A Term Paper on

Remittance: National Bank’s 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 country’s 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 NBL’s Malaysia’s 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.


and to identify constraints in the policy. and institutional framework that impact these flows. (ii) Strengthen the integrity of the financial syMeM by ensuring compliance with anti-money laundering (AML) and antiterrorist financing standards. regulatory.Objectives: The main objectives of the study are to review the flows of remittances. (ii) Facilitating the shift from informal to formal channels. while increasing net formal sector remittance flows. The study then will develop proposals to address the identified problems and constraints with the goals of: (i) Increasing remittance volumes. (iii) Encourage the use of banking facilities to enfranchise OFWs and their families. the use of remittance proceeds for sustainable poverty reduction. where applicable. 3 . if possible. Assumptions The main assumptions are that sending remittances through formal channels would (i) Reduce the cost of serdcing these flows. and (iii) Encouraging. and (iv)Mobilize savings for productive investments.

CHAPTER: ONE Introduction. Methodology and Limitations of the Study 4 .

and sending home hard earned foreign currencies. human capital.5 million. Considering the current macro-economic indicators: it seems that this growth run will continue in the coming years. both legal and illegal. gross capital formation. Migrants use different methods in sending remittance involving both official and unofficial channels. remittances have been identified as one of the three key factors that have been responsible for reducing the overall incidence of poverty in Bangladesh 5 . Currently the remittance process is mostly manual.5m nonresident Bangladeshis are working abroad [9]. It is believed that the actual number of Bangladeshi migrants. A major portion of remittance is being processed by Hawala’s which is also known as ‘hundi’ . would be close to 7.1. Along with the readymade garment (RMG) sector and non-farm activities in the agricultural sector.1 Introduction Remittance is the life line of Bangladesh economy. which is an illegal process. The remittance market of Bangladesh has been showing a steady growth in terms of incoming remittance volume. partially automated. foreign reserve. And these Hawalla’s 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. terms of trade and others essential infrastructure. Some 4. average growth rate of GDP. 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.

• Analysis of the information or data using M. Office. a comprehensive study was not possible. • Information collected from different websites and journals.S. 6 . So. 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.1. text and reference books.2 Methodology The report was prepared maintaining the following steps: • Theoretical discussions are from the teacher’s lectures.3Limitations of the Study We have faced some usual constraints during the study. 1.

CHAPTER: TWO A Literature Overview of Remittance 7 .

remittances promote access to financial services for the sender and recipient.2.0 billion $ 8.5 billion $ 13.[2] As remittance receivers often have a higher propensity to own a bank account.5 billion $ 12.6 billion $ 26.4 billion $ 17. of which US$316 billion went to developing countries that involved 192 million migrant workers.9 billion $ 27 billion $ 45 billion $ 55. contributing to economic growth and to the livelihoods of less prosperous people (though generally not the poorest of the poor).1 billion $ 6.4 billion $ 16.2 billion $ 22.6 billion $ 20. and Honduras (25%).1 billion $ 21.5 billion $ 14.3 billion Mexico $ 25.7 billion $ 40.7 billion $ 11.7 billion Pakistan $ 5.0 billion $ 10.0 billion $ 7.4 billion $ 16.[2] For some individual recipient countries.5 billion NA $ 51 billion Philippines $ 12. Pakistan.2 billion NA India $ 26.1 billion $ 25.7 billion $ 14.1 What is Remittance? A remittance is a transfer of money by a foreign worker to his or her home country.2 The importance of remittances 8 .7 billion $ 11. remittances can be as high as a third of their GDP.5 billion $ 6.1 billion Bangladesh $ 5.3 billion $ 21.75 billion NA $ 9. Remittances are playing an increasingly large role in the economies of many countries.6 billion $ 9. According to World Bank estimates. The top recipients in terms of the share of remittances in GDP included many smaller economies such as Tajikistan (45%). an essential aspect of leveraging remittances to promote economic development. Moldova (38%).06 billion $ 55 billion China $ 22.2 billion *World Bank estimated Central Bank data for: Bangladesh. Mexico. Philippines 2.52 billion $25. remittances totaled US$414 billion in 2009.6 billion Poland $ 8. Top recipient countries Country Remittances 2006 Remittances 2007 Remittances * 2008 Remittances 2009 Remittances* 2010 Israel $ 13.

