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Remittance Optimization for Bangladesh 2.0: Turning Barriers Into Growth

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LightCastle Analytics Wing
October 3, 2024

The history of migration from Bangladesh dates back to the British ruling period during the 18th and early 19th centuries. [1] Sailors who served in the British merchant navy started migrating to port cities like Liverpool and London. During the post-World War II period, despite rigid policies and restricted movements, migration gained momentum to meet the surging demand for cheap labor in the United Kingdom. These sailors originated from the Southeastern and Northeastern parts of the country, including Chittagong, Noakhali, and Sylhet. Owing to these pioneers, the spirit of exploration grew within their relatives and peers, resulting in a transnational connection between Bangladesh and the UK. In the 1970s, after the Middle East became a major oil supplier to the world, opportunities for migration expanded further in the region. Saudi Arabia and the United Arab Emirates started welcoming a surge of unskilled and semi-skilled labor from various developing countries including Bangladesh to meet the rising labor demand. Bangladeshis were quick to cease such entry opportunity. In the post-independence era, remittances sent back home arguably stabilized the haywire economic engine and transformed the lives of millions in Bangladesh. [2] Over time, the stable growth of overseas employment and remittance flows has become an important pillar of the economy and is expected to remain so in the near future. According to UN estimates, more than 7.4 million Bangladeshis lived abroad as of 2020, and this number is projected to grow further. Even today, remittance is continuing its crucial role in advancing Bangladesh’s socioeconomic development, and directly impacts poverty alleviation, reduces unemployment, and enriches foreign currency reserves. In recent years, its role in maintaining the balance of payments was visible (even) in monthly fluctuations. Remittance earned by the cheap labor force is not only instrumental to the overall economy and GDP, but also serves as a major lifeline for many rural households in Bangladesh. [4] The lucrative opportunity for unskilled workers: For nearly five decades since independence, remittances have facilitated economic restoration with sustained momentum. For many unskilled laborers, overseas migration offers a way out of poverty and unemployment by creating opportunities to earn more with limited skills, leveraging favorable foreign exchange rates. As the number of migrant workers exploded, albeit less skilled, remittance sent home grew proportionally boosting foreign exchange reserves and expediting massive-scale economic development, particularly in the rural areas. The current rural economy is thriving, thanks to the flow of remittances sent home by migrant workers primarily from rural Bangladesh. This creates a ripple effect, generating market demand for goods and services as remittance recipients invest in small-scale businesses. This also presents an opportunity for the rural economy to enhance investment and income-generating activities, shifting away from consumption-focused and non-productive investments like land purchases and building houses. [8] In addition to the economic development of rural Bangladesh, the migration of cheap and unskilled labor force from different rural segments has developed a social trend of migration, influencing their relatives and neighbors to seek better opportunities with their limited skills. This practice has existed since the beginning of the migration from Bangladesh and has morphed into a social support mechanism by creating migration pathways that enable informal sourcing of migration information, connection with middlemen, and informal sourcing of funds. This has led to a more informal support system, with major players including middlemen, informal money lenders, relatives, and family members residing abroad. Although the system is agile in facilitating various service demands, it has become highly inefficient and exploitative in recent times. New migrants rely on this support mechanism despite the higher migration costs compared to the formal system. On top of that, existing bureaucratic hurdles discourage them from accessing services.

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Published BY: LightCastle Analytics Wing

At LightCastle, we take a systemic and data-driven approach to create opportunities for growth and impact. We are an international management consulting firm which creates systemic and data-driven opportunities for growth and impact in emerging markets. By collaborating with development partners and leveraging the power of the private sector, we strive to boost economies, inspire businesses, and change lives at scale.

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