Licensing of mobile companies to undertake inland and foreign remittance
Saturday, 18 October 2008
Capt. Imam Anwar Hossain
IN Shakespeare's play The Merchant of Venice, the shrewd money lender Shylock dispatched a loan to the desperate merchant Antonio against a security of one pound of his flesh as Antonio had nothing else to comfort. Even though Antonio's ship sank and he lost everything, defiant Shylock demanded Antonio's flesh but failed due to Antonio's canny lawyer who discovered a loophole in the contract and advised Shylock to cut out one pound of Antonio's flesh without shedding a drop of blood and the weight of flesh must be exactly one pound no less, no more. Shylock lost his money and his contracted security became useless.
Above paradigmatic drama is focused here only to underscore the vulnerability of banking system which therefore must be protected under the cover of strict regulatory safety blanket and continuous training and upgrading of banking skills of the workforce.
Extremely conservative but formidable working system of a bank was developed after hundreds of years of experience, regulatory changes, research and thoughts of thousands of experts from various disciplines in various countries. The tough banking ethics, discipline and rules must not be strayed, nor should it be allowed to succumb to any abrupt changes in the name of liberalisation or modernization or to support any political demagogue or any unproven technological breakthrough.
Recently, a few over-enthusiastic entities are pursuing vigorously some unprecedented, unproven and radical reforms with Bangladesh Bank to consider granting of license to the Mobile Phone Companies to handle local money transfer and remittance services of non-resident Bangladeshis (NRBs) and other Bangladeshi diaspora. The reasons for such licensing are to expedite the transfer/remittance process so that beneficiaries could receive their funds in their hand within the shortest possible time and with minimum service charges. It looks like a very exciting idea, but it would become a threat and a myopic psychosis for the traditional banking systems. This scribe would like to put across the following reasons in support of his view.
1. National Security: a) Scheduled banks and financial houses (Merchant Banks etc.) are providing their services under UCP-600 and Bangladesh Bank's and Securities and Exchange Commission (SEC)'s rules and regulations. Banks cannot deviate from or defy such rules due to strict monitoring of Bangladesh Bank on all of their day-to-days affairs. Misadventures to flout banking norms give rise to collapse of a bank like BCCI Bank, Al-Baraka/Oriental Bank etc. BCCI had network all over the world but collapsed due to money laundering activities while century-old British Bearing Bank collapsed due to misadventure of one of their Singapore offshoot employee Nick Nelson's speculative investment of bank funds into the stock market. Bangladesh Bank's takeover of Oriental Bank was due to a number of breaches of banking rules to provide fictitious loans. Timely action by Bangladesh Bank saved Oriental Bank and management is handed over to a new set of management.
During the dreary years of 2007 and 2008, the ghastly typhoon Katrina and Ike devastated the U.S. Gulf coast. Similarly deluge of losses hardly hit a number of US banks, sub prime investment companies and insurance companies which also collapsed. As if like dominoes, the strong US investment Bank like Lehman Brothers, Fannie Mac and Freddie Mac, Merrill Lynch, Bear Stearns and Insurance giant AIG also collapsed. In all these cases, it could be easily observed that they strayed out of normal banking norms and poured out unsecured loans to shore up the populist policy of Bush administration. The US Treasury, Federal Reserve and SEC also nodded to such deviations in the context of free market policy. In the UK, Halifax Bank of Scotland also collapsed. Morgan Stanly and Golden Shacks were also battered by recent financial crisis. Many other European Banks and finance houses also suffered due to their heavy investments in these institutions and due to unprecedented drop in share prices in New York and other stock exchanges around the world. Merrill Lynch - once a financial bull was purchased by Bank of America. Insurance giant AIG was rescued by the US Federal Governments. The central banks in the USA, UK, Europe and Japan had to haul in billions of dollars and a buffer was made to save some of these institutions but much more "bail out" funding may be required to avoid the catastrophic financial disasters around the world due to the "ripple effect" of the American financial capsize. The reality is, ultimately it is the people who will pay for these losses through new taxes or inflationary mitigations. Unlike the U.S. and U.K, Bangladesh Bank's audit and monitoring controls are very strict on banking system which saved us from many such disasters.
