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B-DESH: BANGLADESH'S NATIONWIDE

DECENTRALIZED BLOCKCHAIN PLATFORM
POWERING SMART CONTRACT-
BASED REMITTANCES

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Abstract
In this era of globalization, billions of people work abroad and trillions of dollars are transferred
around the antiquated global financial system each day. Still heavily reliant on paper, there are
many issues with current payment system that cause added expense and delays, as well as make
susceptible to crime and fraud. Despite the financial industry’s resistance to change, blockchain
and its expected benefits make it worthwhile. Blockchain technology can ensure traceability,
transparency, data privacy and prevention of fraudulent in remittance inflow sector. Bangladesh
earns a lot of foreign currencies from remittances each year. But our current payment system
has many loopholes, resulting in illegal transfer methods such as “Hundi”. Hundi doesn’t
contribute to Bangladesh’s foreign exchange market. We proposed a blockchain-based payment
model including system & technical architecture, governance, sequence diagram for easy money
transfer to Bangladesh. Our business model includes several partners. Competitor analysis, cost
& revenue generation is predicted. Risks are mitigated. Prototype is under development.

Keywords: remittance, FinTech, hundi,

Blockchain is a decentralized, distributed ledger that stores data in blocks and makes data
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participants. FinTech industries are adopting blockchain technology and
expanding its scope and sustainability. On the other hand, blockchain technology ensures
traceability, transparency, data privacy and prevention of fraudulent in remittance inflow system.
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Contents
❖ Problem Identification ......................................................................................................................... 3
Decline in Personal Remittance received, (% of GDP) ............................................................................ 3
Hundi: ....................................................................................................................................................... 4
Current Payment System: ......................................................................................................................... 5
Details of current Payment system............................................................................................................ 5
Limitations of current payment system ..................................................................................................... 6
❖ Our Objectives: ..................................................................................................................................... 7
❖ Solution................................................................................................................................................. 7
Blockchain can help facilitate cross-border money Transfer:................................................................... 7
What our system provides:........................................................................................................................ 8
Why Blockchain based solution is applicable in this endeavor: ............................................................... 9
❖ Market and Partners .......................................................................................................................... 10
Market ..................................................................................................................................................... 10
Partners ................................................................................................................................................... 11
❖ Architecture ........................................................................................................................................ 12
System Architecture ................................................................................................................................ 12
Technical Architecture ............................................................................................................................ 14
Governance ................................................................................................................................................. 15
❖ Competition & Risk ............................................................................................................................ 18
❖ Revenue and Distribution .................................................................................................................. 19
Financial Projection ................................................................................................................................ 19
References .................................................................................................................................................. 20

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❖ Problem Identification

Decline in Personal Remittance received, (% of GDP)

About ten million citizens are contributing to Bangladesh’s foreign exchange market at present.
Remittance is the second largest source of foreign currency. Bangladesh’s official website of the
Bangladesh Bureau of Manpower, Employment, and Training (BMET) reports,

Year-wise Overseas Employment (2013-2023)

1200000
1008525
1000000
757731
Employment

800000 734181 700159

617209
555881
600000
409253 425684
400000
217669
200000 104513

0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Year

Fig 1: Year-wise overseas employment (2013-2022)

The remittance sector has huge scope for contributions to the economy and GDP growth of
Bangladesh. World Development Indicators data by World Bank suggests that remittance inflow
has increased. Despite the increase in remittance inflow, the contribution of remittance to GDP
has declined overtime, according to the World bank database.

Fig 2: Personal Remittance received, (% of GDP)

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Though the population of emigrants working abroad hasn’t decreased, the remittance inflow
clearly has, compared to the employment overseas. This could be the result of more and more
people choosing Hundi as their money transfer system instead of traditional banking system.

Hundi:

Hundi is a verbal agreement between two parties on money transfer[1]. It is a practice of sending
remittance home via an agent. The fee is less than the traditional money transfer system and
thereby it is a popular medium. Nowadays Many people prefer hundi, as their transfer system
which doesn’t contribute to Bangladesh’s foreign exchange market.

Fig 3: Hundi process

Apart from contributing nothing to foreign currency reserve, this process has user disadvantages,
such as,

Delay Fraudulent activities Conflict about

negotiation

Fig 4: Disadvantages of Hundi

Despite the lack of security and trust, people tend to choose this process. In fact, A recent study,
conducted by the Refugee and Migratory Movement Research Unit (RAMMRU)[2] found that
66 per cent of Bangladeshi workers in Maldives send money through hundi. Around 64 per cent
of them do not have bank accounts. This leads us to question why people are not choosing
banking system? Are there any problems in Government’s policy making? If there is any, what
are they?

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Current Payment System:

The traditional KYC process, with substantial duplication of efforts, can take up to 30-50 days.
Here, an example of remittance flow from Saudi Arabia to Bangladesh is given according to
current payment system.

