Observation Of National bank


6.1 Remittances

from Malaysia Observation Of National bank

More than 10% of all Bangladeshi overseas workers are now working in Malaysia which is 3rd largest overseas workers market for Bangladeshis. Last year Malaysia was in the 6th position in remitting to Bangladesh. They had remitted 704 million US$ in 2010-11 i.e., 6.04% of total Bangladeshi remittance. Most of the workers are half or illiterate. In the previous section we learnt that about 40% remittance in Bangladesh comes through hundi. National Bank Ltd closely analyzed the situation and gradually taken the following steps: 1) They opened fully owned subsidiary NBL Money Transfer Sdn Bhd and spread their business through different branches at different location of Malayisa. 2) On the weekend the officials themselves with laptops go to the Bangladeshi workers where they live in cluster and do the remittances process on spot. 3) NBL has already developed inhouse ISO certified remittance software namely Quickpay which is capable of doing instant cash transaction, i.e., from the Malaysia side the remitter do the transaction and from the Bangladesh side the beneficiary can withdraw the remitted money instantly from more than 4000 Quickpay supported centers just showing the evidence of secret code and proper identification. 4) NBL arranged with ASA one of the leading NGO having more than 3000 branches, Janata Bank, Islami Bank, Social Islami Bank Ltd, Pubali Bank and some other financial institutions as service location for cash delivery. 5) In Sylhet region they have started cash home delivery system for some valued customers. 6) They are charging at minimum level.

6.2 Remittance from Malaysia Over The Year


Foreign workers began entering Malaysia in the 1970s as a result of the New Economic Policys (1971-1990) efforts to restructure the economy and society and of the international relocation of manufacturing industries to Asia The number of migrant workers in the late 1990s was as high as three million In July 2001, there were over 807,000 documented foreign workers in Malaysia According to one report, over 2.25 million illegal migrants had been apprehended between 1992 and 2001
Foreign workers in Malaysia remitted about US$1.3 billion in 1997 and about 65 per cent of remittanc To facilitate delivery of remittances, Bangladeshi banks, such as Sonali Bank, Janata Bank, National Bank and Agrani Bank, have established contacts with some leading Malaysian banks such as May Bank, Bank Simpanan Nasional and Bumiputra Commerce went to Indonesia, 22 per cent to Bangladesh and six per cent to the Philippines Despite the availability of formal channels, the hundi system remains a leading channel for remittances from Malaysia. Primary hundiwalas in Malaysia are both early migrants who have already acquired documented status, usually long-term stay permits and tourist visa. The tourist visa holders usually receive multiple entry visas to fly back and forth frequently.

6.3 Remittance Flow From Malaysia and NBLs Contribution


Last year Malaysia was in the 6th position in remitting to Bangladesh. They had remitted 704 million US$ in 2010-11 i.e., 6.04% of total Bangladeshi remittance.
2006-07 2007-08 2008-09 2009-10 2010-11

Total BD
11.84 92.44 282.22 587.09 703.73

1.36 21.46 44.52

Growth BD
680.74% 205.30% 108.03% 19.87%

Growth NBL
1477.94% 107.46%

Fig in Million US$

800 700 600 500 400 300 200 100 0 50 45 40 35 30 25 20 15 10 5 0

Total BD NBL

Now we see2006-07 in last two years NBLs remittance growth from Malaysia which is the result 2007-08 2008-09 2009-10 2010-11 more than 100% where as the countrys growth is 20%.



Government as well as private sector has undertaken various strategies to make remittance transfer easier and hassle free. Now, the Nationalized Commercial Banks (NCBs) have some overseas branches/remittance wings for transferring remittances. The private commercial banks (PCBs) also become aggressive in transferring remittances by providing quick and reliable services. Some of the PCBs also have established oversees branch or correspondence relationship with Banks/Exchange Houses. Although the nationalized and private commercial banks have taken various marketing strategies to transfer remittances, but even today, the choice of remittance channel is 46% formal and 54% informal. Recently, illegal transfer of money slid down drastically, as Bangladesh Bank (BB) has stepped up monitoring of such transactions at home. BB so far gave license to 660 exchange houses to set up offices abroad to facilitate remittance. Local banks are now able to deliver money to recipients in weeks.

REFERENCES:, Bangladesh Enterprise Institute,

25 Azad, Abul Kalam (2004) Migrants Remittances: Can it be a Source of Finance for MicroEnterprise Development in Bangladesh?proceedings of the Asia Pacific Regional Micro Credit Summit Meeting of Councils. de Bruyn, T. and Kuddus U. (2005) Dynamics of Remittance Utilization in Bangladesh, IOM, Geneva. Finance Division (2007), Bangladesh Economic Review 2007, Ministry of Finance, Government of Bangladesh, Dhaka. Azad, Abul Kalam (2004) Migrants Remittances: Can it be a Source of Finance for MicroEnterprise Development in Bangladesh?proceedings of the Asia Pacific Regional Micro Credit Summit Meeting of Councils.