At 2am in a remote village in northern Bangladesh, a mother waits for a phone call from a hundi broker. The monsoon rain hammers against the tin roof, a rhythmic intrusion on the silence of a house built by money earned thousands of miles away. Her son has just finished a sixteen-hour shift at a construction site in the Gulf, and the money he sends tonight will determine whether a family medical bill is paid tomorrow. In this late-night transaction, there are no forms to complete and no procedural delays. There is only a relationship of trust operating with a speed and proximity that the formal financial system has yet to replicate.
Bangladesh’s Least Developed Country (LDC) graduation was widely framed as an economic milestone. However, the newly appointed government has officially initiated a process to seek a three-year deferment of this transition, potentially pushing the graduation from late 2026 to 2029. For policymakers watching foreign exchange reserves and trade preferences, graduation feels less like a trophy and more like a reckoning. The current administration’s push for a delay, citing that the country is not yet ready for an “open-field competitive environment”, acknowledges a fundamental truth: the economic data previously used to justify a 2026 exit may have masked deep-seated structural vulnerabilities.
For decades, growth has been supported by preferential market access and international concessions. In a country whose rise has been underwritten by the labour of nearly 13 million citizens abroad, remittances remain a pillar of macroeconomic stability. They account for roughly 6–7 percent of GDP and represent one of the country’s largest sources of foreign currency.
The pressure to stabilise reserves has sharpened enforcement against informal remittance channels. The war on hundi is a necessity aligned with global anti-money-laundering standards. But the crackdown risks dismantling informal networks before viable alternatives are in place.
The imbalance begins in credit policy. The Bangladesh Bank agricultural and rural credit targets remain heavily concentrated in short-term crop finance. Historically, a large majority of formal agricultural credit in Bangladesh has been seasonal, with a substantial share going to short-term crop loans and only a smaller portion to longer-term investment in irrigation, machinery, or storage. Rural loans are only helping farmers survive from one harvest to the next, rather than helping them buy equipment or infrastructure that would make them wealthier in the long run.
According to Bangladesh Bank data, outstanding rural deposits stood at Tk 37,487 crore as of June 2025, while loans disbursed in those same areas totalled only Tk 6,656 crore, even as deposits grew by nearly 15 percent compared to just a 1.2 percent rise in rural lending. Nationally, more than 90 percent of formal lending continued to flow to urban borrowers. Deposits mobilised in remittance-rich districts were not being recycled locally at a comparable scale. Liquidity generated in the periphery was routinely deployed elsewhere, lowering borrowing costs for large urban firms while leaving local credit conditions tight.
This credit structure creates a local liquidity constraint. Short-term crop loans must be repaid at harvest, often forcing farmers to sell produce at depressingly low prices to meet immediate deadlines. Households remain in cycles of subsistence rather than accumulation. For a migrant earning approximately $400 per month, the 2–3 percent exchange-rate differential in the hundi system can cover several days of groceries. More importantly, the funds arrive instantly. When repayment schedules or medical emergencies cannot wait, the informal system is a rational financial necessity.
This imbalance is not inevitable. To rebalance capital allocation, the credit framework must transition from a reliance on collateral to a logic of cash flow. A district-level loan-to-deposit framework could require that a defined share of deposits collected in a district be reinvested locally. Warehouse receipt financing could transform stored crops into recognised collateral, enabling farmers to access credit based on the value of their harvest rather than land titles. Alternative credit scoring could incorporate verified remittance histories, allowing landless households to build credit profiles.
The three-year “breather” requested by the new government offers a final opportunity to implement these reforms. As the revised 2029 deadline approaches, LDC graduation should not be measured solely by reserve adequacy or export diversification. A more significant test is whether the workers who generated the nation’s foreign exchange remain integrated into the financial system they helped sustain.
Saba El Kabir is a development practitioner and founder of Cultivera Limited. He can be reached at [email protected].
Views expressed in this article are the author's own.
Follow The Daily Star Opinion on Facebook for the latest opinions, commentaries, and analyses by experts and professionals. To contribute your article or letter to The Daily Star Opinion, see our guidelines for submission.
