Outbound Payments: Missing link in remittance boom

Farrukh Khosru :Bangladesh is among the world’s leading recipients of remittances, expected to receive more than $30 billion by 2025.

These inflows are crucial for both household consumption and foreign reserve stability.

However, economists argue that the persistence of restrictive outbound controls is inadvertently undermining formal inflows. Hundi operators routinely “net off” outward and inward transfers, reducing the amount of money that passes through banking channels.

Demand for outbound transfers has been rising sharply across multiple sectors. Small and medium enterprises (SMEs) engaged in import trade often require direct payments to suppliers in China, Malaysia and Indonesia.

Imports in FY2024-25 totalled$64.4 billion, with SMEs accounting for an increasing share. Without efficient banking options, many turn to Hundi to maintain supply chains.

“Outbound payments are not a drain – they are part of a two-way system,” said a financial sector observer. “Formalising them would create a healthier balance, benefiting both the economy and ordinary citizens.”

Analysts estimate that if Bangladesh modernises its outbound payment regime, remittance inflows could rise from $ 30 billion to $45 billion by 2025. This would strengthen reserves, improve compliance, and give policymakers better data to manage the economy.

The problem extends well beyond trade. In the IT and freelance industry, businesses frequently need to pay for cloud services, software, and training. Yet complex documentation and delays in the banking system make it easier to rely on informal channels or third-party accounts abroad. This undermines both transparency and foreign exchange stability.

Education and healthcare add further pressure. Around 106,000 Bangladeshi students are currently studying abroad, with annual tuition payments estimated at $ 2 billion. At the same time, nearly 350,000 Bangladeshis travel overseas each year for medical treatment, mostly in India, Thailand and Singapore, generating around $3 billion in outbound flows.

Outbound tourism and religious travel also add up. Approximately two million Bangladeshis spend over $1 billion on foreign trips annually, while Hajj and Umrah expenditures contribute an additional $600 million. Moreover, expatriates working in Bangladesh remit around $1 billion abroad in salaries and savings.

Official data highlight the depth of the issue. In 2023, only $211 million in outward remittances were recorded through banks, while market estimates suggest the actual figure was between $5 billion and $7 billion. That means nearly 96 per cent of transfers left the country informally.

Economists caution that this reliance on Hundi distorts foreign exchange markets by driving up demand for dollars domestically while creating parallel demand for Taka abroad. This dual pressure undermines exchange rate stability and reduces formal remittance inflows.

“Bangladesh is losing twice – formal inflows are reduced, and currency volatility worsens,” one economist noted.

Experts argue that the solution lies in controlled liberalisation rather than tighter restrictions. By simplifying procedures for legitimate outward remittances – covering tuition, medical expenses, business payments and travel – the government could both strengthen oversight and encourage use of official channels.

Proposed reforms include creating a “personal outward remittance” category using digital KYC and e-documents,streamlining paperwork for permissible transfers like education and healthcare, increasing transparency in bank fees and exchange rates and expanding digital and fintech payment networks alongside SWIFT.

Other countries offer models. India’s Liberalised Remittance Scheme allows residents to remit up to $250,000 annually for education, healthcare, travel and investment. Thailand has gradually relaxed outbound payments to support SMEs. Both have seen reduced reliance on Hundi.

For Bangladesh, the challenge is to strike a balance between protecting reserves and adapting to the realities of a globalised economy. Without reform, the Hundi network will continue to dominate, with costs that go far beyond lost revenue.