Fig 5: Current Payment system

Details of current Payment system

1. When the sender wants to send money to another country, they typically approach a bank
or money transfer operator. In this process, the following actions are taken:

AML/KYC activities are

Transfer inquiries
conducted to ensure
Funds and fees are and disputes are
compliance with anti-money
collected. confirmed and
laundering and know your
supported.
customer regulations.

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2. The bank or money transfer operator employs the following methods to move money across
borders:
Facilitating transfers
Utilizing the SWIFT network,
through correspondent
which is a part of the
banks if they are not
international financial
connected to the SWIFT
messaging system.
network.

3. Once the transfer is initiated, the beneficiary is informed and can approach a bank or money
transfer operator.

4. Depending on the existing relationship, the bank or money transfer operator may perform KYC
procedures.

5. The amount owed in the local currency is paid to the beneficiary.

6. Periodically, in compliance with local regulations, the bank and money transfer operator submit
reports to regulators containing transaction details such as sender and beneficiary identification,
currencies involved, and transfer information.

Limitations of current payment system

1. Inefficient onboarding: The collection of information about the sender and beneficiary relies
on manual and repetitive processes, leading to inefficiency.
2. Vulnerable KYC: There is limited control over the accuracy of information and supporting
documents, and different institutions have varying levels of maturity in implementing proper
Know Your Customer (KYC) procedures.
3. Cost and delay: Payments can be expensive and time-consuming, depending on the chosen
route.
4. Error prone: Information validation is conducted on a per-bank or per-transaction basis,
resulting in a high rate of rejections.
5. Liquidity requirement: Banks are required to hold funds in nostro accounts, leading to
additional costs associated with opportunity and hedging.
6. Limited Control: Similar to the previous point, limited control exists over the accuracy of
information and supporting documents, with varying levels of implementation across different
institutions.
7. Demanding regulatory compliance: Meeting regulatory requirements for reporting can be
challenging due to the involvement of multiple data sources and channels, often requiring costly
technology capabilities and complex business processes supported by multiple operational teams.

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❖ Our Objectives:

Evaluating the problems with current payment system, we set 7 following goals for our project.

Simplify Reduce Reduce Mitigate Mitigate Ensure

Transaction Time Transaction Fraudulant intermediate data
Required fee Activity party privacy

❖ Solution

Blockchain can help facilitate cross-border money Transfer:

Blockchain is a universal ledger present in a distributed network which is accessible to everybody

in the network. Thus, each node in the network will have a complete copy of the entire database
or the ledger and any modifications to the same will have to be duly verified by other nodes /
parties to validate on the modification done. Thus, it requires a consensus of nodes to agree upon
the state of the ledger for it to be valid. This would mean that direct transfers can occur instantly
now and without fear of manipulation even for cross-border payments, because there are no
intermediaries or correspondent banks involved. The underlying concept of distributed ledger
makes it possible for the banks to have a bilateral, visible, and immutable transfer of value,
adjudicated by the settlement agency

We propose a decentralized
Blockchain Platform “B-DESH”
Powering Smart Contract-Based
Remittances, to mitigate hundi.

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What our system provides:

\ Fig6: Money transfer by mitigating intermediate parties.

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Why Blockchain based solution is applicable in this endeavor:

No. Question Explanation Blockchain

Needed?
1 Is there any need for This process enables the stakeholders(banks) yes
a shared common to access data instantly. So, the process gets
database? quicker. According to the World Bank, one of
the main objectives of the General Principles
for International Remittance Services is to
enhance transparency in the remittance market.
Using blockchain we can ensure transparency.
2 Are there multiple Yes, in current system steps are, yes
parties involved? • Bank of the country from where money
is transferred.
• US bank (intermediate)
• Bank of the receiving country
(Bangladesh bank or local bank)
3 Do parties involved There could be a conflict. But compared to yes
have conflicting conventional methods, the blockchain method
incentives and is there is more secure. For a refugee, he can’t trust the
a lack of trust? bank. In conventional methods, it's a hassle to
do the governmental work needed for money
transfer. Using blockchain will mitigate the
medium. This will increase efficiency and
reduce the transfer fee.
4 Are the rules of No, Bangladesh banned cryptocurrency. For yes
government the risk of money laundering. So, we mitigate
participants uniform? money laundering to establish crypto.
Transaction limit, licensing, is not the same for
all users.
5 Is there any need for Yes, Transaction list should be recorded. And yes
an objective, can’t be changed. For transparency and
immutable log? security, it is needed.

Negative side is that data can be stolen.

6 Do the rules of rules There is no definite way of transaction then, No
of transactions not
change frequently?
7 Should transactions No, permissioned blockchain is needed. Data yes
be kept public? privacy and public security. Private blockchain
is needed.

