“Process of Inward Remittance and related customer services of Standard Chartered Bank”
Part: 1 Overview of the Company
1.0 Organization Overview
In Bangladesh the number of banks in all now stands at 52, among them Standard Chartered Bank (SCB) is the leading multinational bank. SCB enjoys the number one position in Cash Management, and Trade activities, and is primarily corporate driven. Corporate banking generates more than 40% of its revenue group while Treasury contributes more than 20% to the overall revenue. The goal of SCB is to be the “Bankers of First Choice.” Standard Chartered has over 600 offices in 56 countries with a strategic focus on the Emerging Markets of Asia, Africa, the Middle East and Latin America.
It is safe to say that Standard Chartered Bank in Bangladesh has come a long since it started its operation over a century ago. Standard Chartered Bank is the market leader in all aspects of the banking industry, with the exception of their competitive position in Lending due to its conservative stance on taking too large an exposure on the comparatively volatile Bangladeshi market. As a result, the bank has shifted its portfolio from lower to higher quality lending. The Value Addition Framework has been developed and adopted to serve this purpose exactly. It is inevitable that better approaches and frameworks will come up in the future because of Standard Chartered Banks relentless determination to lead the way in the banking sector in Asia, Africa and the Middle East.
1.1 Background of SCBL
The Standard Chartered Group is an unusual banking business. Although its roots are clearly British, its area of operations, its network and indeed its profit stream are overwhelmingly international. The name Standard Chartered comes from two original banks from which it was founded. One of the banks is the Chartered Bank of India, Australia and China and the other bank is the Standard Bank of British South Africa.
The Chartered Bank was founded by James Wilson following the grant of a Royal Charter by Queen Victoria in 1853, while the Standard Bank was founded in the Cape Province of South Africa in 1862 by John Paterson. Both companies were keen to capitalize on the huge expansion of trade and to earn the handsome amount of profits from financing the movement of goods from Europe to the East and to Africa.
Both banks were prosperous in those early years. The Chartered Bank opened its first branches in Bombay (Mumbai), Calcutta (Kolkata) and Shanghai in 1858, followed by Hong Kong and Singapore in 1859. With the opening of the Suez Canal in 1869 and the extension of the telegraph to China in 1871, the Chartered Bank was determined to expand and develop its business. Traditional business was in cotton in Bombay, indigo and tea in Kolkata, rice in Burma, sugar in Java, tobacco in Sumatra, hemp in Manila and silk in Yokohama.
In South Africa, the Standard Bank established a considerable number of branches. The bank was prominent in financing the development of the diamond fields of Kimberly from 1867 and later extended its network further north to the new town of Johannesburg when gold was discovered there in 1885. Half of the output of the second largest gold field in the world passed through the Standard Bank on its way to London.
Both the banks, although they were separate entities, survived the First World War and the Depression, but were directly affected by the wider conflict of the Second World War in terms of loss of business and closure of branches. There were also long-term effects for both banks as countries in Asia and Africa gained their independence in the 50s and 60s.
Each bank acquired other small banks along the way and spread their networks further. In 1969, the decision was made by both the banks to undergo a friendly merger. They decided to counterbalance their network with expansion in Europe and US. Further expansion also took place in Standard Chartered bank’s traditional markets in Asia and Africa. All appeared to be going well, but a hostile takeover bid was made for the Group by Lloyds Bank of UK in 1986.
When the bid was defeated, Standard Chartered Bank entered into a period of change. Like many British banks, provisions had to be made against third world debt exposure and loans to corporations and entrepreneurs who could not meet their commitments. Standard Chartered Bank begun a series of divestments notably in the US and South Africa and entered into a number of asset sales. In mid 1993, Sir Patrick Gillam became Chairman and he made two points clear. Firstly, Standard Chartered Bank would grow and develop its strong franchises in Asia, the Middle East and Africa using its operations in the UK and North America to provide customers with a bridge between these markets. Secondly, it would focus on customer, corporate and institutional banking, and on the provision of treasury services- areas in which the Group had particular strength and expertise.
1.2 History of Grindlays Bank
Captain Grindlays established Grindlays and Company with partner in 1928. The name was changed to Grindlays Christian and Mathew’s in 1839, which again changed to Grindlays and company in 1853. The first branch was opened in India at Church Lane, Kolkata in 1854 and the other Indian branches autonomous from London were opened by Grindlays and Company in 1864. They were acquired by National Provincial bank Limited in 1924. National bank of India acquired Grindlays and Company in 1858 and begun to operate as National and Grindlays Limited.
1.3 Acquisition of ANZ Grindlays Bank by Standard Chartered Bank
In August 2000, the US$1.34 billion acquisition of Grindlays Bank was completed. This made the Standard Chartered Bank the leading international bank in India and the other countries of South Asia. The acquisition strengthened the Group’s competitive position in Middle East and brought to the group a respected private banking business.
