Islamic banking has grabbed the news headlines on the battlefield for remittance. Quoting a Bangladesh Bank report, a business daily said that the expatriates are more interested in sending remittances through Islamic banks than conventional ones. As a result, the market share of these Sharia-based banks in the remittance sector surged to approximately 35% in 2022, experiencing an impressive 46% year-on-year growth despite the challenges posed by the pandemic.

A particularly intriguing revelation that has captured the attention of bankers and market researchers is the recent achievement of Islami Bank Bangladesh PLC. As the country's first and largest Sharia-based bank, it has maintained its top position in remittance collection for the past 16 years. Last month, it made a new record in remittance earnings adding 12.5 billion USD to the country’s forex reserves that play a vital role in the economy.

The year 2023 ended with a positive trend in Bangladesh's remittance inflow, which surged by 17.06% to $1.99 billion in December 2023 compared to $1.7 billion in the same month of 2022, according to central bank data. Islami Bank alone collected expatriate remittances worth $5 billion in the year 2023 which is 23% of the total remittance of the country and industry people claimed that more than 50% of the country’s remittances come through Islamic banking channels.  The question is why Islamic banks continue to dominate the crowded battlefield of remittance—the lifeblood of the economy—and how long they will be able to sustain their impressive growth pace.

With this crucial question in the air, as journalists, expatriates, and bankers engaged in a table talk at the National Press Club, Mr. Abul Hossain, a Bangladeshi businessman residing in both London and Rome, brought a refreshing perspective. He remarked that Islamic banks are winning the hearts of remitters due to their innovative approach, including a profit-sharing business model, risk-sharing, asset-backed transactions, and a focus on NEED-based and welfare-oriented banking rather than GREED-based profit-centric banking. Money is not used as a commodity but rather a medium of exchange. Mr. Hossain emphasized, 'Faith is smart. That is why Islamic banking is growing not only in Bangladesh but also abroad at a faster rate than their conventional counterparts.'

Indeed, Mr. Hossain's observations are supported by global trends. Currently, 526 Islamic banking institutions operate in 72 countries worldwide. The quantum of Islamic finance assets totals USD 4 trillion, with Islamic banking assets accounting for USD 3 trillion and holding a 6% global market share. On the remittance front, one of the key factors contributing to the prominence of Islamic banks is their adherence to Sharia-compliant financial principles. The ethical and transparent nature of Islamic banking has garnered trust among a significant segment of the population, positioning these institutions as preferred channels for remittance transactions. A significant portion of remittances originates from Middle Eastern countries, where Muslim individuals work tirelessly with the belief in fulfilling the dreams of their families while adhering to the prohibition of Riba.

The global remittance market is projected to touch USD 758233.37 million by 2027, at a CAGR of 0.9%. Remittances continue to remain a critical financial inflow and an important source of foreign exchange for several countries in South Asia. Remittances measured almost 326 per cent of FDI inflows in 2022, up from 247 per cent in 2019; and 1,036 percent of ODA relative to 935 percent in 2019. Although remittances amounted to only 4 per cent of South Asia’s GDP in 2022, the variation across countries was large. In Nepal, the share stood at 23.1 per cent of GDP in 2022, compared with 7.9 per cent in Pakistan, 5.1 per cent in Sri Lanka, and 4.7 per cent in Bangladesh. Therefore,

Every year, around 500,000 Bangladeshis leave the country to work abroad contributing 15 per cent of GDP through sending hard-earned remittances. From the migration process to remitting money to their families living in rural areas, the expatriate Bangladeshis have a feeling of being exploited and their frustration leads them to illegal Hundi for better rates, lower fees and convenient remittance transactions.  Especially among migrant workers with lower monthly incomes and those working illegally, there is a greater preference to send money through hundi, resulting in a decline in banking channel remittances. A recent study conducted by the Refugee and Migratory Movements Research Unit (RMMRU) found that 66% of Bangladeshi expatriates from the Maldives send money through hundi, and 64% of them do not have bank accounts.

To attract more official channels, the government has announced various incentives for remittance earners while banks and digital financial service operators are offering lucrative services to them and ensuring quick delivery of the remittance money to the recipients at low delivery costs. In this race, some Islamic banks enjoy double advantages- Sharia-based banking and real-time transactions across the country to ensure quick delivery of remittance money to the recipients mostly in remote areas which helped the Islami Bank Bangladesh PLC to top the list of remittance earner banks. It provides real-time services in collaboration with global partners, country-wide agents and branches, the highest number of ATM booths and the mobile banking app Cellfin to send remittances instantly.

Most Islamic banks in Bangladesh have strategically leveraged technology to streamline remittance processes, offering innovative and user-friendly platforms. Mobile banking, online transfers, and other digital solutions have not only enhanced the efficiency of remittance transactions but have also facilitated greater financial inclusion, especially in remote areas where traditional banking services may be limited. Furthermore, Islamic banks have played a pivotal role in developing Sharia-compliant financial products tailored to the needs of remittance recipients. These offerings, such as halal investment options and savings accounts, resonate with the values of many Bangladeshi households, fostering a deeper connection between Islamic banks and their customers.

Despite facing competition from conventional financial institutions, Islamic banks in Bangladesh have demonstrated adaptability and resilience. Their commitment to financial inclusion, ethical banking practices, and innovative solutions has positioned them as trailblazers in the battle for remittance supremacy. As the remittance landscape continues to evolve, it is clear that Islamic banks in Bangladesh are not merely keeping pace but actively shaping the industry's trajectory. The ongoing battle for remittance dominance is marked by innovation, inclusivity, and a commitment to ethical financial practices. Islamic banks lead the charge and solidify their place as key players in Bangladesh's economic narrative.

Presently, 34 commercial banks, including 10 full-fledged Islamic banks, provide Shariah-based banking services to millions of customers nationwide through 2,217 branches and windows, along with approximately 4,000 agent banking outlets. These banks have embraced the agent banking model, extending their services to underprivileged individuals in rural areas. While these banks continue to garner the appreciation of remittance earners, conventional banks are not remaining passive in this dynamic landscape.

Consequently, the global remittance market has evolved into a competitive battlefield, featuring various market players such as banks, mobile banking operators, and unofficial hundi operators. Armed with digital delivery tools like Cellfin and bkash Islamic banks have demonstrated their prowess at the forefront of the remittance battle.

(The writer is the Editor of THE BANGLADESH EXPRESS and the Chairman of Bangladesh Journalists’ Foundation for Consumers & Investors-BJFCI)