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❖ Market and Partners

Market

With the advent of blockchain, several companies and startups have begun adopting
cryptocurrencies like Bitcoin to offer remittance services. Four firms are frequently mentioned:
BitPesa, Abra, Stellar, and Ripple. In a sector highly dominated by Western Union and
MoneyGram, these new players are offering a different money transfer service, trying to solve
multiple issues such as the high transfer costs, the limited money distribution methods, limited
brand options, limited ways to deal with money, etc. At the moment, the fastest developments are
happening in Southeast Asia, in particular the Philippines and Vietnam, but some African countries
– like Kenya, Tanzania, Nigeria, and Uganda - have entered the market.
In the last years, a large number of blockchain based remittances start-ups were established in most
parts of the world, particularly in Southeast Asia, each one with a creative solution to cross-border
transfers. Here some notable examples:

Source: JRC Science Hub

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Partners

To work smoothly, we need coordination and collaboration between multiple partners and
stakeholders including the regulators, Businesses and marketplaces. The roles, responsibilities and
incentives of these partners are discussed below:

Type Partner Roles & Responsibilities Incentives

Strategic National Data 1. As a strategic partner, ensuring Advance its mission to

Partner Security Council, compliance and help building improve the digital
Bangladesh Bank, awareness on blockchain security infrastructure
BRAC remittance systems and ensure data
2. Enforcing digital security protection of citizens.
standards to incentivize consent
and privacy management. 3.
Monitoring data practices of
companies and taking measures in
cases of mishandling data or
frauds.
Technical ICT Division 1. Offering technical assistance in Implementing the
Partner Bangladesh capacity-building and providing Action plan under the
infrastructural support for National Blockchain
implementation of blockchain Strategy 2020.
technology in remittance system *(National Blockchain
2.Enhancing transparency in the Strategy: Bangladesh
remittance market. (2020), Information and
3.Technical support to mitigate Communication
data theft. Technology Division)

Growth Partner Businesses and 1. Offering special offers or Brand Awareness,

marketplaces discounts per transaction. Transaction
2. Running ads among mass transparency, Negative
people for engagement marketing for Mediums

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❖ Architecture

System Architecture

Fig 7: System Architecture

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Component Description(System Architecture)

1. Trust between the sender and a bank or money transfer operator is established through
traditional Know Your Customer (KYC)[3] processes or a digital identity profile &
exquisitely a biometric record. A wallet ID is created for them upon registration and
verification of KYC. The documents are stored in the Private IPFS cloud and returns the
hashed value of the ID of document. It is stored in the smart contract. The biometric record
is to prevent fraudulent activities like- money laundering with multiple accounts. So even
if someone uses multiple account to transfer black money, the person can be tracked.

2. A smart contract serves as a digital agreement[4] that encapsulates the obligations and
conditions for transferring funds between the sender and beneficiary. It eliminates the need
for intermediaries and provides transparency and security in the transaction process.

3. The process of currency conversion is facilitated by liquidity providers operating on the

ledger. These providers ensure that the sender's currency is converted to the beneficiary's
currency at fair and current exchange rates, enabling seamless cross-border transactions.

4. Regulators can actively monitor transactions in real time and receive specific Anti-Money
Laundering (AML) alerts through the implementation of smart contracts.[5] This allows
for enhanced regulatory oversight, detection of suspicious activities, and timely
intervention if necessary. Regulators acts as the lightning nodes such as-non-member
banks, fintech firms, merchants, or a government body etc.

5. By leveraging smart contracts, the transfer of funds occurs in real-time, minimizing

transaction fees, and guaranteeing timely delivery without relying on correspondent banks.
This streamlines the payment process and reduces delays and additional costs associated
with intermediary banks. The smart contract cuts out the transaction fee accordingly. A
portion goes to the government and a portion to banks, eliminating the need of intermediary
banks.

6. Funds are automatically deposited into the beneficiary's account through a smart contract,
ensuring efficient and reliable delivery. Alternatively, funds can be made available for
pickup by the beneficiary after their identity has been verified through the KYC process.

7. A comprehensive transaction history is recorded on the distributed ledger, providing a

transparent and immutable record of all transactions. This ledger can be continuously
reviewed by regulators, allowing for thorough auditing, analysis, and monitoring of
financial activities to ensure compliance with regulations and detect any potential
fraudulent or illicit behavior.