Standard chartered Bank has taken the advantage of the expansion opportunities. Buying Grindlays from ANZ now propels it from number five to number one among international banks in India, with some choice extra footholds in the Middle East. At 1.34 billion US dollars, it is hard to complain that Standard Chartered Bank has overpaid. The financial ease is less compelling for ANZ shareholders, as there are advantages of getting out of a strategically peripheral business. This acquisition of Grindlays Bank has added 6000 employees and 4 countries to Standard Chartered Bank’s existing network of 7000 employees and 570 offices in 50 countries. The end result is that Standard Chartered Bank, which went into the 1997 Asian crisis with strong business in Hong Kong, Singapore and Malaysia, emerges with additional core markets in India and Thailand.
The deal has made Standard Chartered Bank the largest foreign bank by assets in India, Pakistan and Bangladesh and the second largest in Sri Lanka and the United Arab Emirates. The bank has been seeking to expand in the region since the end of the Asian economic crisis, and has finally become successful in its expansion. The primary goal of the integration is to combine the best of both the banks, and put right people in right jobs on the basis of fairness and equitability.
In September 2000, the group agreed to acquire Chase’s Hong Kong consumer banking business for US$1.32 billion, which makes Standard Chartered Bank the leader in Hong Kong cards. At that time it was also announced that the chartered Trust had been sold to Lloyds TSB for 627 million pounds.
Until September 2002, both Standard Chartered and Standard Chartered Grindlays operated under the same management but as separate entities. With effect from September 2002, there was not any Grindlays – only Standard Chartered Bank.
1.4 ESTABLISHMENT OF STANDARD CHARTERED BANK AROUND THE WORLD
| United Kingdom | 1853 | Australia | 1964 |
| China, India, Sri Lanka | 1858 | Mexico, Oman | 1968 |
| Hong Kong, Singapore | 1859 | Peru | 1973 |
| Indonesia, Pakistan | 1863 | Jersey | 1978 |
| Philippines | 1872 | Brazil | 1979 |
| Malaysia | 1875 | Venezuela | 1980 |
| Japan | 1880 | Falkland Islands, Macau | 1983 |
| Zimbabwe | 1892 | Taiwan | 1985 |
| The Gambia, Sierra Leone, Thailand | 1894 | Cameroon | 1986 |
| Ghana | 1896 | Nepal | 1987 |
| Botswana | 1897 | Vietnam | 1990 |
| USA | 1902 | Cambodia, South Africa | 1992 |
| Bangladesh | 1905 | Iran | 1993 |
| Zambia | 1906 | Colombia | 1995 |
| Kenya | 1911 | Laos, Argentina | 1996 |
| Uganda | 1912 | Nigeria | 1999 |
| Tanzania | 1917 | Lebanon | 2000 |
| Bahrain | 1920 | Cote d’Ivoire | 2001 |
| Jordan | 1925 | Mauritius | 2002 |
| Korea | 1929 | Turkey | 2003 |
| Qatar | 1950 | Afghanistan | 2004 |
| Brunei, UAE 1958 | |||
1.5 BANGLADESH HISTORY
The Chartered Bank started operating in Bangladesh in 1948, opening a branch in Chittagong. The branch was opened mainly to facilitate the post-war re-establishment and expansion of South and Southeast Asia. The Chartered Bank opened another branch in Dhaka in 1966, where it is still headquartered. After the merger of the Chartered Bank with the Standard Bank in 1969, the Standard Chartered Bank took up a program of expansion. It increasingly invested in people; technology and premises as its business grew in relation to the country’s economy. In 1993, there was an organizational re-structuring, which led to a substantial expansion of the Bank’s business. Today the bank has in total four branches in Dhaka apart from the Chittagong branch, including an offshore branch at the Savar Export Processing Zone. Bangladesh is under the Middle East and South Asia (MESA) region, with the controlling office in Dubai. Its correspondent relationship with Sonali Bank, the largest bank in Bangladesh, gives its customers access to all major centers in the country. Standard Chartered Bank’s worldwide network facilitates convenient connections with foreign trade and remittance business. Standard Chartered Bank’s branch banking license in Bangladesh allows it to offer a full range of banking services. At present the Bank has ten branches in Dhaka, it also have one offshore banking unit inside the Dhaka Export Processing Zone at Savar, one branch in Narayanganj, three branches in Chittagong, one branch in Khulna, one branch in Sylhet, one branch in Bogra. In the year 1999, Standard Chartered has acquired the operation of Grindlays Bank in the Middle East and South East Asian countries. Former Grindlays Bank started its journey in Bangladesh in 1905 under the name of Grindlays Bank Standard Chartered Bank took-over the operation of ANZ Grindlays Bank in Bangladesh as a part of acquisition of the South East Asian and Middle East operation of the Australia and New Zealand Banking Group. SCB with its 18 branches and booths across Bangladesh has employed more than 600 people. The acquisition of ANZ has enabled Standard Chartered Bank (SCB) to access 500,000 new customer and 40 branches in India, and this made them one of the biggest banks in this region and of in Bangladesh it is the largest foreign bank.
After acquisition, Grindlays Bank is a part of Standard Chartered Group. The Bank presently has 18 outlets in 5 cities serving over 1, 25,000 customers in the country. The network of SCB Bank in Bangladesh includes:
· 10 Branches in Dhaka city
· 1 Branch in Savar EPZ (recently started with full banking operations)
· 1 Branch in Narayanganj
· 3 Branches in Chittagong
· 1 Branch in Khulna
· 1 Branch in Sylhet.
