HUNDI is the diversion and selling of the foreign currency earned by expatriates, and is thought to be a major vehicle for financing of terrorism. In Bangladesh, hundi is practiced not for profits or for servicing terrorism, but because of the absence of a workable system for managing remittance.

At the behest of the donors, the govern -ment adopted the Anti-Money Laundering Act, which is a replication of an act that the US designed to curb transfer of sale proceeds of drugs to Latin American countries by routing it through banks in Caribbean countries. Such routing tactics conceals the source of the money. In other words, it launders (washes) the illegal sale proceeds (black money) from drugs. The scenario is not the same in Bangladesh. Rather, it is the other way round. White money, earned by our migrants, is being diverted (blackened?) to enter the country in an informal way (hundi) because systemic inadequacies like lack of short loans, difference in exchange rates, undocumented visa status of senders, etc. Not surprisingly, the American model of Anti- Money Laundering Act proved largely ineffectual.

The depth and reach of hundi is amazing. 8 out every 10 interviewed expatriate workers confirmed that they send money through hundi. Though no data is available, it will not be a surprise if such unofficial remittance is twice the official figure.

About 70% of the official remittance comes from our workers in Middle East countries. Unlike the diaspora in developed countries, the Middle-East based

low-end migrant workers send home almost all their earnings every month, be it through hundi or through banks.

The principal hundiwalas in major cities collect money through a network of sub-agents in remote towns. He sells the collected foreign currency to various users, like recruiting agents who have to pay for visa purchases, to smugglers, to patients seeking treatment abroad, to politicians and bureaucrats who need to stash away ill-gotten money abroad, to importers who under-invoice the imported items, to arms and drug peddlers, to anybody who otherwise finds it difficult to obtain foreign currency. He is an invaluable man! More invaluable he will be the more we veer towards an opaque economic system and corruption. He is not concerned about the use of the currency he sells to the clients.

There are compelling reasons why many of our expatriates choose hundi for sending their money. The hundiivala pays the remitter a higher rate than the official exchange rate, as they can charge higher rate from their clients and retain a nominal commission. High volume of transaction justifies the marginal profit.

They allow minor credit to grassroot level remitters. It is very convenient and informal as a hundiwala's agent is always available next door even in remote corners. Such convenience, that no financial institution can beat, and personal relationship play a major motivational role for a remitter to opt for this mode of transfer.

Our government's efforts at fast-tracking remittance have only made a scratch in the whole system. High bank charges for small remitters have a dampening effect. Except in emergencies, delivery within hours is not the main attraction for usual remitters, as they get fast service from hundiwalas also.

The pragmatic solution lies in transforming the vast and intricate network of hundi to our advantage. The government's policy of cracking down on hundi operators in the country is creating more social evils than benefits to the exchequer. Curbing of inter-bank transactions has forced physical cash movements across the country, especially to Sylhet and Chittagong, the major destinations of hundi money.

The carrying of large amounts of cash has attracted hijackers, who prowl around to locate the carriers. There are innumerable instances of hijacking of hundi money in transit that are not reported to police simply because the victims cannot explain how they got so

much money. Nobody wants to jump from the frying pan into the fire!

Hijackers are engaging all their talents in hunting down carriers of hundi money. It's a "wolf and the hare" game going on. Think o| the HTt\p ara hl e < .s o c ial > damage • । such "noose tightening" is creating. Instead of stopping hundi operations, it is depriving banks from earnings and fanning social anarchy.

We must address this problem with an open mind. If we can bring the sprawling network of hundi operators under discipline, it can do wonders. How much does a hundiivala earn in this extremely risky business? Maybe 1.5% to 2% of the total transfer. What happens if the government allows them, or for that matter whoever remits funds (in cash, TT or draft) beyond a certain minimum level, one to two percent cash incentive across the bank counter without asking any questions?

To keep regular remitters beyond the net, a benchmark of a minimum amount, say $1,00,000, may be fixed per transfer to qualify for cash incentive. A risk-free one or two percent commission can be attractive to the hundiivala. He will enjoy economics of scale and his clients will be comfortable too as their privileges will remain unhampered. The catch is not to ask about the source of such funds.

In pre-budget discussions, wise men are talking of welcoming black-money, of allowing Th 6,000 crore cash dole outs to industrialist now in case they face problems "in future," and this reform can empower the gpy^nv^V -WWPuvej-ability immensely at very little subsidy.

Unfortunately, policy makers do not perceive the services sector as an export item. They forget that GATT was dissolved in 1995 to create WTO only to incorporate the services sector, which commands about 65% of global GDP. To qualify as an export item, it is not necessary that it must be solid, occupy space, and be visible.

Allowing the proposed incentive to attract the diverted earnings will be beneficial -- giving with one hand and receiving with the other. There is no gestation time, no costly opening of bank branches, and no fund allocation. All that is needed is an administrative order.

The whole issue needs closer scrutiny and open discussion among the policy makers. The history of hundi, which grew out of a basic need, goes back a long time. At least, our policy makers can try the above suggestion for, say, one year. If it works, we can say goodbye to a lot of irritation and dependence.

Mr Abdul Alim is a manpower exporter. E-mail: satrading8@yahoo.com.