Official statistics on Bangladesh’s forex position tell a fairly tidy story of reserves, remittance inflows, and a carefully managed exchange rate. Running quietly alongside that story is hundi, a trust-based transfer arrangement older than the country itself, in which money effectively moves without ever crossing a border. Workers in Riyadh, Dubai, or Kuala Lumpur typically hand local currency to an agent, and within hours a counterpart in Sylhet, Cumilla, or Chattogram delivers taka to the family back home. The transfer generally bypasses bank remittance records, and the foreign currency does not enter Bangladesh through that transaction.
Price is usually the deciding factor. Whenever the official taka rate sits well below what kerb dealers in Dhaka will pay for dollars, hundi operators can offer recipients a noticeably better deal than any bank counter. That spread became especially visible during 2022 and 2023, when exchange-rate controls kept official rates below informal-market rates while reserves declined. Overseas employment increased during that period, but formal remittance receipts did not rise at the same pace. For analysts watching the country’s foreign-exchange position, the mismatch between record worker departures and sluggish banking inflows pointed clearly toward money being diverted elsewhere.
Convenience and familiarity explain much of the rest. Rural households often live far from a bank branch, and many migrant workers abroad lack the documents, the time off, or the patience to queue at an exchange house after a long shift. Hundi agents, by contrast, frequently come from the same district or even the same village as their customers, and they deliver cash to the doorstep without forms, identity checks, or delays. In communities where reputation carries real weight, a local agent’s word can feel more dependable than an institution several hours away.
Inbound hundi payments often rely on corresponding demand for funds outside Bangladesh, and this is where the system grows more troubling for policymakers. The dollars gathered from workers abroad are typically sold to people who want money moved out of Bangladesh quietly. Common buyers include those funding overseas property purchases, settling import payments outside official banking channels, paying for education or medical treatment abroad, or shifting wealth beyond the reach of tax authorities. In effect, remittances that could support formal foreign-exchange inflows may instead help finance capital flight, leaving the official balance of payments weaker on both sides.
Authorities have tried several levers to tilt the incentives. A government cash bonus on remittances sent through banks, raised to 2.5 percent, aimed to narrow the price advantage of informal channels. Partnerships with mobile financial services sought to make formal transfers as simple as hundi, though regulators later found some mobile wallet agents themselves being used to settle informal payments, prompting account suspensions by the Bangladesh Financial Intelligence Unit. The adoption of a crawling peg in 2024 also mattered, because it allowed the official forex rate to move closer to market conditions and helped narrow the gap that hundi depends on. Formal remittances rebounded strongly afterward, reaching record levels in the 2024 to 2025 fiscal year, although changes in enforcement and financial oversight following the change of government may also have contributed.
Shrinking the informal channel, rather than abolishing it, looks like the more realistic ambition. Hundi survives on three things, namely price, access, and trust, and any lasting fix has to compete on all of them at once. If official rates drift away from the market again or formal services stay harder to reach than a neighbour’s agent, the shadow economy will simply expand to fill the space, as it has done for generations.