· 1 Branch in Bogra
1.6 Standard Chartered Today
Standard Chartered employs 38,000 people in 950 locations in more than 50 countries in the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom and the Americas. Standard Chartered is one of the world’s most international banks, with employees representing 80 nationalities. Standard Chartered PLC is listed on both the London Stock Exchange and the Stock Exchange of Hong Kong and is in the top 25 FTSE-100 companies, by market capitalization. The most recent news is this that the Bank is in the process to move forward into a bigger strategic breakthrough. By Establishing this plan will change total Bank’s functional structure. As previously the bank was having their structure like corporate branch and consumer banking. But for implying this new strategy the Bank is having this new sector called the Transaction Banking. And the major change is that like all the other bank’s the liability or the assets sector won’t be separated. These two major sectors will merge. By changing this major strategy the bank is making a revolution within the banking sector in Bangladesh and the rest of the World.
Standard Chartered is well-established in growth markets and aims to be the right partner for its customers. The Bank combines deep local knowledge with global capability. The Bank is trusted across its network for its standard of governance and its commitment to making a difference in the communities in which it operates. Five Values of Standard Chartered Bank Standard Chartered Bank has five values, which are critical to their success. These values determine how the employees achieve their goals, the way they work together and how it feels to be a part of Standard Chartered Bank. In brief these values are:
Courageous
Being courageous is about confidently doing what is right. Often the task may seem insurmountable but with courage and tenacity, the odds can be overcome. A truly courageous act both inspires and builds character.
· Responsive
How SCB responds to customers and how it will influence customer’s belief in their commitment towards them. A proactive response is often unexpected and more effective in such case. It clearly demonstrates organization’s willingness to go beyond the unexpected.
· International
As a member of global village SCB views the world from the widest perspective. They consider themselves to be global citizens and the world is full of new opportunities and exciting possibilities. SCB also delivers world-class products and services.
· Creative
Creativity belongs to those who are excited by challenges and engage themselves in fresh thinking and an open mindedness. Creative thinkers are not limited by convention but are those allow their minds to soar beyond predictable solutions. SCB believes that they are a creative organization as well.
· Trustworthy
Trust is the foundation of every successful relationship. SCB trusts because the organization believes in the sincerity of their promise. They also believe that building trust can take forever, but losing it takes only a moment.
1.7 KEY SUCCESS FACTORS OF STANDARD CHARTERED BANK
It is the second largest private bank of the country having a market dominance of roughly 67% among foreign banks. Provider of the highest range of products and strategic points of delivery. It has one of the largest capital bases. Its portfolio includes the biggest names.
Long standing presence in the Asia, Africa and the Middle East and therefore longest standing relationships. It has a technological edge over its competitors. It has the widest distribution network among foreign banks through its own branches and correspondent banks.
1.8 The leading bank for Development Organizations in Bangladesh
Standard Chartered maintains banking relationships with major development organizations, embassies and high commission in Bangladesh:
· UNICEF
· World Bank
· Asian Development Bank (ADB)
· Japan International Corporation Agency (JICA)
· Japan Bank for International Corporation (JBIC)
· British council
· CIDA
· SIDA
· Delegation of European Commision
· World Vision Win rock International Action Aid
· Terre Des H
· Proshika
· Grameen
Part 2:
Chapter 1 # Introduction of the Study
2.1.1 Rationale of the Study
SCB is the world’s largest local bank. To reach a high volume of financial profit SCB looking for different procedures of customer payments. Through which they can provide the customer best service and also transfer or pay the money as quick as possible. They use lots of technology and a worldwide system for making the transaction and keeping of data. However it can be said that this report is also important for SCB because, by this report it will create awareness among the employees and customers about the present payment procedures. It will also help them to improve their services and also find flaws in order to remove these flaws.
2.1.2 Statement of the problems
This study is significant for the following reasons-
· The present study will help SCB to better understand their level of performance in generating inflow of remittances.
· This proposed study will also help SCB to compare their current remittance status with the aggregate remittance inflow in Bangladesh. Comparing with the proportion the bank can take necessary actions to perform the remittance business more efficiently and effectively.
· From the perspective point of view, the importance and role of remittances as a major proportion of GDP, export, import and utilization of remittances as savings, investment and consumption can be better understood from this proposed study.
· This study will encourage further study in the area of identifying effect of foreign remittance inflow on Bangladesh economy and will provide useful guidelines for similar types of researches.
2.1.3. Scope & Delimitation
As Cash Management Operation is a very restricted department in a banking point of view the level efficiency is very high. The level of error is so low that it is very difficult to find out the lacking in this process. Also the layout of remittance processing is structured by the bank management; it is very tough to change the process which is very much efficient. But as the remittance process is a vast sector there are lots of procedures which can be change and modified which will help the department a lot. There are lots of people who are earning foreign currency as sending their money through Standard Chartered bank. How these remittances are affecting our economy will be analyzed in this report. The substance presented in this study may not be applicable anywhere outside the Standard Chartered Bank of Bangladesh and will not be used anywhere except American International University of Bangladesh and Standard Chartered Bank of Bangladesh.
