A foreign remittance approach to development
Saturday, 29 September 2007
Md Bayazid Sarker
JUST after World War-II, the World Bank or International Bank for Reconstruction and Development (IBRD) was born in the Bretton Woods Conference in 1944. Since then, World Bank has been working as a development partner of developing countries and the least developed countries (LDCs) like Bangladesh. These countries are much dependent on the World Bank for their infrastructure development. This UN recognised organisation is much criticised and much appreciated as well. Even after more than half a century of its operations, there is much debate on the success rate of development supports by this organisation. Excluding Israel and Egypt, this rate is generally considered lower.
Though the World Bank is an associate organisation of the United Nations (UN), its main stakeholder is the USA and its chief executive is nominated by the USA. No doubt, its development support programme in developing countries is appreciable but the attached conditions of the programme are criticised much. In Bangladesh, the World Bank has been giving development support, mainly in infrastructure, health and education sectors. Local government's involvement is particularly noted here for implementation of those development-supporting programmes.
The social indicators of Bangladesh have reached the equivalents to those of the middle-income countries. The contributions of non-government organisations (NGOs) and micro-finance institutions (MFIs) have been significant to achieve such a level -- and such contributions are more than those of the World Bank or government. The last joint participation of the WB in Jamuna Bridge Project financing was remarkable. Actually, the Third World countries are highly dependent on the Bank for such type of projects, requiring large amounts of money on a long-term basis. Under common track and trend, Bangladesh will most likely approach the World Bank again for its next Padma Bridge Project or deep-sea port project.
Innovating the alternative: The foreign direct investment (FDI) flow to Bangladesh during the financial year 2004-05 announced to $803.8 million. It declined to $744.6 million in 2005-06. At the same time, in India and Pakistan, the FDI flow has increased and most of the FDIs were received from their migrants. Bagasao. I. F (2005) stated that the Philippines migrants' invest in their local government units (LGUs) directly and they enjoy some facilities including tax exemption for such investment. Bangladesh, as a major labour exporting country, can look forward to the Philippine's experience in such cases. But a large portion of total expatriate/migrants remittances in Bangladesh is received through informal channel like hundi or hawala until now, though some important facilities including tax exemption have been declared. Siddiqui, T & Chowdhury R.A.. (2003) have noted that 39.45 per cent of remittances were received through unofficial or hundi system whereas the IMF and the World Bank Joint Study (December 2002) showed this figure at 59 per cent.
There are many causes behind this scenario. One of the major causes is that the most of the time it is not possible for the banking sector to provide as much speedy and least cost remittance services as hundi or informal system. Moreover, most of the Bangladeshi migrants are not aware enough of the existing facilities for remittances through the official channel.
Issues relating to hundi; FDI and long-term project financing can be solved by a single point of action through formation of an expatriates' investment bank -- a new type of bank. The nature and functions of this new bank should be something different from that of the traditional banking. It can play an important role as a main development partner of the country. So it can be named as "International Bank for Expatriate Bangladeshis" (IBEB)" or "International Bank for Non-resident Bangladeshis (IBNB)" but its nature or type will be "Expatriates' Investment Bank" or "Wage Earners' Bank". Its capital can be funded by expatriate Bangladeshis or Non-resident Bangladeshis (NRBs). It should be run under private management.
The proposed bank may have four wings: development wing, banking wing, MFI wing and overseas wing. The development wing will be the main one that would be the development partner of Bangladesh. This wing can start its operation under a memorandum of understanding (MOU) signed with Government of Bangladesh. All members of its board of directors and advisors will be NRBs and they should be given the status of commercial important persons (CIP). Most of the officials of its development wing are proposed to be deployed from among the interested high-profile NRBs who will receive salaries or compensation packages up to the international standard. The local function of the banking wing could be very limited, as it must not induce extra shocks to the present banking sector. The activity of the proposed MFI Wing can start after a proper feasibility study that may help strengthen remittance delivery system. The proposed Overseas Wing might have an important role in facilitating the remittance-sending process and this wing may be formed by the expatriates under a approved standard policy by the proposed IBEB.
Functions and benefits: For discharging its functions, the proposed bank may have the following structure:
It should perform Islamic banking functions but those should be on limited scale because its objective is to help the existing scheduled banks in remittance service, not to compete with them. It may have merchant banking wing for NRBs' investment in capital market, offshore banking in export processing zone, subsidiaries in Bangladesh as MFIs or other remittance delivery organisations and subsidiaries at abroad as exchange houses.
