Remittance is derived from the word remit which means to send back.
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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.”
Remittances are the transfer of money from individuals working in foreign countries back to their home countries. They serve as a lifeline for many families in developing nations, providing financial support for basic necessities such as food, education, healthcare, and housing. Remittance services can be accessed through banks, money transfer operators, or online platforms, making it easier for individuals to send money to their loved ones.
These funds not only alleviate poverty and improve living conditions but also contribute to economic growth by boosting disposable income and stimulating consumption. Remittances are a vital component of the global economy, fostering financial stability and empowering families and communities around the world.
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
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.
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.
Importance of Remittance
- Poverty Reduction: Remittances contribute to poverty reduction by providing financial support to families in developing countries. They help meet basic needs such as food, education, healthcare, and housing, improving the standard of living for recipients.
- Economic Stability: Remittances play a crucial role in stabilizing economies, particularly in developing nations. They serve as a stable source of foreign exchange, enhancing a country’s balance of payments and supporting macroeconomic stability.
- Economic Growth: Remittances stimulate economic growth by increasing household income and consumption. The additional funds injected into local economies can generate business activities, job creation, and investment opportunities.
- Financial Inclusion: Remittance services often promote financial inclusion by providing access to formal financial systems for both senders and recipients. This can lead to increased financial literacy, access to credit, and the ability to save and invest in the long term.
- Human Capital Development: Remittances can support human capital development through investments in education and skills training. They enable families to afford better educational opportunities for children, contributing to improved future prospects and human capital development.
- Social Welfare: Remittances help support social welfare initiatives at the community level. They fund infrastructure projects, healthcare facilities, and social programs that benefit the broader population.
- Migration and Diaspora Support: Remittances recognize and reward the contributions of migrants and diaspora communities. They provide a means for individuals working abroad to support their families and maintain connections with their home countries.
Difference Between a Remittance and a Bank Transfer
Here’s a comparison between remittance and bank transfer:
|Purpose||Transfer of money from individuals to individuals||Transfer of money for various purposes|
|Channels||Money transfer operators, online platforms||Banks|
|Cost and fees||Specific fees and exchange rate margins||Varies depending on the bank and type of transfer|
|Speed and convenience||Generally quick and convenient||Varies depending on banks and transaction type|
|Focus||Sending money across borders||A broad range of financial transactions|
Remittance and the 2020 Financial Crisis
- The decline in Remittance Flows: The pandemic-induced economic downturn resulted in a decline in remittance flows globally. Many countries experienced a significant drop in remittances as migrant workers faced job losses or reduced incomes, making it challenging for them to send money back home. Lockdowns, travel restrictions, and disruptions in various industries also contributed to the decline.
- Importance for Developing Countries: Remittances are crucial for many developing countries as they serve as a major source of foreign exchange and contribute to household income and overall economic stability. The decline in remittance flows had a particularly severe impact on these nations, affecting the livelihoods and well-being of millions of people who rely on these funds.
- Economic Contraction: The reduced inflow of remittances had a negative impact on recipient countries’ economies. Many nations experienced an economic contraction due to the decline in consumption and investment supported by remittance inflows. This contraction further exacerbated the overall economic challenges faced during the financial crisis.
- Policy Responses: Governments and international organizations recognized the significance of remittances and implemented various policy measures to mitigate the impact of the financial crisis. Some measures included facilitating digital remittance channels, providing financial incentives, and offering support programs to the most affected individuals and families.
- Recovery and Resilience: As economies started recovering and some restrictions were lifted, remittance flows gradually improved. However, the pace of recovery varied across countries and was influenced by factors such as the overall economic recovery, employment opportunities, and government policies aimed at supporting remittance flows.
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.
In conclusion, remittances play a crucial role in the global economy, particularly for developing countries. They represent the transfer of funds from individuals working abroad to their families or friends in their home countries. Remittances provide essential support for basic necessities, contribute to poverty reduction, and stimulate economic growth by increasing disposable income and promoting consumption.
While remittance flows can be influenced by various factors, such as economic crises or global events, they have shown resilience and are often instrumental in supporting the livelihoods of millions of people worldwide. The accessibility and convenience of remittance services continue to evolve, enabling more efficient and secure transfers, thus ensuring that remittances remain a vital lifeline for individuals and communities across the globe.
Future Forward Banking for Startups
Banking has faced prominent evolution. The evolution of the fintech space has had a significant impact on businesses today.
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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.
What Is a Remittance?
Remittance refers to the transfer of money or funds from one individual or entity to another, typically across borders. It involves sending money by a person (usually an immigrant or a foreign worker) from a foreign country back to their home country to support their families or for other purposes. Remittances are often sent to developing countries where individuals or families rely on financial support from their relatives or friends working abroad. The funds are usually used for basic necessities such as food, education, healthcare, housing, and other essential expenses.
How do I send a remittance?
To send a remittance, start by selecting a reputable remittance service provider that operates in your region. Create an account with the provider and provide accurate recipient details, including their name, contact information, and bank account details if applicable. Choose the transfer method that suits your needs, such as bank transfers, cash pickup, or mobile wallet transfers. Enter the transfer amount, review the details, and confirm the transaction. Pay for the transfer, ensuring you receive a transaction receipt for reference. Inform the recipient about the remittance and provide any necessary details. Track the transfer's progress through the service provider's tracking system. Remember to follow the specific instructions provided by the chosen provider for a successful remittance transfer.