The ways in which remittances alleviate the poverty of individuals are.The increasing attention paid to the question of migrant remittances comes from the realization of the important role they play in poverty alleviation and. Social spending Day-to-day needs include various ‘social’ expenditures that are culturally unavoidable. ‘Survivalist’ income supplementation. Health Remittances can be employed to access preventive and ameliorative health care. Consumption ‘smoothing’ Many recipients of remittances. clothing and other basic needs. the latter operates via a collective response much dependent on the existence of institutions that can leverage remittances to create true ‘development finance’. in the ‘first round’ of effects. For many recipients. upgrading and repair of houses is prominent in many widely different circumstances. Housing The use of remittances for the construction. especially in rural areas. funeral and related costs. economic development more broadly. the misalignment of which otherwise threatens survival and/or the taking on of debt. Remittances allow better matching of incomes and spending. whatever the formal commitments of the State. The former is most obvious in the way the circumstances of individuals are directly transformed. 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. 2. Remittances can be employed to meet marriage expenses and religious obligations and. less happily but even more unavoidable. remittances provide food security. Individual poverty alleviation Remittance payments directly alleviate the poverty of the individuals and households to whom they are sent. have highly variable incomes. They include the following. the spending allowed by remittances has a multiplied effect on local economies—as funds subsequently spent create incomes for others 9 . As with education. Education In many developing countries. direct and fairly obvious. education is expensive at all levels.3 Broader concerns: remittances and economic development Remittance income does not benefit just individual recipients. circumstances permitting. Indeed. affordable health care is often unavailable in many remittancerecipient countries. shelter. it benefits the local and national economies in which they live.

however. Beyond such multiplier effects.and stimulate economic activity generally. 10 . Economic distress in the home country—precisely the scenario least conducive to other financial flows such as FDI—inspires migrant workers to increase the volume of funds they remit. • • 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. are other factors conducive to economic growth and stability.

11 .1 Channels of Remittances in Asia We broadly identify two types of remittance systems: (i) Formal and (ii) Informal.CHAPTER: THREE Channels of Remittances Inflow 3.

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.Formal system Formal systems are those that operate under the regulated financial system. 4. it is evident that 40 to 59 percent of remittances were made into Bangladesh through hundi Remitting Channels Hand Carried Friend others Official Source Official Source Hundi Friend Hand Carried others Hundi Source (Bangladesh enterprise institute) 12 . around 40 percent through hundi.61 percent through friends and relatives and about 8 percent of the total was hand-carried by migrant workers themselves when they visited home. 46 percent of the total volume of remittance has been channeled through official sources. Others include the sale of work visas." Considering the above statistics of the IMF and ILO.

1 Bangladesh Scenario: Export-Import-Remittance and Overseas Employment Export-Import-Remittance Information 13 .CHAPTER: FOUR Bangladesh Scenario: Export-Import-Remittance and Overseas Employment 4.

44 23.69 10.90 13.gov.85 4.37 3.75 17.bd/export_info.2 Bangladesh Scenario: Overseas Employment Year wise Bangladeshi Overseas employment Year 1976 Worker 6087 Year 1988 Worker 68121 Year 2000 Worker 222686 14 .0 5 0 3 .66 10.66 Export 5.31 Remittance 2.0 0 0 2 .60 8.54 9.16 20. Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Import 8. Most of their family in Bangladesh is wholly dependent on the remitted money sent by them.18 14.11 15. Singapore and Italy –where the remitters are mostly worker.76 20.57 14.mincom.65 10.99 11.91 9.37 21.55 7.99 6.php 4 .0 5 0 1 .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.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.06 3.53 12.0 0 0 5 0 .0 5 0 2 .00 7. Malaysia.65 Source: http://www.0 0 0 3 .50 3.80 6.74 33.15 14.0 0 0 1 .

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 Worke Country wise overseas employment 15 .

Top Ten Countries 4.2 Bangladesh Scenario: Remittance and Foreign Exchange reserve 16 .

