What is remittance?
The word ‘remittance’ is derived from the ‘remit,’ which means ‘to send back.’ Remittance can have different scenarios. Generally, the word ‘Remittance’ refers to personal money transfers sent to family and friends living abroad and business transactions.
Bank remittances typically interest two individuals or entities who hold separate accounts and often reside in different countries. For example, when a migrant or a foreign worker sends money back to their home country, this fund transfer falls under the remittance category. It’s interesting to note that India held the position of being the largest recipient of remittances from 2008 up until 2022.
Remittances can contain various financial transactions, including settling bills. However, the most common scenario involves sending money to family members, particularly among foreign workers who support their loved ones in their home countries.
The prevalent method for making remittances is through electronic payment systems facilitated by banks or electronic money transfer services like Western Union. Users of these services typically incur a fee, but the advantage is the speed of transfer, with funds often reaching recipients in as little as ten minutes.
Remittances have gained increasing significance in the economies of small and developing nations. They also play a necessary role in disaster relief efforts, sometimes surpassing official development assistance (ODA). These financial transfers contribute to advancing the quality of life in low-income nations and contribute to the global fight against poverty.
Remarkably, since the late 1990s, remittances have surpassed development aid and, in some instances, constitute a substantial portion of a country's gross domestic product (GDP).
According to data from the World Bank's Migration and Development Brief, in 2020, low- and middle-income countries received a total of $508 billion in remittances. This figure increased to $605 billion in 2021. In 2019, remittances reached a previous all-time high of $548 billion but experienced a decline thereafter due to the impact of the COVID-19 pandemic.
Additionally, remittances are instrumental in helping individuals in less developed nations establish bank accounts, a trend that fosters economic development