A remittance is a non-commercial transfer of money by a foreign worker, a member of a diaspora community, or a citizen with familial ties abroad, for household income in their home country or homeland.
Money sent home by migrants competes with international aid as one of the largest financial inflows to developing countries. Remittance is more than three times as large as the total global foreign aid. In 2021, $780 billion was sent to 800 million people, while foreign aid totalled $200 billion. Most remittance flows from high-income countries to lower-income countries. Workers' remittances are a significant part of international capital flows, especially with regard to labor-exporting countries.Al-Assaf, Ghazi and Al-Malki, Abdullah M., (2014), Modelling the Macroeconomic Determinants of Workers' Remittances: The Case of Jordan, International Journal of Economics and Financial Issues, Vol. 4, issue 3, p. 514-526.
A substantial share of remittance ends up in the hands of banks and money-transfer companies due to fees imposed on money transfers. Governments can play a vital role in enabling migrants to support their families more effectively by implementing measures that help reduce transaction costs.
Research suggests that remittances are primarily motivated by altruism, self-interest in exchange, and repayment of past expense. A mix of motivations may coexist, in scientific literature this state of mind is summarized as "tempered altruism and enlightened selfishness".
Scholars have linked remittance flows to improved health and education incomes in low-income countries, as the money provides access to food, medicine, health treatments, and education.
Global extent
Remittance has been defined by the World Bank as the part of the earnings which a migrant worker sends back to family members in the country of origin. Worldwide, the flow of remittance has increased from US$72.3 billion in 2001 to approximately US$483 billion in 2011. According to the World Bank, in 2018 overall global remittance grew 10% to US$689 billion, including US$528 billion in 2019 to developing countries. Overall global remittance was expected to grow 3.7% to US$715 billion in 2019, including US$549 billion to developing nations.India to retain top position in remittances with $80 billion: World Bank, Economic Times, 9 Dec 2018. According to the World Bank, remittance flows to low- and middle-income countries grew by about five percent in 2022, reaching US$626 billion.
Remittances make up a significant portion of economies of developing countries. Many receive over 10% of their gross domestic product (GDP) in remittances each year, with some exceptional cases as high as a third of their GDP.
International remittances have a major impact on developing countries around the world because the majority of remittances, some $441 billion in 2015, goes to developing economies. This amount is nearly triple the $131 billion of global Official Development Assistance.
Top recipient countries
+Top recipient countries of remittances (in billions of US dollars)Country 2014 2015 2016 2017 2018 2019 2020 2021 2022 % of GDP(2023 est.) 70.4 68.9 62.7 69.0 78.8 83.3 83.1 89.4 111.2 24.8 26.2 28.7 32.3 35.8 39.0 42.9 54.1 61.1 62.3 63.9 61.0 63.9 67.4 68.4 59.5 53.0 51.0 28.7 29.8 31.1 32.8 33.8 35.2 34.9 36.7 38.0 25.4 24.1 24.0 24.9 26.2 30.0 28.8 32.8 33.9 17.2 19.3 19.8 19.9 21.2 22.3 26.1 31.3 29.9 19.6 18.3 18.6 24.7 25.5 26.8 29.6 31.5 28.3 15.0 15.3 13.6 13.5 15.6 18.4 21.8 22.2 21.5 21.0 20.6 19.7 22.0 24.3 23.8 17.2 19.5 20.1 17.0 15.6 15.2 17.7 18.9 18.3 19.3 20.8 19.3 5.8 6.5 7.4 8.4 9.4 10.7 11.4 15.4 18.2 7.4 8.5 9.5 12.1 14.7 15.8 15.2 18.1 16.8 6.8 4.8 5.8 7.1 7.6 8.5 7.1 9.3 16.7 12.2 10.5 10.8 11.4 12.4 12.3 12.9 13.7 13.4 9.8 8.1 8.6 9.4 10.2 10.9 10.7 12.7 13.2
Major operators
The licensed money transmitter Western Union allows customers to designate a recipient who can pick up that money directly at any Western Union or from a Western Union affiliated agent. Western Union also operates as bureau de change with a fee ranging from eight to twelve percent. Western Union is the world's leading handler of remittance and the 170,000 Western Union agents handle about 25 percent of the total global remittance traffic.
Other companies such as MoneyGram have also been a key player for decades. Pure play money transfer providers may be owned by parent companies with more diverse interests. Two players dominate the international electronic funds transfer for interbank payments between two bank accounts. These are the Clearing House Interbank Payments System (CHIPS) and the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Businesses as well as banks can subscribe to the international communications network Telex and initiate international financial transfers.
Although the remittance market share diversified when fintech startups entered the market in the 2010s, Western Union continues to dominate the majority of the remittance market share. Since the advent of fintech, many digital remittances have emerged on the scene, leading to the rise of comparison platforms or aggregators such as FXcompared and Monito in Europe and in Southeast Asia.