2.1.4 Objective of the study
2.1.4.2 Specific Objective
2.1.4.2.1 Customer based Objective
· To find out the how the inward remittance payment process conducts.
· To find out the lacking of the process practice by the department in contrast to the process should be practiced.
· To find out the problem occurs in the procedure and how this problems can be solved.
· Purpose of the study is to analyze and evaluates the effect of foreign remittance inflow on Bangladesh economy. This study includes the analysis on the trends of remittance inflow to Bangladesh and it’s contribution to GDP, export and import.
2.1.4.2.2 Organization Based Objective
To find out the initiatives those are taken by the Bank and the areas where they can improve. To know about the overall banking activity, to know about the management style and organization structure of Standard Chartered Bank, to identify the problem and weakness of the banking system of Standard Chartered Bank, to suggest necessary measures for the development of the bank.
2.2. Literature Review
Bangladesh has a long history of migration. Migration has shaped and is still shaping Bangladeshi society. Although this report does not focus on migration, it must be acknowledged that most migratory movements happen within the country. Some micro level studies give an idea of the importance of migration in rural villages. A study in sixty two (62) villages in Bangladesh 2009s, showed that three-quarters of those migrating from rural areas migrate internally, and some twenty four per cent (24%) migrate overseas, rural villages in the district of Comilla showed that internal migration accounted for sixty three per cent (63%) the total migratory movements within that area.
International remittances come mainly from three large, but distinct types of migrant. Firstly, there is an important, mainly American and British, Diasporas of well-educated, high or middle income earners. Secondly, there is a diasporas of Bangladeshi origin, in the same countries and other industrialized countries, belonging to the low-income or unemployed segments of the population. Thirdly, there is a major group of migrant laborers, residing for a specific period in Middle Eastern, South-East Asian and some industrialized countries. These migration movements are not unique for Bangladesh, but show similarities with other South and East Asian countries.
According to the International Organization for Migration (IOM, 2009) there are about three million Bangladeshi migrants working abroad sending remittances more or less regularly to their families and friends at home. In addition, there are about one million Bangladeshis permanently residing abroad. They also send remittances to their families. The temporary and permanent migrants together represent about four million families in Bangladesh. In 2010, approximately three billion US Dollars (US$ 5 Billion) came into Bangladesh as remittance and that is only through the official channels. It is estimated that an equal amount came in through informal channels. At the national level, the implications of this remittance flow are enormous. The country’s foreign currency reserve is supported by this remittance therefore remittance is playing a crucial role in supporting the balance of payment. Remittance also accounts for thirty per cent (30%) of the national savings. Research also shows positive impact of remittance on consumption, investment and imports.
Transfer of remittances takes place through different methods. Forty six per cent (46%) of the total volume of remittance has been channeled through official sources, around forty (40%) through hundi, four point six one per cent (4.61%) through friends and relatives, and about eight per cent (8%) of the total was hand carried by migrant workers themselves when they visited home.
Banks are the major actors in remittance transfer. On the issue of transfer of remittance the banking services have to be made more attractive to wean clients away from hundi. Banks have to match the level of services currently provided by the hundi operators such as cost and speed. Different steps may be undertaken to improve the quality of services provided by the banks.
According to the Guidelines for Foreign Exchange Transaction, Volume-1 (cited in BIBM reading materials), foreign remittance refers to remittance of foreign exchange that are received in and made out abroad. Foreign remittance also includes purchase and sale of freely convertible foreign bills and currencies. There are two types of foreign remittance:
· Foreign inward remittance: Remittance of foreign currency being received in the country from abroad is called inward foreign remittance.
· Foreign outward remittance: Foreign currency being made out abroad may be termed as foreign outward remittance.
The modes of foreign inward remittance are telegraphic transfers (T.T), demand draft (D.D), and mail transfer (M.T) and travelers cheque (T.C). These are the common modes of foreign inward and outward remittances.
Beside these foreign inward remittances also include remittances on account of export purchase of bills, purchase of draft, purchase of T.C foreign currency notes and coins, cheques issued on foreign banks in favor of beneficiaries in Bangladesh etc. Local currency debited to non-resident taka accounts of foreign banks or convertibles taka accounts constitute inward remittances of foreign exchange. Local currency credited to Non Resident Taka account of foreign banks or convertible Taka accounts constitute outward foreign remittance. Outward foreign remittance also comprises remittance on account of import and private remittance on sundry items.
2.3 Methodology
The report is based on both primary and secondary research. The secondary research provided the main input for the report. This provided a theoretical basis of the report. The primary research was done to interlink between different concepts & processes of inward remittance.
2.3.1 PRIMARY SOURCE
Observation from the total internship period, Operational process, Discussion with officials of Standard Chartered Bank, Data from the company’s documents and Standard Chartered Bank’s computerized information system. At the same time information is collected through informal discussions with Line Manager & respective officers in the department. All the information incorporated in this report has been collected both from the primary sources and as well as from the secondary sources.
