Hundi or money carrier system is prevalent as informal procedure of remittance sending in most of the cases. Hundi refers to the illegal money exchange not supported by the international or national legal structure. The exchange rate offered by the hundi operators is 1-2% higher than the official exchange rate. They do not charge anything for transaction. It is the fastest method of transaction. In urgent situations this is the quickest method for sending money. The hundi operators provide door to door services. It was interesting to note that there are other social reasons for sending remittance through hundi. Few mentioned they send money to wives, fathers or brothers separately and preferred to keep the amounts sent secret, as it creates tension among the family members. Hundi provides the opportunity to maintain such confidentiality
A number of reasons have been attached to the growth of Hundi market. These include:
Financing smuggling of various items, including gold;
Existing tax regime leading to under- invoicing of imports;
Unholy alliance between officials of financial institutions and hundi elements;
Financing recruitment charges of the recruiters;
Difference between official and unofficial exchange rates;
Quality and speed of service;
Ability to reach clients both in destination countries and in the source countries.
Technically, a
Hundi is an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order. Being a
part of an informal system, hundis now have no legal status and were not covered under the Negotiable Instruments Act, 1881. They were mostly used as cheques by indigenous bankers.
Foreign remittance sent by the wage earners and other expatriate Bangladeshis to their families and relatives
at home
are growing rapidly
and
now contributing a major portion
of income earned by Bangladesh from abroad. The volume of remittance receipts by Bangladesh usually coming through official channels. But
the
unofficial
channels
are
still
playing a
major part intransferring the remittance, thereby depriving the government of a huge sum of foreigncurrencies every year.
Hundi a form of informal monetary instruments developed under the economic expansion and consequent monetisation processes of the Mughal economy. It referred to financial instruments used in trade and credit transactions. Hundis were used as remittance instruments (to transfer funds from one place to another); as credit instruments (to borrow money; and for trade transactions (as bills of exchange). Technically, a hundi is an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order.
'Hundis, being a part of the informal system have no legal status and are not covered under the negotiable instruments Acts of government. Though normally regarded as bills of exchange, they were more often used as equivalents of pay order cheques issued by indigenous bankers. The leading banking houses maintained kuthis or branch offices in various trading centres of the empire. The house of Jagath sheth is said to have maintained branch offices in all parts of commercial India. But their financial power began to decline under the impact of the establishment of the colonial rule in Bengal and became bankrupt by the end of the eighteenth century.
Hundi was, and still is, a private mechanism to transfer money from one place to another. It also served as a short-term commercial credit. Though hundi was a private mechanism of transferring money, the Mughal imperial fiscal officials frequently used hundis for transfer of funds from one region to another. The nobles and provincial mansabdari used hundis from their jagirs to their stations.
Black market money exchanges remain popular because of the limited convertibility of the local currency, cash-based economy, and scrutiny of foreign currency transactions made through official channels. Alternative remittance and value transfer systems also are used to avoid taxes and customs duties. Additional terrorism financing vulnerabilities exist, especially the use of non-governmental organizations (NGOs), charities, counterfeiting, and loosely-regulated private banks.