Ashariah based bank, Union Bank Limited in a new comer in the industry. Fintech spoke with Gazi Mahmud Hasan, the bank’s head of International Division. Hasan provides interesting insights about remittance, how his organization is adopting powerful technologies and other related aspects of banking in this conversation. Here is an excerpt from the interview.
FINTECH: We know that remittance is vital for Bangladesh. What is the scenario in Bangladesh regarding remittance in comparison with other countries?
When we talk about remittance, we must remember that both inward and outward flow of money is considered as remittance. Trade remittance and personal remittance also fall under the category of remittance, if I export some goods, the dollar I receive is remittance as well as the dollar that leaves the country when I purchase imports.
Broadly speaking, we do not include trade remittance when we talk about only remittance in various countries in the world. So remittance means the hometown remittance in general, the money sent by wage earners and non residential Bangladeshis. Considering our foreign currency reserve as developing country, we are quite restricted in terms of sending or giving remittance. We are primarily focused on bringing or receiving remittance and how to make the base even stronger. I was reading in the newspaper that in July-August, our balance of trade is negative, and the remittance is a very important factor in our balance of payment.
In the Observer, I read that Bangladesh’s trade deficit crossed $2 billion in July-August. Our imports have risen at a much higher rate than the exports. The main reason behind this is that our government is implementing some mega projects like the Padma Bridge and building power stations. You see, Bangladesh is a country of 16-17 crore people, which is 1600 people per square kilometre. I lived in Oman, so let’s use that example for comparison. The population density in Oman is 15 per square kilometre. So producers, especially those who are producing consumer goods view Bangladesh quite favorably. If only a single product becomes popular in the market, and if only four crore people out of 16 crore buy that product, that’s a really big deal!
Since we do not have the technology to produce capital machineries, we need to import them for our industrialization and many foreign companies are establishing factories in our country, bringing in raw materials, etc. So, the import base has broadened but in terms of exports, only garment export has increased while other sectors remain stagnant. Garment manufacturing is in a good position but due to the pressure of compliance from Europe and America, nearly 200-250 factories have shut down in the last few months. So that is why remittance is a very important factor in Bangladesh.
Bangladesh Bank will execute all the financial counseling and suggestions of the government and it is also concerned about remittance, how it can be increased. As a remittance recipient country, Bangladesh is in the eighth or seventh position. The amount of remittance being received is pretty good but it dipped for a while. And it is absurd to think that ‘hundi’ can be totally eliminated but the commercial banks as well as the Central Bank are trying to reduce it as much as possible. We are doing whatever is needed to tie up with exchange companies in order to expedite remittance, even indirectly as sub-agents. For example, South East Bank is the agent; we are South East Bank’s sub-agent. We bring in remittance and distribute through 10 exchange companies. In the remittance business, you know that there is awareness on this issue since many Bangladeshis are working abroad, some newspapers say 80 lakh, some one crore. So between 80 lakh and one crore people are working abroad, and they send back their hard earned money.
Most of the people are working in the Middle East and that is why remittance is sent back to Bangladesh. Those who become settled in Europe and America, they don’t really send back money every month because they have a target to buy property for their children, buy a house in Virginia, etc. When I was in Oman for six months, I saw that the hard earners will always send back money and since there is no future in that country in terms of citizenship, the wage earners who went there have this target to build a house in their village, open a business, rent out a building, etc. That is why most of remittance comes from the Middle East. Not only most of the workers from Bangladesh go to the Middle East but those who earn well want a future back home so they send money. Recently, Bangladesh Bank is trying to tie up with exchange companies so the money is send through the legal channels of banks and exchange companies and pressing us to reduce the cost. We, the banks do not take a single taka from the remittance beneficiaries. For receiving and distributing remittance, network should be the top priority. Out of the news banks, Union Bank has received the most remittance; in 2017 we received $ 26.61 million. The second highest figure for the new banks is way below ours; it is around $ 15 million while some have received only 2-5 million dollars. One of the main reasons for this is network distribution; we have 72 branches. So greater the branch network, greater will be the opportunity to distribute remittance. Being a direct agent also helps in this regard. Having a strong dollar base is an advantage as well.
