Remittance is derived from the word remit which means to send back.
What is Remittance?
Remittance is the transfer of money from one country to another, usually overseas once you receive a bill or an invoice.
Whether it is for paying invoices for your business or for delivering money to your friends or family, remittance can be used for both purposes.
A number of people who are employed abroad send their hard-earned savings to their family members back home. So when they transfer money overseas, that is known as a remittance.
It plays a huge role in the economy of a country and helps the people living in low-economic countries. It plays an important role in combating poverty as well.
“According to the World Bank’s Migration and Development Brief, 605$ billion was sent as remittances in 2021 alone.”
Types of Remittances
1. Outward Remittance
If you running a business and availing some services from a foreign country, you have to send money out of India. This is called outward business remittance.
2. Inward Remittance
Similarly, if you are running a business in a foreign land and you are availing some services from India, you have to send money to India This is called inward business remittance.
How to send a Remittance to India?
Imagine you have to send money to India, these are the steps you should follow:
1. Select your money transfer provider
This is one of the most important elements to send out money. While selecting your money transfer provider you should keep the following factors in mind:
High Speed of Transfer
A number of banks facilitate faster money transfers, some within a week and a few within 48 hours!
No hidden fees
Make sure you are fully aware of the remittance charges and fees before transferring money.
Higher transfer limits
It is also important to be aware of the transfer limits that the bank is providing. Go- ahead with a money-transfer provider who would enable you to transfer seamlessly without any unnecessary restriction on the transfer limit.
Being aware of the exchange rates is extremely essential. And before you go ahead and transfer the money make sure you ask for a conversion rate quote.
There are certain money-transfer providers who transfer the amount after deducting the charges. Hence the recipient won’t be able to receive full credit. Make sure you choose a provider who promises full credit.
2. Enter Recipient details
Now that you have chosen which provider you are going to go with, it’s time to start collecting all the information you will need
The next step is to enter the recipient’s details.
To make an online transfer to a bank account, you would need the recipient’s name, address, bank account number, and bank branch’s IFSC Code along with their mobile number and email id.
In case of a cash-pick up, it is mandatory for you to carry your ID and provide details of the recipient. In order to verify the cash pick-up, your recipient will need to carry an ID and the transfer reference code.
3. Make the payment
These are the usual modes of payment to make a transfer:
- Debit card
- Credit card
- Bank transfer
- Cash in-person
The transaction fee depends on the mode you are opting for. Often the fees you will pay depend on this payment method.
4. The recipient gets the money
The recipient can receive the money directly in their bank account or pick it up in cash. Some providers are also offering ways wherein the money will directly go to mobile and they would receive notifications.
Remittance charges are fees levied by the bank or financial institution initiating the transaction and generally depend on the remitted sums.
The charges vary based on what the banks are charging. Thus you must confirm the bank charges for foreign remittance before making an international money transaction. You can reduce the outward/inward remittance charges by getting into negotiation with a bank.
Financial Impact of Remittances
The impact of remittances on the global economy is significant. Remittances help to reduce poverty, foster economic growth and promote financial inclusion.
These transfers of money from migrants to their families back home are estimated to total over $613 billion in 2020, making them one of the largest sources of foreign income for many developing countries.
Remittances contribute to economic growth and development in countries that receive them, as the money can be used for investment, consumption, and other economic activities.
This can lead to job creation and improved living standards.
Additionally, remittances can increase financial inclusion, as the funds can be used to open bank accounts, start businesses, and access other financial services.
The 2020 Economic Crisis
Covid was a living nightmare for the entire world. It had highly impacted the migrants and their families in 2020.
The World Bank had projected a drop in remittance by 14% in comparison to the pre-pandemic period since the rise in migrant unemployment had been drastic.
This has resulted in a high cost of international remittances because of global inclusion.
Banks charged around 11% in the first quarter of 2019, and post offices charged an average of 7%.
Business remittances ( inward and outward ) require a purpose code by RBI. Again, the business needs to ensure that the requisite TDS has been deducted for foreign remittances or a 15CA certificate from a CA while making the outward remittance.
Today new-age business banking has changed lives and traditional financial operations like vendor payments, tax payments, payroll and compliances are extremely seamless and automated.
Examples of Remittances
Here is a list of examples of remittance. Let’s have a look.
1. Money sent by an international migrant worker to friends or family members in their home country.
2. Payments sent from a foreign business to its parent company.
3. Fees paid by a student studying abroad to their home university.
4. Payments made by international tourists to hotels and other businesses.
5. Donations sent by individuals or organizations to charities in other countries.
Future Forward banking for Startups
Banking has faced prominent evolution. The evolution of the fintech space has had a significant impact on businesses today.
- RazorpayX allows business owners to open current accounts, pay taxes, schedule payments, pay vendors seamlessly and check invoices from a single dashboard. This saves valuable time and effort.
- It fills the gap between advanced banking solutions and finance professionals. It allows easy accounting software integration.
- With RazorpayX Payroll, businesses can automate salary payments and provide insurance policies to their employees.
Frequently Asked Questions
What is India’s annual remittance?
In2021, the remittance to India was $87 billion which was equivalent to 2.75% of India’s GDP.
Which countries bring in the most amount of remittance to India?
The top three countries with maximum remittance to India are the UAE, the USA, and Saudi Arabia.
Which countries get the most remittance from India?
The countries which get the most remittance from India are Bangladesh, Sri Lanka and Nepal.