Firstly, the above functions with proposed structure can solve remittance-sending and delivery problems, that can eradicate hundi or co-existence of informal remittance system. Secondly, the proposal will ensure better investment opportunities in the home country for NRBs as well as better returns on NRBs' investment. Thirdly, the proposed project financing involving long-term foreign currency will reduce dependence of the country on the World Bank, IMF or any other international pressure group. Finally, it will have long-run multiple positive impacts for the economy.
Observations: If migrants get an investment opportunity with international standard service, they would prefer Bangladesh. Moreover, sometimes Bangladeshi migrants want to help Bangladesh. Recently, the New York-based Bangladeshi migrants have offered financial help to the Bangladesh Biman. But ultimately they do not have any platform to help the motherland. So the formation of such a type of bank is not only financially feasible but also a demand by the NRBs as well as the cross section of people. The recent trend about FDI flows and the proposals of Tata Group (India), Dhabi Group (United Arab Emirates), Mittal Group (British) etc., indicated that more proposals would be coming in near future. Any kind of inefficient handling of these proposals may create another problem of 'dust-disease' like the experience of Nigeria. The proposed bank can do some works of Board of Investment (BOI), especially those relating to NRBs' individual or collective investment proposals. If the NRBs get priority for FDI, that will reduce the possibility of 'dust-disease' problem in the future. The formation of IBNB/IBEB is likely to get a positive response from the NRBs, serving as an alternative to the World Bank in Bangladesh for provision of development funds in the short-term.
Conclusion: The main objective of the proposed bank would be to create capital funded by the NRBs to contribute to sustainable development of Bangladesh though proper utilisation of NRBs' foreign deposits. The endeavour of International Bank for Expatriate Bangladeshis (IBEB) or International Bank for Non-resident Bangladeshis (IBNB) can be the pace-setter for working as a new development partner.
(The writer is an Assistant Director of Forex Reserve & Treasury Management Department (FRTMD), Bangladesh Bank, Head Office, Motijheel C/A, Dhaka-1000. The views expressed here are his own and in no way reflect the views of Bangladesh Bank or any other authority)
JUST after World War-II, the World Bank or International Bank for Reconstruction and Development (IBRD) was born in the Bretton Woods Conference in 1944. Since then, World Bank has been working as a development partner of developing countries and the least developed countries (LDCs) like Bangladesh. These countries are much dependent on the World Bank for their infrastructure development. This UN recognised organisation is much criticised and much appreciated as well. Even after more than half a century of its operations, there is much debate on the success rate of development supports by this organisation. Excluding Israel and Egypt, this rate is generally considered lower.
Though the World Bank is an associate organisation of the United Nations (UN), its main stakeholder is the USA and its chief executive is nominated by the USA. No doubt, its development support programme in developing countries is appreciable but the attached conditions of the programme are criticised much. In Bangladesh, the World Bank has been giving development support, mainly in infrastructure, health and education sectors. Local government's involvement is particularly noted here for implementation of those development-supporting programmes.
The social indicators of Bangladesh have reached the equivalents to those of the middle-income countries. The contributions of non-government organisations (NGOs) and micro-finance institutions (MFIs) have been significant to achieve such a level -- and such contributions are more than those of the World Bank or government. The last joint participation of the WB in Jamuna Bridge Project financing was remarkable. Actually, the Third World countries are highly dependent on the Bank for such type of projects, requiring large amounts of money on a long-term basis. Under common track and trend, Bangladesh will most likely approach the World Bank again for its next Padma Bridge Project or deep-sea port project.
Innovating the alternative: The foreign direct investment (FDI) flow to Bangladesh during the financial year 2004-05 announced to $803.8 million. It declined to $744.6 million in 2005-06. At the same time, in India and Pakistan, the FDI flow has increased and most of the FDIs were received from their migrants. Bagasao. I. F (2005) stated that the Philippines migrants' invest in their local government units (LGUs) directly and they enjoy some facilities including tax exemption for such investment. Bangladesh, as a major labour exporting country, can look forward to the Philippine's experience in such cases. But a large portion of total expatriate/migrants remittances in Bangladesh is received through informal channel like hundi or hawala until now, though some important facilities including tax exemption have been declared. Siddiqui, T & Chowdhury R.A.. (2003) have noted that 39.45 per cent of remittances were received through unofficial or hundi system whereas the IMF and the World Bank Joint Study (December 2002) showed this figure at 59 per cent.