2.3.2 SECONDARY SOURCES
All data may be obtained through secondary sources such as newspaper, journals, bank brochure, office memo, operating manuals, circulation and publications, Periodic Bulletins published by the Bangladesh Bank, Synopsis of the Bangladesh Institute of Bank Management (BIBM), Balance Sheets and Profit and Loss Accounts of Standard Chartered Bank web page and other systems that are currently used by the Standard Chartered Bank in this regard and also from other relevant reports. Standard Chartered Bank has a built-in system for measuring and monitoring the card holders status which is fully computerized and automated and can be used as secondary sources.
The second part of my report was based on secondary data. As it is a data based report basically it contents secondary Data which was collected from world development indicators 2010, Economic trends and Bangladesh Bank Bulletin, Bangladesh Bureau of Statistics, ADB quarterly economic updates, ILO reports and publications, different published articles & journals and bank records on remittance inflow. Data was collected from bank records through senior officers, executives and managers of SCB. The revenue figure was collected from the departmental database of foreign remittance section.
2.4 Analysis and Interpretation of the Data
2.4.1 Formal transfer methods
The statistics of the Bangladesh Bank only reflect the formal remittance flow. According to a study of Mahmud (cited in Puri and Ritzema, 2008), twenty per cent (20%) of the total amount of remittances are informal remittance in Bangladesh. A study of Siddiqui and Abrar (2009) among labor migrants to the UAE revealed that forty six percent (46%) of the total volume of transactions has been channeled through official methods around forty percent (40%) through the hundi system, five per cent (5%) through friends and relatives and eight per cent was hand carried by migrants themselves. Official channels refer to demand drafts issued by a bank or an exchange house, traveler’s cheques, telegraphic transfers, postal orders, account transfers facilities and electronic transfers. Of these, demand drafts are most popular (Siddiqui and Abrar, 2009). Expatriates and migrants using official channels have quite a few options. Firstly, they can send money from a bank in the destination country to a bank in Bangladesh. The former bank must have a correspondent relationship with the latter. Secondly, they can send money through branches or subsidiaries of a Bangladeshi bank in the destination country. Thirdly, money can be remitted through exchange houses or banks in the destination country with which a Bangladesh bank has a taka drawing arrangement. Due to the direct link between the bank or exchange house in the destination country and the one in Bangladesh in the last two cases, the transaction time should be shorter. The Bangladesh financial system consists of the Bangladesh Bank (BB), nationalized commercial banks (NCB), and government owned specialized banks, private commercial banks (PCB), foreign banks and non-bank financial institutions. The Bangladesh Bank (BB) is the central bank of Bangladesh, which supervises and regulates all the other banks. In order to deal with foreign exchange, banks need authorization from the BB. Banks that are allowed to deal with foreign exchange either has their own exchange branches in the destination countries or link up with international banks or money exchange companies, like Western Union. Importantly, private banks are not allowed to have branches in cities abroad here as NCB’s already have branches. However, they can have correspondent banks. While all four NCBs, Janata, Sonali, Pubali and Agrani Bank, have branches abroad or are linked up with other banks, only one specialized bank, i.e. Bangladesh Krishi Bank, and half of the PCBs have similar arrangements. Krishi Bank was established to meet the credit needs of the agricultural sector. None of the non-bank financial institutions are allowed to deal with remittances. These include the micro-finance institutions (MFIs) such as Grameen Bank, BRAC, ASA, and Proshika. Most of these institutions have an explicit social agenda and cater to the needs of the poorest section of the population. Mostly they provide credit to women. Recently, BRAC created the BRAC Bank. Importantly, this is not an MFI, but a PCB. However, it makes use of the vast network of the MFI BRAC. Currently, MFIs are not allowed to make financial transactions and deal with foreign exchange, making the involvement of MFIs in remittance transfer very difficult. BRAC Bank illustrate that the majority of official remittances is channeled through NCBs (about 58%), while PCBs dealt with thirty eight per cent(38%), foreign banks with about three per cent (3%) and specialized banks with less than one per cent (1%) of the remittance flow in 2010. On the basis of an interview with the governor of BB, Siddiqui and Abrar (2009) come to quite different figures for 2010. According to the governor of BB, about seventy three (73%) of the remittances were channeled through official banks, and more than twenty six per cent (26%) through PCBs. In terms of volume of remittances, the most important commercial bank would be Islami Bank of Bangladesh Limited (IBBL). Other noteworthy PCBs in terms of outlets abroad include Uttara Bank, Arab Bangladesh Bank and National Bank Ltd.
2.4.2 Informal Transfer Method
Hundi system is the most important informal way in which money is transferred to Bangladesh. In the hundi system the migrant gives money to an intermediary, who contacts an agent in Bangladesh. The agent in Bangladesh is responsible for giving the equivalent of the money that the migrant has given to the intermediary to the recipient in Bangladesh. An Informal Exchange rate is used to determine the amount of money the recipient gets. The recipient can take the money from the agent by using a code that she/he receives from the migrant. Because there are no official documents used in the process – although informally it is often documented – the system is clearly based on trust (Berlage, 2008, El-Qorchi, 2007).
Using the informal channel some problems have been created in the economy of the country. These are:
· Funds that transfer illegally through banks and other financial institutions threat the integrity and stability of financial system and even weaken the government.