FINTECH: It has been reported that Bangladesh is the fourth largest remittance source for India. What is your opinion about it and can you tell us why this is so?
The trade relationship we have with India is also affected by globalization. No matter what one says, nobody can stay immune from the wave of globalization. India is also a factor in this. Just like the way we are a big economy in terms of manpower, India is also a huge economy and a powerful economy. When economic power is combined with political power, it becomes an important factor. We cannot deny the fact that USA and Russia are superpowers, but China is competing with them and India is not far behind. India has the computer-based technology and most of the Indians can speak English. Let me explain this with an example. At Oman and United Arab Emirates, I saw that the Indians had started off like Bangladesh. There are six lakh Indians and just over five lakh Bangladeshis in Oman. The Indian labourers can speak good English, so when an Omani owner of a company wants to hire people, he will promote that smart labourer to the post of manager within three days. This is how the Indians are rising in different areas, not only those who are engaged in highly paid jobs after completing their higher studies but also people in the lower strata of the society as well.
Another aspect is that the Indians are not politically divided, for example in Oman, there is only a single organization called Indian Society. There are no other political platforms. On the contrary there are multiple political organizations of Bangladesh in Oman, one group cannot tolerate the other and is happy when someone from its rival political group is adversely affected, even though all of them are Bangladeshis. Our embassy is quite helpless in this regard because it is always busy entertaining government officials and those who are related with political party in power. That is why our embassy cannot effectively stand beside our migrant workers.
Quality education and technology have increased in India while many Indians are learning English; therefore the Indians have moved from low-paid jobs to better paid jobs abroad. You will find that Indians no longer do certain industrial jobs but Bangladeshis are doing them. Since India is our neighboring country and has a ‘big brotherly’ attitude towards us, there might be some jealousy but at the same time there is no reason for this jealousy. A small country takes advantage of the fringe benefits of being located beside a large country. Many Indians are now working in Bangladesh, in garment factories, buying houses, foreign banks, etc. This is why the remittance from Bangladesh will increase for a neighboring country like India. Many Bangladeshis are travelling to India for educational and medical purposes. The number of Bangladeshi tourists to India is also increasing. The cross-border trade is another factor and our trade with India will gradually increase. Since India is a huge country, their production capacity is also massive. In terms of export-import, our imports from India will outweigh what we can export to that country.
FINTECH: Can you tell us about the remittance services of Union Bank?
Remittance arrives in Bangladesh in two ways. In the legal way it is sent through banks and I won’t go into the details of the informal or illegal method. The formal remittance occurs when some dollar is sent to my master account; the master account receives foreign currency from abroad. This is the proper remittance and it is reflected in the balance of payment, balance of trade, etc. The remittance is sent bank-to-bank and through exchange companies across the country. Union Bank is not outside the purview of this process and has the bank-to-bank facility to transfer remittance. Union Bank also has the SWIFT arrangement which speeds up the bank-to-bank transfer process and makes it even easier. In this system no exchange company is involved. The exchange companies are now sending more and more remittance as they have set up booths in places like departmental stores abroad to facilitate the process. For receiving money through the exchange companies, it does not matter if you have an account or not, you just need a PIN Number, the entire process is very easy, safe, secured and prompt.
At Union Bank, we have all the products for remittance; you can receive money through a bank and we have tie-ups with 10 exchange companies, we are the direct agent with four while we act as the sub-agent with six exchange companies. Whether we are the agent or sub-agent, it does not affect at the beneficiary end. The 10 exchange companies we have tie-ups with are quite renowned, including Xpress Money Services Limited, RIA, Placid NK Corporation, First Security Islamic Bank Limited, Wall Street Finance Limited, Al Ansari, Cash Express, Western Union and so on. We have speedy-cash arrangement at Union Bank where if you do not have any account, you just have to provide the PIN Number to collect the money. As you know we have 72 branches, and from the time a branch begins to operate, we provide the remittance facilities at that location. From Union Bank, you can collect remittance through the speedy-cash arrangement, account credit holder using our software (in case of Union Bank), by BEFTN for other banks as well as the bank-to-bank system.