Bangladesh received remittance of $2 billion to $3 billion annually.Surprised at the successes.41 percent. the system of remittance delivery to the recipients has improved. And so remittance increased. The remittance inflow was $10. Normally import increases every year but the trend is negative now.65 billion US dollar. Many exchange houses and bank branches opened in different countries to send remittance.99 billion in the last fiscal year with a growth of 13. With the cooperation of NGOs. In the year 2010 the main reasons behind the increase in foreign exchange reserve are a decline in import and the boost in remittance. In ten years.Foreign exchange reserve and remittance marked an important milestone in Bangladesh economy in last couple of years and in 2010-11 they sent 11. experts also cautioned the government against any inflationary pressure that may be caused by the achievements in remittance and foreign exchange reserve.Both foreign exchange reserve and remittance were broadly immune to the global recession that has been lingering for around two years now. 17 . Now we think of introducing payment through mobile phones. foreign currency reserve grew from $1 billion to cross the $10 billion mark this year for the first time. A few years ago. Bangladesh Bank Governor Dr Atiur Rahman told: "Banking sector is much active now. The amount crossed $5 billion in fiscal 2006-07." (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.

18 .CHAPTER: FIVE Remittance Observation From National Bank Limited.

70%. During the year 2010 the Bank received foreign remittance of USD 59.998. Switzerland. a joint venture Exchange Company in Oman. 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. Canada. Singapore went into operation in September 1999 under the management of NBL. In 1985 the Bank established exchange house with equity ownership and management in Oman. Singapore. Qatar.08 million (BDT 4. Bahrain. Subsequently to boost up its activities. Singapore Balaka Exchange Pte Ltd (BEPL). 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. the USA. Ltd. In the year 2010 the company was renamed as NBL Money Transfer Pte.1 Remittance Observation From National Bank Limited. Greece and Jordan.70 million over the previous year showing a growth of 9. Italy. This venture added a new dimension in its innovative and customer friendly business activities. 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. it has earned a reputation as the leader in providing such remittances not only among the customers but also among the regulators.5.165. It was a breakthrough in getting prompt payment of foreign remittances by the beneficiaries which encouraged remitters to use legal channel. National Bank acquired 100 percent ownership of BEPL in July 2007. In 2010.88 million (BDT 3. Under the license issued by Bangladesh Bank. Alongside the presence in the important localities in every nook and corner of the country. By this time.45 million) through this subsidiary registering a significant increase over the previous year's figure of USD 39.67 million with an increase of USD 62.622. Exchange Houses owned by NBL Oman: NBL invested 25% equity in Gulf Overseas Exchange Company LLC (GOEC). National Bank Limited in 1993 introduced Western Union Money Transfer. 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. foreign remittance brought through NBL was USD 708.40 million).70 million) in 2009. operating since November 1985 under NBL Management through 6 (six) branches in the remittance prone locations. NBL opened its first Offshore Banking Unit in 2008 at Mohakhali Branch.192. 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. a global leader in money transfer services in Bangladesh remained lone agent till 2002.66 million (BDT 3.37 million) through GOEC while it was USD 52. the UK. as its first wholly owned subsidiary abroad. the UAE. 19 . Saudi Arabia.33 million (BDT 2. In the year 2010 NBL received inward remittance of USD 45. Dhaka.

U.34 6.21 12.09 1754.65 103.31 20092010 3427.32 215.00 4000.36 290.15 2.11 138.22 970.70 804.26 20072008 2324. U.70 886.44 289.12 2.13 334.79 1677.04 4610.22 343.A.53 52.05 196.S.24 0. Malaysia Qatar Oman Series1 20 .14 1380.08 10.00 2000.89 1019.06 186.18 827.78 771.23 1135. U.73 896.77 14.91 17.57 1390.32 185.40 20082009 2859.65 282.46 170.K.33 680.25 9689.32 4.82 70.17 220.87 19.51 587.95 15.90 11.92 25.A.19 193.22 Source (BB report) Lat 5 years total remittance 14000.52 1075.36 242.00 12000.00 K.S.32 5.03 2002.09 3.78 15.A.12 6.00 8000.13 92.64 214.78 9.A.60 703.35 486.32 18.10 3.43 19. Kuwait U.99 11.28 1.67 42. Kuwait U.A.26 731.75 889.08 863.33 14.25 99.47 Total 13635.20 26.75 789.90 165.11 8.84 930.84 7186.S.69 16.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.A.46 130.84 233.17 125.00 10000.36 2.45 8.73 319.50 20.24 79.13 157.92 1575.74 8.58 202.00 0.14 16.65 23.57 948.11 4289.20 11650. U.96 14.36 7914.91 453.E.69 10.08 182.S.65 80.79 142.17 11.61 5978.31 1451.58 1449.K.10 7587.46 10987.47 149. Malaysia Qatar Others Oman Italy Singapore Bahrain Germany S.88 46220.63 1848.09 360.32 1546.86 349.29 13.05 1890.49 1.E.78 20062007 1734.00 6000.Korea Japan Australia Hongkong Iran Libya Total 20102011 3290.