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Technical Architecture
Component Rationale
We use Fabric's TLS (Transport Layer Security) & Certificate
Authorities (CAs) for secure communication between endorsers and
Blockchain Framework: clients. It provides endpoint authentication, ensuring secure interactions
with the intended targets. No cryptocurrency is needed as this is a
Hyperledger Fabric permissioned blockchain.
Besides, it provides:
- Scalability and high transaction throughput.
- Privacy and confidentiality for sensitive remittance data.
- Modular architecture for customization and integration.
- Secure and trusted network with permissioned blockchain.
- Smart contract automation for efficient processes

Database component: Our approach involves storing public data on our dedicated server
MongoDB: powered by MongoDB. As a business-focused platform, we strictly
collect only essential user information, ensuring privacy is safeguarded
and unnecessary data is avoided. This approach eliminates any privacy
breaches. In addition, we implement a permissioned blockchain solution
for on-chain data. This means that organizations cannot access any user
data without explicit user consent. Users retain full control over their
data, and only by actively selecting specific documents can financial
institutions gain access to view those selected documents. This further
reinforces data privacy and user control. Also-NoSQL flexibility, Fast
query performance, JSON integration, Space efficiency, Scalability, and
high availability.

Consensus Mechanism: - Hyperledger Fabric incorporates the Practical Byzantine Fault

Practical Byzantine Fault Tolerance.
Tolerance (PBFT) - Byzantine fault tolerance for reliable remittance transactions.
- Consensus among trusted participants in the network.
- Finality of confirmed transactions for immutability.
- Resilient to malicious actors and network failures.
- Efficient and fast transaction confirmation.
- Ensures agreement even with potential Byzantine behavior.
- Enhances trust and integrity in the remittance system.
- Well-suited for enterprise-grade deployments
System Protocol: IPFS: - Decentralized storage: IPFS distributes data across nodes for
blockchain.
- Immutable and tamper-proof: IPFS ensures secure and unchangeable
data storage.
- Data redundancy: IPFS replicates data for availability, even with
offline nodes.
- Enhanced privacy: Private IPFS selectively shares data, protecting
KYC document privacy.
- Cost-efficient: Private IPFS reduces infrastructure costs with
distributed storage.
- Interoperability: IPFS integrates seamlessly with diverse blockchains.

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Governance

Technology The full nodes are the super nodes that contain the
Infrastructure entire copy of blockchain which makes up private
Governance IPFS. The nodes that act as the regulators are the light
nodes, containing the subset of full nodes.
DeFI Platforms are used for automated alternative to
traditional financial intermediaries like MTOs.

Super nodes in the system have write access to modify

and update the blockchain, while regulators have
read-only access to retrieve and view information.
This separation of access privileges ensures that super
nodes can write data with authority, while regulators
have limited access for monitoring and
auditing purposes.

Business Network Governments deploy the rules for the system and the
Governance general public and entities act as consumers. Business
contacts will be upheld through straightforward
contracts and effective information management,
ensuring the integrity of the system. Banks acts as the
KYC verifiers and mediaries for biometric
authentication.
FULL NODES (block
generators): legitimate banks
LIGHT NODES
(Regulators): non-member banks, fintech firms,
merchants, govt body etc.

Network Super nodes/Full nodes and light nodes are connected

Membership through a mesh network and In Hyperledger Fabric's
Governance PBFT-variant consensus, subset of nodes called
endorsers engage in a sequential consensus process
through message exchanges and multiple rounds of
communication. They validate transactions, agree on
their order, and commit them to the blockchain. This
sequential approach ensures consistency and
correctness in the endorsement and ordering of
transactions.

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Authorized
Passport Officers
1. Applicant’s document hash

2. Documents
Private
IPFS

5. Call for
biometric 3. Verify Information and Confirmation
information
4. Confirmation

blockchain
6. Encrypted Biometric Information
Applicants

Fig: Document Verification and Biometric Information collection Diagram

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❖ Competition & Risk

Risks:
Type Source Details
❖ Digital records Crucial task of record digitalization just
❖ Intermediate started and backlash protest from
corrupted officials intermediate parties.
Implementation risk ❖ Political pressure
Operating system Government officials within private
errors. blockchain network may be corrupted

Technical Risk
Not definite that No tracking of people earning money
people will stop using overseas and the lifestyle of their relatives.
hundi

Operational Risk

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❖ Revenue and Distribution

Revenue will be proportional to the year wise employment overseas. Here is our distribution
model.

Financial Projection

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References

[1] M. Martin, “Hundi/Hawala: The problem of definition,” Mod Asian Stud, vol. 43, no. 4, pp. 909–
937, 2009, doi: 10.1017/S0026749X07003459.

[2] Caroline. Mackenzie and International Organization for Migration., Labour migration in Asia :
protection of migrant workers, support services and enhancing development benefits.
International Organization for Migration, 2005.

[3] V. U. Rajput, “Research on Know Your Customer (KYC),” 2013. [Online]. Available: www.ijsrp.org

[4] S. Jani, “Smart Contracts: Building Blocks for Digital Transformation”, doi:
10.13140/RG.2.2.33316.83847.

[5] C. Xu, C. Liu, D. Nie, and L. Gai, “How Can a Blockchain-Based Anti-Money Laundering System
Improve Customer Due Diligence Process?”

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