In case of handling remittance, banks, therefore, are the only tool the government and the people could rely upon since every transaction of remittance is well documented both in electronic and print systems. The chances of misappropriation are unlikely. All remitted foreign currency are disclosed to Bangladesh Bank and thereby the valuable foreign currency remains well secured with clarity in lawful transactions and utilizations;
b) In case of mobile phone companies, such security is unavailable and even those companies may not follow Bangladesh Bank's set guideline as these are registered with Bangladesh Telecom Regulatory Commission (BTRC) and not with Bangladesh Bank. Moreover, their loyalty to follow local laws remains questionable since these are not owned by Bangladeshis and like all other foreign investments, their primary aim is not charity or loyalty but to make money as quickly as possible and encash their capital and profit.
We have witnessed how these companies flouted money laundering act by operating illegal VOIP and, when caught paid fines in millions of takas. These fines may be the tip of the iceberg. Huge foreign currency may have already been illegally transferred with the operation of VOIP, but may not have been reflected in the books of accounts. VOIP operators get their funds in foreign currency from tele-exchange houses based in New York. Therefore, illegally earned foreign currency could easily escape local books of accounts. The moral integrity of mobile telephone companies is still questionable since VOIP is yet rampantly continuing through their system and they are already engaged in transfer of inland funds through so called "Flexuload"/ "Topup" prepaid system.
2. Security of the System: a) Even after decades of operation and use of fibre optics, terrestrial or satellite transmission, mobile calls are not perfect in terms of transmission and reception. Cross-connections, loss of call in the midst of conversation, attenuation, weather hazards etc., often disrupt and disturb the mobile communications. Data transmissions could also be similarly disturbed. Unwanted and cross connected SMS are often received in mobile phones. Banks have firewalls in their system to prevent such mistakes of electronic disturbances and also have non-destructive electronic archive as a second line of defence.
Therefore any remittance whether inland or overseas whether inward or outward through banking systems is well recorded, proven and dependable than the unknown and unproven domain of mobile phone system. A remitter of foreign or local currency could be 100 per cent confident that his money will not be lost on the way and will reach the hands or accounts of the right receiver. Banks are taking great care to make e-banking and e-commerce a foolproof, sound and formidable system with no tolerance to any error within the bank or during interfacing.
b) Hacking or cracking: Any electronic systems using software, computer or hardware are vulnerable to hacking or cracking by hackers or crackers. Recent hacking of the database of the elite security force RAB was not performed by experts but by a few juvenile delinquents. In mobile phone system, too, hacking may be caused by high tech experts and by peccadillo transgressors to divert part of the cake from remittance transactions for their own benefit. It is happening in the credit card system even though credit card operators have installed various devices to counter such hacking or misuse of credit cards, for which they spent millions of dollars. How could we expect local mobile companies to spend so much money to protect their system against these high-tech evils and other weaknesses of the system?
3. Money laundering/black money: This is the most crucial issue in case of remittance services. One of the prime arguments highlighted by the mobile phone operators is that, they will quicken the remittance process faster than banks. In future with some similar argument they may seek licence for e-banking and e-commerce. Our currency is tied with U.S. dollar and therefore any legal remittance, be it small or big, must go through New York clearing system. It may take 24 hours to 72 hours depending upon weekly or other holidays in New York and Bangladesh.
How faster could mobile operators perform only because they have thousands of outlets. But the fact is that these are not owned by the telephone companies but by private individuals or companies having no knowledge of money laundering, and who could be sure that they would not disappear when a sudden bulk fund arrive in their hands? We have seen many licensed non-governmental organisations (NGOs) or unlicensed collectors who had disappeared after collecting huge sums of money from the poor rural depositors. "Jubak" and "Kajal" syndicates are very infamous examples in this respect as reported in various news media.