· Significant amount of illegal proceeds invests in the real estate.
· Informal channel of transfer money can create liquidity problem.
· Mysterious changes in demand of money and increase of volatility in the international capital flows, interest and exchange rate may occur due to use of informal channel
2.4.3 Comparison and Rationale behind using formal and informal channel
Officially recorded remittances received by developing countries are estimated to have exceeded $103 billion in 2008. They are now second only to foreign direct investment (around $153 billion) as a source of external finance for developing countries. In 36 out of 153 developing countries, remittances were larger than all capital flows, public and private. (World Bank, 2009).
People use informal channel rather than formal channel because of easier means of transaction and lower cost. The costs of receiving remittance through official and hundi channels were calculated. For official channel these included service charge, speed money, conveyance and other costs. The average cost per official transaction was found to be Tk.156.50. For hundi, at the receiving end, the costs involved phone charges, conveyance and remittance lost. For the 100 households such costs on average stood at Tk.75.53 per transaction. Under official transaction, the time required for receiving cash after depositing the draft in the bank was 12.83 days. For hundi, the average time per transaction following receipt of information was 3 days. ( Siddiqui & Abrar, 2009)
Informal remittance systems are widely used because of their speed, low cost, convenience, versatility, and potential for anonymity. Effective regulations should not impede the flows of remittances nor drive remittance systems underground. Implementation of remittance regulations is likely to take some time. In cash-based and low-income countries, implementation of an effective regulatory framework will be especially difficult because access to banking and other financial services is limited, and supervisory capacity is weak. There is extensive ongoing work by the World Bank, other IFIs, and national government agencies and academia on projects to promote the use of banking channels for remittances. Other work is addressing the macroeconomic impact of remittances and their links to the trade and foreign exchange areas.
The flow of official remittances in Bangladesh between 1996 and 2010 was about US dollar 33.7 billion. This figure represents the remittances officially recorded by the central bank of Bangladesh. However, it has been variously reported in the media and in the banking channels that a significant amount of remittance is made outside the banking channel for reasons of better exchange rate, time saving, low transaction cost and ease of remittance. Some sources, estimate that the size of unofficial remittance may be around the same amount as the remittance made in the official channel. The remittances make significant contribution to the GNP and helps in offsetting the unfavorable balance of payments by providing about 30 percent of the export earnings and 20 percent of the import payments. The remittances of the migrant workers constitute about 30 percent of the national savings of the country.
2.4.4 Positive and negative impacts
One school of thought suggests that remittances are beneficial at all levels including the individual, household, community and national levels. They increase disposable incomes and demand for local goods and services and play a vital role in developing local capital markets and infrastructure. Another school of thought sees remittances as contributing to dependent relations between the sending and receiving countries. Within countries, remittance increases inequality between households and cause macro-economic stability problems for countries with low GDP. A third school of thought, the emerging trans- migrant school, and links these two positions by focusing on how social networks link local and global processes. This approach does not restrict itself to looking at money flows but also considers the flow of goods and new ideas that impact on the social fabric and structures of the home communities. It focuses on how remittances are embedded within an emerging structure where many economic, social and even political transactions take place.
Literature from this perspective takes a balanced view of the impacts. Although Critical of the structure within which migrants remit, it allows that positive impacts can occur. While the overall effect on poverty can be ambiguous, empirical studies overwhelmingly support the idea that remittances contribute powerfully to reducing poverty in most households and communities. While they do increase inequality at the local level, at the international level they transfer resources from developed to developing countries and so help to reduce inequality. However, where countries have many migrants and a low GDP, remittances can decrease macroeconomic stability and cause poverty especially for those who do not receive remittances.
2.4.5 Economic Impact and cost benefit analysis
The costs and benefits issues in international migration can be looked at the private, social and macro-economic levels. This phenomenon has an overall impact on economic development of migrant sending countries in terms of employment, balance of payment, commodity exports, business profits and the government revenues. The migrant remittances create avenue for optimism in terms of productive investments through multiplier effects of increased expenses for housing and current consumption, investment in land creates proceeds for other productive uses and constant flows of remittances become important source of funds for investment loans from financial institutions. On the negative side, one can raise issues of enrichment of private individuals, low dependency as a source of foreign exchange earnings and turbulent nature of remittance due to uncertainty in the host country.
Traditional neoclassical economics attributes individual personal tastes or decision-making to international migration; people move to improve their income. The fundamental basis revolves around equilibrium and the market’s natural inclination towards it. In relation to immigration, individuals looking for a higher wage migrate out of their originating low-wage region. It is assumed that the search for a higher wage is the prime reason for migration, with other factors playing a comparatively minor role. At this point, neoclassicists point to a closure of the wage gap between the sending and receiving regions which should virtually put an end to migration.
