The economy of Bangladesh is under the grip of totalitarian Hundi. No matter how hard you try, poisoned arrows can’t be put on the body of this economy Kheko Hundi – no friend’s bullet can be put on it. Swallowing continuously is swallowing. The concerned are not able to do anything despite being active. Because its panicles are big and strong and the roots extend far. What are you saying, dear readers – want to know about the background of Hundi? Yes, I am talking about Hundi. Just as the wife of a horse is a kite, so the wife of a horse is a hundi, but it is not. Structurally it is little more than an informal piece of paper (bill of exchange) book. But the magnitude is much higher. However, speaking metaphorically for so long, let’s see what is hundi, what is its nature and why has it crippled our economy in such a big fearsome paw?
Hundi is the transfer of money from one place to another, usually through non-banking or unauthorized channels, through various tricks and intermediaries, avoiding the eyes of government revenue and law enforcement agencies. Hundi is a monetary system that originated in the medieval Indian subcontinent for use in trade and credit transactions. Generally Hundi is a medium of remittance system for sending money from one place to another, used as instrument of credit as money-debt-payable or IOU and bill of exchange in simultaneous trade transactions. And it is also called informal document of commercial exchange and transaction.
Actually money is transacted between two parties or individuals through Hundi. Hundi activities have been going on since ancient times. At one time hundi was legal and safe. It’s still safe, but not legal. In the 8th century, trade was carried out on the Silk Route from China to the Mediterranean. It was not safe to carry cash or anything valuable back then for fear of robbery. And from that time the spread of hundi.
Actually Hundi or Hawala is same phenomenon. The word hawala comes from Arabic. And hundi comes from the culture word hund, which means to collect. The word Hundi is used in our country. And in the Middle East and Africa the word hawala is common and means transaction or sending something. Incidentally, the people of the Indian subcontinent at that time were so simple and open that a stranger did not hesitate to deposit money without a witness in a sarraf (so-called bank) in business transactions. However, in this case, only a note was received without a seal and an envelope. And later, if the person presented the note to the Sarraf employee Gomsta or agent at a place of his choice, he would get the money very easily without any argument or hesitation. In fact, this is one of the earliest words of Hundi in this country.
Historically, hundi was an informal money transaction developed under the Mughal economy. Basically Hundi is a financial document used in trade and credit transactions. The hundi was used as a means of remittance, lending and as a bill of exchange in commercial transactions. Strategically, it is a written unconditional order to pay a certain amount of money to another person as directed by one person. This hundi has no legal standing as it is part of the informal system. In this context, it may be noted that in the 17th century, land revenue or Khajna was sent from Bengal to Delhi through Kafil or bullock carts. This method was expensive and unsafe.
Furthermore, the remittance of royal money caused a currency crisis in the local economy. And because of this, the hundi market developed at that time. Interestingly, the hundi system did not only contribute to the rise of the money economy. Rather, it was helpful in military operations and long-distance trade. Moreover, establishing good commercial relations with foreigners was the most important contribution. In this case, the merchants of almost all the coastal countries of Europe come to this subcontinent for business. Then after establishing contact with the local traders, the hundi system created business opportunities for them. It appears that the Hundi house of Jagat Seth and Mahtab Chand was well known among the traders during the later Mughal period.
Due to the introduction of modern banking system in Bengal in the latter half of the 18th century, the Hundi system was not as important in the first half of the 19th century. But the hundi, which was once a safe money transaction system, is now a big problem for the economy. Apparently, during the colonial period, the British government considered the Hundi practice to be indigenous or traditional, but it was not institutionalized. They were even reluctant to interfere with it as it covered an important part of the Indian economy and they even wanted to impose a tax on transactions under the system. Interestingly, government hundis were created with revenue stamps bearing the portraits of British monarchs, including Queen Victoria, and disputes between traders often led to court cases. So many times this arrangement was carried out under cover of secrecy.
There are many types of hundi. However, the widely used hundi is of two types. For example: 1. Darshani Hundi and 2. Term Hundi. It may be noted in this context that darshani hundi is visible, which is commonly seen and is payable within a specified time after its receipt, similar to a demand bill. On the other hand, Muddati Hundi is payable after a specified period of time like Time Bill.
Now starting with the words mentioned in the first episode, which is – ‘Once upon a time, hundi was legal and safe. Now it is safe but not legal.’ A story comes to mind in favor of this. But I don’t know if the story is true or false. It may be noted from this source that a few years ago a friend said that the president of a government organization’s labor union earned around two crore rupees illegally. But when he became disillusioned with this black money, on the advice of a friend, his son (the president) was studying in a university in Australia. He sent the money to that boy through hundi. Later, after showing the expatriate income of the son, he returned the money through hundi and made it white or halal. This type of incident is happening behind the scenes.