The fastest remittances are performed by 'Hundi' or 'Hawala' entities. They not only give better rates to the recipients but also complete the remittance within hours. But these types of remittances are unlawful as not only black money is nourished in this way but also terrorism and drug business are facilitated by the 'Hawala' operators. How mobile operators could protect their system against these abuses if their systems are used as a vehicle by these local 'Hundi' or international 'Hawala' entities? Fortunately, 'Hundi'/'Hawala' entities do not use bank as their vehicle of operation due to fear of being caught at the bank's anti-money laundering checkpoints.
4. Opening Pandora's Box: If remittance license, either inland or overseas, is given to any mobile company, there will be many more pressure groups trying to get similar license in their favour. In a pressure-oriented country like Bangladesh, the Government sometime succumbs to such pressure. Therefore it is likely that other groups like ISP, PSTN, Cable operators wimax and other concerns like money remittance houses (western union) or credit card operators, etc., may wish to get such license. The whole remittance business could thereby become diluted, unreliable and uncontrollable by any authority.
5. Example of the Philippines and a few other countries: Mobile companies cite examples of the Philippines which has licensed mobile companies for remittance services. The Philippines, one of the top ten foreign remittance receivers in the world, is composed of thousands of islands surrounded by boisterous seas and a rugged and inaccessible terrain. The Philippines is the largest supplier of seamen in the world, who mostly hail from the islands, and out of the country's 27 billion dollars remittance, about 3.0 billion dollars come from the sailors.
The Philippines has 23 local and 18 foreign and subsidiaries of foreign banks. ROE (return or equity) of banks in the Philippines is less than 5.0 per cent and due to very aggressive banking by foreign banks, local banks are looking for consolidation and merger instead of expansion. Banks in the Philippines therefore could not infuse huge funds to establish unlimited number of rural branches. The Philippines government may therefore could to consider such unproven SMS-based mobile phone remittance service. South Africa and Kenya may also have similar geographical reasons to allow such mobile phone remittance.
Bangladesh, on the other hand, does not have such impediments. It is the most densely populated country in the world having plain terrain with easy accessibility anywhere and banks have enough ROE (about 30 per cent) to put further investment to set-up branches /booths in any part of the country to cater to the need of remittance services and other banking services at the same time if allowed by Bangladesh Bank.
The solution: Now we have to find out a plausible solution as how to transact money at the fastest pace and with least cost both for inland transfers and overseas remittances, without breaking the law and. The solution may be given in two ways:-
a. In the 11th September 2008 issue of the Daily Ittefaq the incumbent Governor of Bangladesh Bank, Dr. Salehuddin Ahmed, a modern of economics, wrote an informative article regarding success of Bangladesh Bank through various reforms in the banking sector. It is an excellent article from an economist icon. There he mentioned that Bangladesh Bank itself has undertaken clearing house automation and electronic payment system which will greatly shorten the money transfer time.
Also to expand the SME banking services throughout the country, Bangladesh Bank will allow banks to set up SME service centres. Banks will now have access to rural areas with insignificant capital investment. Thousands of such centres and their satellite booths could be established by all banks and could engage these SME centres and booths to transact remittances which will hasten the remittances and will also ease the cost of remittance. Simultaneously these rural centres could also cater to the other banking requirements of the terminal farmers and micro entrepreneurs to boost agri-production and micro industrial output.
Banks could utilise other services like government postal service, reliable NGOs to extend the number of outlets under the umbrella of the banking platform. These measures could hold back the need to use mobile phone outlets for the transaction of money.
b. The second choice for bank is to have electronic gateway arrangements with mobile phone companies so that bank's remittance transactions could use mobile phone services as a vehicle of transaction only. In this way, banking backbone will remain intact and all transactions would remain under legal and accounting cover of individual banks. However in such cases instead of unreliable SMS services, banks must use proven tele-technology used in Japan and the U.S.A. which would eliminate any doubt in such transactions.
