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Last Updated: Thursday, 8 May, 2003, 07:56 GMT 08:56 UK
Bangladeshi bank tackles illegal money

Alastair Lawson
BBC Dhaka correspondent

Bangladeshi women wading through flood water
Hundi reaches into the remotest areas

For decades, the Hundi system of money transfer has been the fastest way for expatriate South Asians to transfer cash to their relatives back home.

A payment is made in Europe or the Gulf to a middleman and usually within 24 hours the recipient gets the money in India, Bangladesh, Pakistan or Sri Lanka.

It is fast, efficient and has stood the test of time.

There is only one problem. It is illegal in all the countries concerned.

New contender

Now the Hundi system is being challenged by a Bangladeshi bank that claims it can deliver money just as fast but legally.

If cash is sent through a normal bank there's lots of officialdom and bureaucracy to overcome and we can wait up to ten days to receive our payments
Morzina Akhter

Down a dirt track near the town of Comilla in central Bangladesh, Morzina Akhter is sweeping her front yard when BRAC Bank's motorbike courier roars up with a consignment of money from her relations in the Gulf.

Ms Akhter's money has been sent under the Secured Easy Remittance Service, or SERS, which was set up by BRAC Bank earlier this year.

If this system of money transfer catches on, it could bring an end to the centuries old Hundi network.

National network

BRAC is one of the country's largest Non Governmental Organisations, with offices all over Bangladesh.

That, says BRAC, puts it in a good position to out-perform the Hundi system by delivering remittances from abroad to remote locations just as fast, but legally.

Ms Akhter is impressed by the new system.

"If cash is sent through a normal bank there's lots of officialdom and bureaucracy to overcome and we can wait up to ten days to receive our payments," she says.

"But this new system is much more efficient and convenient. As soon as we are informed that some money has been sent, it's delivered to us in our villages with the minimum of paperwork."

The Hundi system has flourished because it is quick and simple, involving a network of middlemen who deliver the cash in return for a commission.

Economic damage

But Hundi is illegal because it undermines official exchange rates.

Student clerics in Bangladesh
Hundi has come under fire for suspected Al-Qaeda links

Bangladesh's banking system is thought to lose about $240m (150m) a year because money is not being transferred through official channels.

Critics say that Hundi is also used to shift laundered money from extremism and crime.

"To overcome the Hundi system, we have to create the motivation among the people who are getting money from abroad," says BRAC Bank spokesman Sirajuddin Mondol.

He says the bank is "trying to mobilise the people against the Hundi business" because it is "bad for the people, as well as the country also".

Challenge to change

With about 40% of foreign remittances entering Bangladesh through Hundi, he admits it is "a big challenge".

Economist Debapriya Bhattacharya also believes the Hundi system's future is uncertain because of its association with crime.

As South Asian economies grow, he says, financial regulations and law enforcement will become tighter.

"The Hundi system is going to reduce over time because of the sheer logic of economics," he says, citing improved institutions and better management of the exchange rate.

"The issue is that it should not play a major role in the mainstream transaction process and should not create a disincentive for the normal market players to invest and also make savings."

This he sees as more important than rumoured links to crime, saying drug money can "pass through any country...under the current globalised system".

But many villagers are reluctant to trust a bank to step into Hundi's role, remaining doubtful that it could deliver as quickly or as efficiently.

While such views persist, it seems that Hundi, even if it is illegal, will remain as important as ever in rural Bangladesh.

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