There are many causes behind this scenario. One of the major causes is that the most of the time it is not possible for the banking sector to provide as much speedy and least cost remittance services as hundi or informal system. Moreover, most of the Bangladeshi migrants are not aware enough of the existing facilities for remittances through the official channel.
Issues relating to hundi; FDI and long-term project financing can be solved by a single point of action through formation of an expatriates' investment bank -- a new type of bank. The nature and functions of this new bank should be something different from that of the traditional banking. It can play an important role as a main development partner of the country. So it can be named as "International Bank for Expatriate Bangladeshis" (IBEB)" or "International Bank for Non-resident Bangladeshis (IBNB)" but its nature or type will be "Expatriates' Investment Bank" or "Wage Earners' Bank". Its capital can be funded by expatriate Bangladeshis or Non-resident Bangladeshis (NRBs). It should be run under private management.
The proposed bank may have four wings: development wing, banking wing, MFI wing and overseas wing. The development wing will be the main one that would be the development partner of Bangladesh. This wing can start its operation under a memorandum of understanding (MOU) signed with Government of Bangladesh. All members of its board of directors and advisors will be NRBs and they should be given the status of commercial important persons (CIP). Most of the officials of its development wing are proposed to be deployed from among the interested high-profile NRBs who will receive salaries or compensation packages up to the international standard. The local function of the banking wing could be very limited, as it must not induce extra shocks to the present banking sector. The activity of the proposed MFI Wing can start after a proper feasibility study that may help strengthen remittance delivery system. The proposed Overseas Wing might have an important role in facilitating the remittance-sending process and this wing may be formed by the expatriates under a approved standard policy by the proposed IBEB.
Functions and benefits: For discharging its functions, the proposed bank may have the following structure:
It should perform Islamic banking functions but those should be on limited scale because its objective is to help the existing scheduled banks in remittance service, not to compete with them. It may have merchant banking wing for NRBs' investment in capital market, offshore banking in export processing zone, subsidiaries in Bangladesh as MFIs or other remittance delivery organisations and subsidiaries at abroad as exchange houses.
Firstly, the above functions with proposed structure can solve remittance-sending and delivery problems, that can eradicate hundi or co-existence of informal remittance system. Secondly, the proposal will ensure better investment opportunities in the home country for NRBs as well as better returns on NRBs' investment. Thirdly, the proposed project financing involving long-term foreign currency will reduce dependence of the country on the World Bank, IMF or any other international pressure group. Finally, it will have long-run multiple positive impacts for the economy.
Observations: If migrants get an investment opportunity with international standard service, they would prefer Bangladesh. Moreover, sometimes Bangladeshi migrants want to help Bangladesh. Recently, the New York-based Bangladeshi migrants have offered financial help to the Bangladesh Biman. But ultimately they do not have any platform to help the motherland. So the formation of such a type of bank is not only financially feasible but also a demand by the NRBs as well as the cross section of people. The recent trend about FDI flows and the proposals of Tata Group (India), Dhabi Group (United Arab Emirates), Mittal Group (British) etc., indicated that more proposals would be coming in near future. Any kind of inefficient handling of these proposals may create another problem of 'dust-disease' like the experience of Nigeria. The proposed bank can do some works of Board of Investment (BOI), especially those relating to NRBs' individual or collective investment proposals. If the NRBs get priority for FDI, that will reduce the possibility of 'dust-disease' problem in the future. The formation of IBNB/IBEB is likely to get a positive response from the NRBs, serving as an alternative to the World Bank in Bangladesh for provision of development funds in the short-term.
Conclusion: The main objective of the proposed bank would be to create capital funded by the NRBs to contribute to sustainable development of Bangladesh though proper utilisation of NRBs' foreign deposits. The endeavour of International Bank for Expatriate Bangladeshis (IBEB) or International Bank for Non-resident Bangladeshis (IBNB) can be the pace-setter for working as a new development partner.
(The writer is an Assistant Director of Forex Reserve & Treasury Management Department (FRTMD), Bangladesh Bank, Head Office, Motijheel C/A, Dhaka-1000. The views expressed here are his own and in no way reflect the views of Bangladesh Bank or any other authority)