The writer is ex chairman, Prime Bank Ltd. The opinion or comments reflected in this article are purely personal observation of the writer without any prejudice to any entity mentioned therein
IN Shakespeare's play The Merchant of Venice, the shrewd money lender Shylock dispatched a loan to the desperate merchant Antonio against a security of one pound of his flesh as Antonio had nothing else to comfort. Even though Antonio's ship sank and he lost everything, defiant Shylock demanded Antonio's flesh but failed due to Antonio's canny lawyer who discovered a loophole in the contract and advised Shylock to cut out one pound of Antonio's flesh without shedding a drop of blood and the weight of flesh must be exactly one pound no less, no more. Shylock lost his money and his contracted security became useless.
Above paradigmatic drama is focused here only to underscore the vulnerability of banking system which therefore must be protected under the cover of strict regulatory safety blanket and continuous training and upgrading of banking skills of the workforce.
Extremely conservative but formidable working system of a bank was developed after hundreds of years of experience, regulatory changes, research and thoughts of thousands of experts from various disciplines in various countries. The tough banking ethics, discipline and rules must not be strayed, nor should it be allowed to succumb to any abrupt changes in the name of liberalisation or modernization or to support any political demagogue or any unproven technological breakthrough.
Recently, a few over-enthusiastic entities are pursuing vigorously some unprecedented, unproven and radical reforms with Bangladesh Bank to consider granting of license to the Mobile Phone Companies to handle local money transfer and remittance services of non-resident Bangladeshis (NRBs) and other Bangladeshi diaspora. The reasons for such licensing are to expedite the transfer/remittance process so that beneficiaries could receive their funds in their hand within the shortest possible time and with minimum service charges. It looks like a very exciting idea, but it would become a threat and a myopic psychosis for the traditional banking systems. This scribe would like to put across the following reasons in support of his view.
1. National Security: a) Scheduled banks and financial houses (Merchant Banks etc.) are providing their services under UCP-600 and Bangladesh Bank's and Securities and Exchange Commission (SEC)'s rules and regulations. Banks cannot deviate from or defy such rules due to strict monitoring of Bangladesh Bank on all of their day-to-days affairs. Misadventures to flout banking norms give rise to collapse of a bank like BCCI Bank, Al-Baraka/Oriental Bank etc. BCCI had network all over the world but collapsed due to money laundering activities while century-old British Bearing Bank collapsed due to misadventure of one of their Singapore offshoot employee Nick Nelson's speculative investment of bank funds into the stock market. Bangladesh Bank's takeover of Oriental Bank was due to a number of breaches of banking rules to provide fictitious loans. Timely action by Bangladesh Bank saved Oriental Bank and management is handed over to a new set of management.
During the dreary years of 2007 and 2008, the ghastly typhoon Katrina and Ike devastated the U.S. Gulf coast. Similarly deluge of losses hardly hit a number of US banks, sub prime investment companies and insurance companies which also collapsed. As if like dominoes, the strong US investment Bank like Lehman Brothers, Fannie Mac and Freddie Mac, Merrill Lynch, Bear Stearns and Insurance giant AIG also collapsed. In all these cases, it could be easily observed that they strayed out of normal banking norms and poured out unsecured loans to shore up the populist policy of Bush administration. The US Treasury, Federal Reserve and SEC also nodded to such deviations in the context of free market policy. In the UK, Halifax Bank of Scotland also collapsed. Morgan Stanly and Golden Shacks were also battered by recent financial crisis. Many other European Banks and finance houses also suffered due to their heavy investments in these institutions and due to unprecedented drop in share prices in New York and other stock exchanges around the world. Merrill Lynch - once a financial bull was purchased by Bank of America. Insurance giant AIG was rescued by the US Federal Governments. The central banks in the USA, UK, Europe and Japan had to haul in billions of dollars and a buffer was made to save some of these institutions but much more "bail out" funding may be required to avoid the catastrophic financial disasters around the world due to the "ripple effect" of the American financial capsize. The reality is, ultimately it is the people who will pay for these losses through new taxes or inflationary mitigations. Unlike the U.S. and U.K, Bangladesh Bank's audit and monitoring controls are very strict on banking system which saved us from many such disasters.