We are also thinking about increasing remittance, and to this end we have plans to set up remittance software which will save manpower. You may be aware that many types of compliance issues are involved with remittance; anti money laundering is one of them. When money is sent from abroad, it goes through a checking process, and here we have the UN sanctioned list, local bank list of seven companies, etc. The remittance software will help us control the money transfer properly and save time since many of the activities are done manually, especially when we upload the batch through exchange companies. The software will ensure error-free and faster execution and make it easy for us to provide the documents needed by Bangladesh Bank for remittance. Opening new branch at strategic locations is another method by which we want to increase remittance. And we are trying to tie-up with more exchange companies as well. When we will go for mobile banking, we want to introduce a remittance card.
FINTECH: Talking about technology, the technological disruption has hit Bangladesh. What are your plans with technology, what type of software are you using?
The Bangladesh Bank hacking through SWIFT was like a wake-up call in terms of technology and not only the Central Bank, we are all concerned about this matter. Even a few days ago, there was this feature on money siphoned off from a bank in India. So, for technological protection, we have expanded the ICT division and gave it a large budget. The head of ICT division was replaced, the previous head of ICT division had only seven years of experience but the current one who graduated from BUET has 17-18 years of experience in the banking sector. People have been hired at the senior level and they have been equipped as well.
We have established a disaster recovery (DR) centre which will begin its operation in a few days. For remittance, since we receive dollars through the SWIFT system, we have hired experienced people in senior positions to provide greater protection for the system, and we are continuously doing whatever is necessary to ensure that. We have increased our participation in workshops that deal with this subject and we will be using this new sanctioned software soon for better protection. The sanctioned software will be in sync with our core banking software. Since we have already purchased the new software, we need to go training before we can install it.
Additionally, we have acquired new software from Venture Solutions Limited and they have explained our drawbacks at the execution level. We are coordinating our employees from the IT and Remittance Divisions with trainers from Venture Solutions Limited and we are hopeful that the remittance software project will be operational soon. The core banking software we use is very robust and it is also used by several other Islamic banks. Our board and the top management are quite concerned about the technological disruptions. Actually, you cannot really progress if you don’t move forward with technology. Our management is pretty young and realizes this aspect. Through technology, we can provide quick service and be equipped to face the global competition. Not only we have ATM machines in the branch, we have plans to set up such machines at the garment factories we finance. Our internet banking is at its mature stage. As a new bank we are adopting all types of new technologies that are available.
FINTECH: Union Bank has crossed six years. Where do you think Union Bank will be in the next six years?
From its inception, Union Bank has held the leading position among the new banks in this country in all aspects of banking, branch network, remittance, export-import, deposit, investment, etc. We are going through a challenging period where we cannot surge full speed ahead since compliance has become an important factor. We have to ensure many precautions before we make any investment since non-performing loans are increasing. But we are optimistic because the NPL which is a major impediment for the banking sector is quite negligible in our context. Since our NPL is extremely low, I am hopeful that Union Bank’s position in the next six years will improve.
We believe that we will be in a good position even as new banks in the pipeline become operational. I feel that our branch network is our competitive advantage and it will help us to move ahead in the future. If we can open 10-15 branches every year, after six years we will have over 100 branches all over Bangladesh. That will ensure a strong base for Union Bank. The service we provide as an Islamic bank and the strong base will help us to collect more deposits. In Bangladesh many people seek out Sariah-based Islamic bank, and serve this segment. Union Bank actively participates in all kinds of workshops and seminars that deal with the crucial issues of the banking sector like technology, compliance, etc. We hope that Union Bank’s position will rise in the next six years in relation to the new banks, and we will overtake some of the old banks by our performance.