2.4.6 Remittance in Bangladesh
According to official data of the Bangladesh Bank and Bureau of Manpower Employment and Training (BMET), Bangladesh received about a total of fifty four thousand four hundred million US Dollars (US$ 54,400) in remittances between 1984 and 2010. Figure below shows that the official flow of remittances to Bangladesh has increased dramatically in the last twenty nine (26) years. While in 1984 only twenty four million US Dollars (US$ 24 million) entered the country through official channels, this number stood at more than two thousand six hundred million US Dollars (US$ 2600 million) in 2002. Until the early 1990s remittances increased steadily, reaching around six hundred thirty million US Dollars (US$ 630 million) in 1993. The next year the remittance flow decreased, but from 1996 onwards the growth started again. In the last twelve (12) years a major increase in the amount of remittances has taken place, from just under eight hundred million US Dollars (US$ 800 million) at the end of 1998s to more than two thousand million US Dollars (US$ 2000 million) in 2006 and even surpassing three billion US Dollares (US$ 3 billion) two years later. In 2009, official remittances stood at three billion eighteen million US Dollars (US$ 3.18 billion) according to BMET figures. In the first nine months of 2010, two billion thirty five million (US$ 3.35 billion) in official remittances entered the country.
| Year |
Fig: 1, Remittance flow in Bangladesh.
According to Berlage (2010), who have compiled data from a number of information sources, in 1999 Bangladesh was the sixth remittance receiving country in the world in absolute figures. 2009 reports that the remittance flow to Bangladesh represents two per cent of the global remittance flow.
Offering an explanation for the evolution in remittances is not easy. Of course the flow of remittances is very much linked to the migration rate. The increase of labor migration to the Middle East in the second half of the 1980s has had its effects on the remittance flow. However, the correlation is not a straightforward one. There is always a time lag: the migrant needs time and money to settle him or herself in the host country. 2009 argues that the emigration rate has been higher than the growth of remittances and it identifies lower wage rates as explanatory factors: Bangladesh has recently experienced emigration of more unskilled and semi-skilled migrants, whose wages are lower in comparison with the previous wave of skilled emigrants, and simultaneously wage rates in destination countries have fallen drastically in the last decade.
Political turmoil in the countries of destination has also affected the remittance flow. The sluggish growth in the mid-1980s may be attributed to the Iran-Iraq war of that time.
A similar correlation might exist between the slow growth rate at the beginning of the 1990s and the Gulf War (Afsar, 2002). It is also assumed that the recent increase is a result of more people sending money through official channels, given the increased attention to anti-terrorism policies.
Puri and Ritzema (2010) list a number of other factors that influence the size of remittances, such as exchange rates, macroeconomic policies, the marital status of the migrant, and the economic activity in the host or sending region or country. Furthermore, the figures of the Bangladesh Bank only reflect the formal remittance flow.
Remittance saw a strong boost in the just concluded 2009-10 financial year, recording a healthy 14.5% growth. According to the Bangladesh Bank (BB) statistics, non-recident Bangladeshis (NRBs) sent US$3866.63 million in the 2009-10 fiscal year, crossing the target by more than $246 million. The target for remittance income for the 2009-10 financial year was set at $3620 million. Remittance inflow maintained a substantial growth in most of the months and in March 2010 it was an all time single month high, amounting to $401 million. NRBs sent $349 million in June 2010. According to a top official of the central Bank, Remittance service through banking channel has improved significantly in the recent years. Besides, anti-money laundering act is becoming stringent in different countries, discouraging people to send money through hundi. Private and Foreign banks are also taking different measures to increase their earnings from remittance service and signing deals with the service providers who have strong networks across the globe. These banks are marketing remittance services very aggressively and providing quick and secured services for their clients, which would push remittance inflow in the coming months.
Currently overseas manpower mostly unskilled labor remittances are major source of our import payments. Remittances from overseas Bangladeshi workers increased significantly from US$1088.72 million in 1998/99 to US$1705.02 million in 2003/05. During 2006/07 remittances stood at US$ 2501.13 million which was US$ 1882.10 million in 2005/06.
NRBs sent $3371.917 million in the 2008-09 financial year. The remittance inflow crossed the three billion mark, amounting to $3061.97 million in the 2007-08 fiscal year for the first time. Besides, NRBs sent $2501.13 million in the 2006-07 fiscal and $1882.10 million in the 2004-2005 fiscal. According to BB statistics remittance inflow saw a negative growth of 3.45% in the 2006-07 financial year. SM Aminur Rahman, managing director of Janata Bank, stated that Increase in the number of remitters apart, new initiatives by banks including opening exchange house abroad, signing deals with other service providers are some of the reasons for augmenting remittance inflow in the last fiscal year. The bank which linked a deal with Western Union last year, will also bring another 150 outlets under its network shortly. Its remittance service recorded over 100 percent growth in the last five months on an average.
| Monthly inflow of Remittance | ||
| Month | FY 2009-10
US$ million |
FY 2008-09
US$ million |
| July | 286.67 | 258.08 |
| August | 271.68 | 227.68 |
| September | 275.37 | 248.30 |
| October | 297.03 | 308.18 |
| November | 267.30 | 245.41 |
| December | 379.19 | 289.69 |
| January | $316.25 | 357.06 |
| February | $329.05 | 256.32 |
| March | $401.44 | 311.39 |
| April | $373.9 | 283.29 |
| Source: Bangladesh Bank | ||
Remittance inflow during the July-April period of the current fiscal year (2009-10) crossed $3 billion mark recording a 14.7% growth over the same period of the previous fiscal year. Statistics available with the Bangladesh Bank revealed that remittance inflow in 10 months of the current fiscal rose to $3.19 billion from $2.78 billion compared to the same period of the previous fiscal. Robust growth of Remittance is maintaining a trend required to achieve the amount programmed in the mid-term macroeconomic framework in the Poverty Reduction Strategy paper which projects $3.6 billion remittance in the current fiscal.