In case of handling remittance, banks, therefore, are the only tool the government and the people could rely upon since every transaction of remittance is well documented both in electronic and print systems. The chances of misappropriation are unlikely. All remitted foreign currency are disclosed to Bangladesh Bank and thereby the valuable foreign currency remains well secured with clarity in lawful transactions and utilizations;
b) In case of mobile phone companies, such security is unavailable and even those companies may not follow Bangladesh Bank's set guideline as these are registered with Bangladesh Telecom Regulatory Commission (BTRC) and not with Bangladesh Bank. Moreover, their loyalty to follow local laws remains questionable since these are not owned by Bangladeshis and like all other foreign investments, their primary aim is not charity or loyalty but to make money as quickly as possible and encash their capital and profit.
We have witnessed how these companies flouted money laundering act by operating illegal VOIP and, when caught paid fines in millions of takas. These fines may be the tip of the iceberg. Huge foreign currency may have already been illegally transferred with the operation of VOIP, but may not have been reflected in the books of accounts. VOIP operators get their funds in foreign currency from tele-exchange houses based in New York. Therefore, illegally earned foreign currency could easily escape local books of accounts. The moral integrity of mobile telephone companies is still questionable since VOIP is yet rampantly continuing through their system and they are already engaged in transfer of inland funds through so called "Flexuload"/ "Topup" prepaid system.
2. Security of the System: a) Even after decades of operation and use of fibre optics, terrestrial or satellite transmission, mobile calls are not perfect in terms of transmission and reception. Cross-connections, loss of call in the midst of conversation, attenuation, weather hazards etc., often disrupt and disturb the mobile communications. Data transmissions could also be similarly disturbed. Unwanted and cross connected SMS are often received in mobile phones. Banks have firewalls in their system to prevent such mistakes of electronic disturbances and also have non-destructive electronic archive as a second line of defence.
Therefore any remittance whether inland or overseas whether inward or outward through banking systems is well recorded, proven and dependable than the unknown and unproven domain of mobile phone system. A remitter of foreign or local currency could be 100 per cent confident that his money will not be lost on the way and will reach the hands or accounts of the right receiver. Banks are taking great care to make e-banking and e-commerce a foolproof, sound and formidable system with no tolerance to any error within the bank or during interfacing.
b) Hacking or cracking: Any electronic systems using software, computer or hardware are vulnerable to hacking or cracking by hackers or crackers. Recent hacking of the database of the elite security force RAB was not performed by experts but by a few juvenile delinquents. In mobile phone system, too, hacking may be caused by high tech experts and by peccadillo transgressors to divert part of the cake from remittance transactions for their own benefit. It is happening in the credit card system even though credit card operators have installed various devices to counter such hacking or misuse of credit cards, for which they spent millions of dollars. How could we expect local mobile companies to spend so much money to protect their system against these high-tech evils and other weaknesses of the system?
3. Money laundering/black money: This is the most crucial issue in case of remittance services. One of the prime arguments highlighted by the mobile phone operators is that, they will quicken the remittance process faster than banks. In future with some similar argument they may seek licence for e-banking and e-commerce. Our currency is tied with U.S. dollar and therefore any legal remittance, be it small or big, must go through New York clearing system. It may take 24 hours to 72 hours depending upon weekly or other holidays in New York and Bangladesh.
How faster could mobile operators perform only because they have thousands of outlets. But the fact is that these are not owned by the telephone companies but by private individuals or companies having no knowledge of money laundering, and who could be sure that they would not disappear when a sudden bulk fund arrive in their hands? We have seen many licensed non-governmental organisations (NGOs) or unlicensed collectors who had disappeared after collecting huge sums of money from the poor rural depositors. "Jubak" and "Kajal" syndicates are very infamous examples in this respect as reported in various news media.