Effects Economic effects on developing countries
The extent to which remittances produce benefits for developing countries is argued.
World Bank economists contend that remittance receivers' higher propensity to own a bank account means that remittances can promote access to financial services for the sender and recipient, claimed to be an essential aspect of leveraging remittances to promote economic development. For example, in Armenia, which has a high remittance to GDP ratio (7−8%), studies suggest that those households which receive remittances have a higher propensity to save, however, as opposed to some theoretic frameworks, these savings are not used to leverage borrowing more from the financial system as a way to grow their businesses. Other studies suggest that another channel through which remittances can foster economic growth is a household investment. For instance, the study conducted in South Caucasus reveals that in Armenia having a migrant household member is associated with a higher probability of establishing a family business by that household. Thus, the remittances sent by migrants can potentially encourage domestic investment, ensuring economic growth. However, new findings for Armenia suggest that remittances help potential migrants to ease the migration process, serving as a resource rather than as a contractual tool between migrants and non-migrants. It is concluded that remittances drastically shift emigration intentions upward. The need for remittances, and the ability and the strength of the migrant social capital (or the network) are factors which jointly determine emigration intentions. Meanwhile, critical migration scholars have expressed concern about the ability of remittances to address the structural causes of economic underdevelopment and see an increasing policy emphasis on finance as symptomatic of a paradigmatic shift towards a 'self-help development' that burdens the poor.
Remittances are generally thought to be counter-cyclical. The stability of remittance flows amidst financial crises and economic downturns make them a reliable source of foreign exchange earnings for developing countries. As migrant remittances are sent cumulatively over the years and not only by new migrants, remittances are able to be persistent over time. This is particularly true of remittances sent by circular migrants, migrant workers who move back and forth between their home and host countries in a temporary and repetitive manner. At the state level, countries with diversified migration destinations are likely to have more sustainable remittance flows.
From a macroeconomic perspective, there is no conclusive relationship between remittances and GDP growth. While remittances can boost aggregate demand and thereby spur economic activity, other research indicates that remittances may also have adverse macroeconomic impacts by increasing income inequality and reducing labour supply among recipient countries.
Role in emergencies During disasters or emergencies, remittances can be a vital source of income for people whose other forms of livelihood may have been destroyed by conflict or natural disaster. According to the Overseas Development Institute, this is being increasingly recognized as important by aid actors who are considering better ways of supporting people in emergency responses. Refugees and other displaced populations also often remit to family members left behind in conflict areas.
Regulation and security concerns The recent internationally coordinated effort to stifle possible sources of money laundering and/or terrorist financing has increased the cost of sending remittances, directly increasing costs to the companies facilitating the sending, and indirectly increasing the costs to the person remitting. In some corridors a sizeable amount of remittances is sent through informal channels (family connections, traveling friends, local money lenders, etc.). According to the World Bank, some countries do not report remittances data.
Moreover, when data is available, the methodologies used by countries for remittance data compilation are not publicly available. A 2010 world survey of central banks found significant differences in the quality of remittance data collection across countries: some central banks only used remittances data reported from commercial banks, neglecting to account for remittance flows via money transfer operators and post offices.
Remittances can be difficult to track and potentially sensitive to money laundering (AML) and terror financing (CTF) concerns. Since the 9/11 attack many governments and the Financial Action Task Force (FATF) have taken steps to address informal value transfer systems. Nations often complete this goal through the use of Financial Intelligence Units (FIUs). The principal legislative initiatives in this area are the USA PATRIOT Act, Title III in the United States and, in the EU, through a series of EU Money Laundering Directives. Though no serious terror risk should be associated with migrants sending money to their families, misuse of the financial system remains a serious government concern.
The World Bank and the Bank for International Settlements have developed international standards for remittance services.
History Several European countries, for example, Spain, Italy, and Ireland, were heavily dependent on remittances received from their emigrants during the 19th and 20th centuries. In the case of Spain, remittances amounted to 21% of all of its current account income in 1946.Remesas.org, Emigrantes construyendo escuelas: La primera política oficial de codesarrollo All of those countries created policies on remittances developed after significant research efforts in the field. For instance, Italy was the first country in the world to enact a law to protect remittances in 1901 while Spain was the first country to sign an international treaty with Argentina in 1960 to lower the cost of the remittances received.
21st century Since 2000, remittances have increased sharply worldwide, having almost tripled to $529 billion in 2012. In 2012, migrants from India and China alone sent more than $130 billion to their home countries.
In 2004 the G8 met at the Sea Island Summit and decided to take action to lower the costs for migrant workers who send money back to their friends and families in their country of origin. In light of this, various G8 government developmental organizations, such as the UK government's Department for International Development (DFID) and the United States Agency for International Development (USAID) began to look into ways in which the cost of remitting money could be lowered.