The overseas Bangladeshis have remitted some $373.9 million in April while in March the amount was $401 million. The vibrant remittance flow has played a contributory role in keeping the foreign exchange reserve above $3 billion mark. Over the years, remittance appeared as a significant life line of the economy lowering the pressure on balance of payment.
Remittance Inflow in Bangladesh:
| Year/ Month | Remittance | Remittance | |
| In million US dollar | In million Taka | Increse in % | |
| 1995-1996 | 763.91 | 27256.2 | |
| 1996-1997 | 849.66 | 32414.5 | 11.23 |
| 1997-1998 | 944.57 | 36970.4 | 11.17 |
| 1998-1999 | 1088.72 | 43549 | 15.26 |
| 1999-2000 | 1197.63 | 48144.7 | 10.00 |
| 2000-2001 | 1217.06 | 49704 | 1.62 |
| 2001-2001 | 1475.42 | 63000.4 | 21.23 |
| 2001-2002 | 1525.43 | 69346 | 3.39 |
| 2002-2003 | 1705.74 | 81977.8 | 11.82 |
| 2003-2004 | 1949.32 | 98070.3 | 14.28 |
| 2004-2005 | 1882.1 | 101700.1 | -3.45 |
| 2006-2007 | 2501.13 | 14370.3 | 32.89 |
| 2008-2009 | 3061.97 | 177288.2 | 22.42 |
| 2009-2010 | 3371.97 | 236469.7 | 10.12 |
| 2010-2011 | 3848.29 | 196322.4 | 14.13 |
Fig: 2, Remittance Inflow in SCB
2.4.7 Country-wise remittance flow into Bangladesh
The boom in oil revenues in the middle-eastern countries since mid-1970s created large job opportunities for the Bangladeshi workers. According to the official data of Asian Development Bank (ADB), In terms of flows of migration by country of employment from 1981 to 2007, the share of Saudi Arabia is 47 percent, Kuwait 9 percent and UAE 11.5 percent. Currently, nearly 50 percent of the remittances come from Saudi Arabia alone, followed by 15 percent from USA, UK, Germany taken together, 13 percent from Kuwait, and 8 percent from UAE. The share of the middle-eastern countries increased over time accounting for 80 percent of the total remittances in FY2008. Japan and Malaysia together accounted for 4.5 percent of the remittances in FY2008, but only a little over 2 percent of the remittances in FY2008. Country-wise total amount of remittance flow is shown in the figure below.
Fig: 3, Remittances from Bangladeshies (in million US $)
2.4.8 Comparison of remittance flow to Bangladesh and its contribution of SCB
SCB is involved with both the form transactions of inward and outward remittance processing service. SCB tries their level best to increase the flow of remittance through banking channel. Information provided in Following Table and chart will show how the remittance from abroad increases and how SCB contributes to it.
Comparison of SCB remittance inflow with total foreign remittance inflow in Bangladesh
| Year | Foreign Remittance Inflow in Bangladesh (US$ million) | Foreign Remittance Inflow through SCBL (US$ million) | Remittance percentage of SCBL with total remittance inflow in Bangladesh |
| FY 2007-2008 | 3,061.97 | 77.23 | 2.52 |
| FY 2008-2009 | 3,371.97 | 88.56 | 2.63 |
| FY 2009-2010 | 3,866.63 | 109.58 | 2.84 |
Source: Bangladesh Bank and Remittance Department of SCB
Note: Calculation:
· Remittance % of SCBL with total remittance inflow in Bangladesh
Foreign Remittance Inflow through SCBL (US$ million)
= Foreign Remittance Inflow in Bangladesh (US$ million) * 100
2.4.9 Inward Remittance Process at SCB
Inward Remittance process is not as easy as it sounds. It has lots of difficulties as there are so many rules, regulation and specially restriction. The total inward Remittance process is conducted by the processors and the checker or approver. Processor processes the remittance after checking all the things and the approver approves the payment. The detail of this procedure is summarized by the role and their job they are doing in the department. It will clear the view about inward remittance process.
Inward Telegraphic Transfer Process
ITT Team processes inward remittances received through SWIFT where the beneficiary of the fund might hold account with SCB or with other banks in Bangladesh. Though the Telegraph system has been decommissioned for such transfers, the term ‘Inward Telegraphic Transfer’ has become versatile and is being used throughout the banking industry.
Beneficiary credit is subject to funds provided in our Nostro and Vostro accounts, from the correspondent bank in accordance with Group Payment Policy. It is also subject to all necessary documents being duly submitted and fulfilment of regulatory requirements.
This operating instruction shows end to end process for Inward Telegraphic Transfers (ITT).