In fact, earlier the activities of Hundi were suitable for that time, but now the bad side is more. Therefore, Hundi business is not seen well in any country. Incidentally, in response to a question, Finance Minister AHM Mustafa Kamal said that 51 percent of expatriate income in the country comes through formal or official channels, and 49 percent through hundi.
There is a subtle point here, that 49 percent of the expatriate’s relatives also receive money in hundi. But its cream (Cream) dollar becomes expensive. One more thing, from an economic point of view, a dollar is not a dollar. 25% more has to be added as shadow price. In any case, behind the subsequent popularity of the hundi program, it is noted that expatriates are interested in sending money to the country outside the banking channel to get a higher rate of dollar. Others say that when the demand for dollars in the country is high, the hundiwalas take this opportunity. Frankly, money laundering is a serious threat to an economy. Millions of rupees have been smuggled out of this. In this case, a traditional economist said, this developing economy would have been faster if money or capital was not smuggled. And in terms of trafficking, almost economist blames Hundi.
However, the current Bangladesh Bank governor said that the amount of money laundered through Hundi is 10 times more under the cover of trade (over invoicing and under invoicing). Incidentally, it should be noted that there is no scope for underestimating the issue of inflation in Bangladesh due to the fact that the economic parameters are closely related to each other. Prices of food items, especially vegetables including potatoes, onions, peppers and eggs, are on the rise. However, the indirect role of negative activities of Hundi cannot be ruled out. Of course, many people talk about syndicates.
The current hundi business is booming. Joe Liu Shi, senior economist of the World Bank’s South Asia Department and consultant Xiao Xu wrote about this, recently many countries in South Asia have imposed various restrictions on the use of foreign currency to maintain their foreign currency reserves. But it has backfired and the crisis is getting worse as a result. In this regard, they wrote with the example of Bangladesh, when the government imposed restrictions on foreign exchange. Then demand and requirement of hundi increased.
In particular, small importers become dependent on hundi when the obligation to open an import letter of credit or LC is imposed. Then due to the purchase of dollars at a higher rate, the transaction of hundi is facilitated. According to this source, the dollar rate is determined by the Bangladesh Foreign Exchange Dealers Association (BAFEDA) and the Association of Bankers Bangladesh (ABB), the organization of the top executives of the bank, according to the instructions of the Bangladesh Bank. But as the dollar price in the market is higher than the fixed dollar rate, the activities of Hundi have become active. However, many banks ignore the restrictions and buy dollars at higher prices. Because if you want to buy dollars at the fixed rate, it is not possible to buy remittance dollars due to high prices in the market. Then they went to the hinges of Hundiwala. In this case, frequent decision changes and lack of coordination made it even more frustrating.
To be honest, one of the main factors that put pressure on the reserves is the collapse of the hundi. According to this source, I saw in the newspapers on 08.11.2023 that the reserve is now at 19 billion dollars.
In fact currency devaluation or financial incentives are not sufficient measures to bring expatriate income into formal channels. Because if the local currency is weak. In that case, government rates may be attractive to expatriates in the short term even if financial incentives are provided to remit expatriate income. But it won’t work in the long run. In this case, till the availability of foreign currency to the common man is maintained, people will continue to lean towards the Hundi. Even with incentives and major devaluation of the currency, it has not been possible to bring expatriate income into formal channels. Therefore, first of all, the entire financial sector should be made transparent and accountable.
Opportunities for money laundering and money laundering must be stopped. In fact, this problem is as complex as cancer and difficult to solve easily. Meanwhile, transactions without proper documents are a punishable offense under the Money Laundering Act. But depending on the situation, stopping hundi through legislation or police raids appears to be just an illusion.
The curve of foreign exchange reserves of Bangladesh is downward sloping. Meanwhile, there is a severe crisis of dollars in the open market including the money market. Either way, expatriate income plays the most important role in increasing the amount of reserves. But Hundi is the big challenge in this regard. Organized gangs have been illegally laundering money through hundis for a long time. Even if it falls under money laundering, they are not paying any attention. To say that now both crises. Because there is a problem in implementing the fixed rate of the dollar. On the other hand, leaving it in the open market can cause instability. So many people say, in this case Hundi wins. Whatever the past, today hundi is an unethical business. Islam does not recognize this variant.
In reality, it is difficult to prevent the negative activities of hundi in developing and middle income countries. National election ahead. And it is usually seen during these elections, trafficking increases comparatively. In any case, I would like to say finally, to prevent the direct and indirect corruption of Hundi, all concerned including the money market should be on the move. Otherwise, it will be difficult to stop the economic collapse.
Md. Abdul Baki Chowdhury Nawab: Prominent researcher and author