All over the world, ‘remittances inflow’ and ‘financial development’ are the much discussed issues in the perspective of socio-economic development. However, the study of the relationship between remittances and financial development has not been given emphasis until recently. With a view to enrich the literature, this paper works out the effect of remittances inflow on the financial system development of Bangladesh. Since Bangladesh is a major remittance receiving country and its financial sector is also steadily developing, an extensive study on Bangladesh will substantially fill up the literature gaps. The major objectives of this study are to examine short-run and long-run relationships between remittances and financial development of Bangladesh, determine their directional causality and provide some policy guidance. Time series data for the periods of 1976 to 2012 have been analyzed. Firstly, to examine the stationary properties of the data, ADF, PP and KPSS tests have been applied. Then, co-integration (Engle-granger and Johansen) tests are performed to detect the long run relationship. Using the Vector Error Correction Model, the relationship between remittances and financial development are estimated more precisely. Then, to explore the directional causality between these two concerns, the Granger causality test has been employed. The findings of this study figure out that, remittances have some significant influence on financial development in Bangladesh and there exist some directional causality between them. Since, financial development plays important role in growth enhancement and poverty reduction, hence, the government should take effective measures to promote remittances inflow in Bangladesh. Thus, the indirect effect of remittances inflow through financial development will foster the country’s economic growth and overall development.