CHAPTER: SIX Remittances from Malaysia Observation Of National bank 21 .

6. 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. 6. Most of the workers are half or illiterate. 5) In Sylhet region they have started cash home delivery system for some valued customers. 4) NBL arranged with ASA one of the leading NGO having more than 3000 branches.e. In the previous section we learnt that about 40% remittance in Bangladesh comes through hundi.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. 6.. Last year Malaysia was in the 6th position in remitting to Bangladesh. Islami Bank. They had remitted 704 million US$ in 2010-11 i. 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.2 Remittance from Malaysia Over The Year 22 . i. Janata Bank.e. Social Islami Bank Ltd. 3) NBL has already developed inhouse ISO certified remittance software namely Quickpay which is capable of doing instant cash transaction.04% of total Bangladeshi remittance. 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. 6) They are charging at minimum level. Pubali Bank and some other financial institutions as service location for cash delivery..

Bangladeshi banks. the hundi system remains a leading channel for remittances from Malaysia.000 documented foreign workers in Malaysia According to one report. The tourist visa holders usually receive multiple entry visas to fly back and forth frequently.Foreign workers began entering Malaysia in the 1970s as a result of the New Economic Policy’s (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. Primary hundiwalas in Malaysia are both early migrants who have already acquired documented status. National Bank and Agrani Bank.3 Remittance Flow From Malaysia and NBL’s Contribution 23 .es went to Indonesia.3 billion in 1997 and about 65 per cent of remittanc To facilitate delivery of remittances. over 2. such as Sonali Bank. have established contacts with some leading Malaysian banks such as May Bank.25 million illegal migrants had been apprehended between 1992 and 2001 Foreign workers in Malaysia remitted about US$1. 22 per cent to Bangladesh and six per cent to the Philippines Despite the availability of formal channels. 6. usually long-term stay permits and tourist visa. Janata Bank. there were over 807. Bank Simpanan Nasional and Bumiputra Commerce Bank.

73 NBL 1.84 92.46 44.Last year Malaysia was in the 6th position in remitting to Bangladesh.09 703.44 282.46% 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 NBL’s remittance growth from Malaysia which is the result 2007-08 2008-09 2009-10 2010-11 more than 100% where as the country’s growth is 20%.30% 108.94% 107. Conclusion 24 .e.87% Growth NBL 1477.36 21.. Year 2006-07 2007-08 2008-09 2009-10 2010-11 Total BD 11.04% of total Bangladeshi remittance. They had remitted 704 million US$ in 2010-11 i.22 587.52 Growth BD 680.74% 205.03% 19. 6.

the choice of remittance channel is 46% formal and 54% informal. but even today.nblbd. 25 .org http://www. BB so far gave license to 660 exchange houses to set up offices abroad to facilitate remittance. The private commercial banks (PCBs) also become aggressive in transferring remittances by providing quick and reliable services.bei-bd. Some of the PCBs also have established oversees branch or correspondence relationship with Banks/Exchange Houses.com http://www. REFERENCES: http://www. the Nationalized Commercial Banks (NCBs) have some overseas branches/remittance wings for transferring remittances.org/publications.bangladesh-bank. as Bangladesh Bank (BB) has stepped up monitoring of such transactions at home. Although the nationalized and private commercial banks have taken various marketing strategies to transfer remittances. Recently. Bangladesh Enterprise Institute.Government as well as private sector has undertaken various strategies to make remittance transfer easier and hassle free. Now. Local banks are now able to deliver money to recipients in weeks. illegal transfer of money slid down drastically.

mincom. Bangladesh Economic Review 2007. Dhaka.php Azad.gov. Geneva. and Kuddus U.http://www. T. 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.” IOM.bd/export_info. 26 . Azad. Government of Bangladesh. Ministry of Finance. Finance Division (2007). 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. (2005) “Dynamics of Remittance Utilization in Bangladesh.

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