The fastest remittances are performed by 'Hundi' or 'Hawala' entities. They not only give better rates to the recipients but also complete the remittance within hours. But these types of remittances are unlawful as not only black money is nourished in this way but also terrorism and drug business are facilitated by the 'Hawala' operators. How mobile operators could protect their system against these abuses if their systems are used as a vehicle by these local 'Hundi' or international 'Hawala' entities? Fortunately, 'Hundi'/'Hawala' entities do not use bank as their vehicle of operation due to fear of being caught at the bank's anti-money laundering checkpoints.
4. Opening Pandora's Box: If remittance license, either inland or overseas, is given to any mobile company, there will be many more pressure groups trying to get similar license in their favour. In a pressure-oriented country like Bangladesh, the Government sometime succumbs to such pressure. Therefore it is likely that other groups like ISP, PSTN, Cable operators wimax and other concerns like money remittance houses (western union) or credit card operators, etc., may wish to get such license. The whole remittance business could thereby become diluted, unreliable and uncontrollable by any authority.
5. Example of the Philippines and a few other countries: Mobile companies cite examples of the Philippines which has licensed mobile companies for remittance services. The Philippines, one of the top ten foreign remittance receivers in the world, is composed of thousands of islands surrounded by boisterous seas and a rugged and inaccessible terrain. The Philippines is the largest supplier of seamen in the world, who mostly hail from the islands, and out of the country's 27 billion dollars remittance, about 3.0 billion dollars come from the sailors.
The Philippines has 23 local and 18 foreign and subsidiaries of foreign banks. ROE (return or equity) of banks in the Philippines is less than 5.0 per cent and due to very aggressive banking by foreign banks, local banks are looking for consolidation and merger instead of expansion. Banks in the Philippines therefore could not infuse huge funds to establish unlimited number of rural branches. The Philippines government may therefore could to consider such unproven SMS-based mobile phone remittance service. South Africa and Kenya may also have similar geographical reasons to allow such mobile phone remittance.
Bangladesh, on the other hand, does not have such impediments. It is the most densely populated country in the world having plain terrain with easy accessibility anywhere and banks have enough ROE (about 30 per cent) to put further investment to set-up branches /booths in any part of the country to cater to the need of remittance services and other banking services at the same time if allowed by Bangladesh Bank.
The solution: Now we have to find out a plausible solution as how to transact money at the fastest pace and with least cost both for inland transfers and overseas remittances, without breaking the law and. The solution may be given in two ways:-
a. In the 11th September 2008 issue of the Daily Ittefaq the incumbent Governor of Bangladesh Bank, Dr. Salehuddin Ahmed, a modern of economics, wrote an informative article regarding success of Bangladesh Bank through various reforms in the banking sector. It is an excellent article from an economist icon. There he mentioned that Bangladesh Bank itself has undertaken clearing house automation and electronic payment system which will greatly shorten the money transfer time.
Also to expand the SME banking services throughout the country, Bangladesh Bank will allow banks to set up SME service centres. Banks will now have access to rural areas with insignificant capital investment. Thousands of such centres and their satellite booths could be established by all banks and could engage these SME centres and booths to transact remittances which will hasten the remittances and will also ease the cost of remittance. Simultaneously these rural centres could also cater to the other banking requirements of the terminal farmers and micro entrepreneurs to boost agri-production and micro industrial output.
Banks could utilise other services like government postal service, reliable NGOs to extend the number of outlets under the umbrella of the banking platform. These measures could hold back the need to use mobile phone outlets for the transaction of money.
b. The second choice for bank is to have electronic gateway arrangements with mobile phone companies so that bank's remittance transactions could use mobile phone services as a vehicle of transaction only. In this way, banking backbone will remain intact and all transactions would remain under legal and accounting cover of individual banks. However in such cases instead of unreliable SMS services, banks must use proven tele-technology used in Japan and the U.S.A. which would eliminate any doubt in such transactions.
The writer is ex chairman, Prime Bank Ltd. The opinion or comments reflected in this article are purely personal observation of the writer without any prejudice to any entity mentioned therein