Remittance refers to the transfer of funds from one party to another in the form of bills, invoices, or even gifts. However, in the current international currency market, “remittance” more often refers to the money sent by immigrants working or living abroad to their relatives in their home country. Therefore, these types of remittances are also sometimes called migrant remittances.
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What Does Remittance Mean?
For immigrants and their families, remittance means “sending money home.” According to the rules of the currency market, remittance is the process of sending funds to a recipient’s account in a different country. For families living in countries with slow economic growth and developing nations, these remittances are a primary source of income for their survival, so their relatives working abroad regularly “send money home.”
Currently, the majority of global remittances are transferred electronically. Both remittance service providers and bank electronic payment systems support electronic remittances, also known as digital remittances. When using these channels, the sender needs to pay a transfer fee. The advantage of electronic remittances is their speed, often taking less than ten minutes to complete without leaving home, which saves a significant amount of time. Therefore, electronic remittance is currently the most popular method for sending money abroad.
For some people living in countries with slow economic growth or in developing nations, remittances from relatives working abroad are a vital source of funds for their survival. These overseas remittances are particularly crucial during natural disasters, as they become a significant source of funding for disaster relief efforts.
Migrant remittances have greatly improved the standard of living in less developed countries with slow economic growth. Through these remittances, people in less developed countries can open bank accounts, which in turn can promote economic growth.
Understanding Remittance
Most remittances come from immigrants working abroad. The most common channels for overseas remittances are bank electronic payment systems or remittance service providers like Western Union. When using these channels, senders usually need to pay a service fee, and under smooth circumstances, the remittance can arrive in as little as ten minutes.
Remittances play an increasingly important role in the development of some small countries and developing nations. Migrant remittances help alleviate global poverty and improve the standard of living in low-income countries. In many cases, migrant remittances also undertake the heavy responsibility of disaster relief, and their role may even surpass that of official government development assistance (ODA).
Since the late 1990s, the trend of migrant remittances surpassing official government development assistance has become prominent. In some less developed regions, they have even become an important component of the local GDP.
In 2023, the amount of remittances sent back to low- and middle-income countries reached a record $669 billion, exceeding the previous historical high of $645 billion in 2022 by 3.8%. The World Bank expects this figure to continue to rise in 2024, potentially reaching $690 billion, which represents a growth rate of 3.1%.
Migrant remittances help promote the opening of bank accounts by residents in less developed regions, thereby driving local economic growth.
The 2020 Financial Crisis
The economic crisis of 2020 had a certain impact on immigrants and their families in their home countries, with the continuously growing inflow of remittances to low- and middle-income countries showing negative growth for the year. However, the decline was only 1%, whereas the World Bank had originally projected that remittances to low- and middle-income countries for that year might be 14% lower than pre-pandemic levels. This indicates that even in 2020, immigrants still made efforts to send money to their home countries to support their families in less developed regions.
The cost of international remittances has remained high. After the COVID-19 pandemic, the World Bank urged all parties to recognize the important role of remittance services and called for greater efforts to enhance financial inclusion for the poor, improve agent-bank access for new remittance companies, and set a global grand target of reducing remittance costs to 3% by 2030. Currently, the average cost of sending remittances to most African countries is more than double this target.
Some countries only allow bank wire transfers for remittances because these channels are more transparent. However, the World Bank states that banks are the most expensive way to send money, with wire transfers being particularly costly. Increasing competition in the remittance market, improving access to bank accounts, and avoiding exclusive partnerships between remittance companies and national postal services can help reduce remittance costs.
Factors to Consider with Remittances
The financial intelligence units of many countries are concerned that remittances could be used for terrorist financing or money laundering.
Governments rarely disclose how they monitor and manage migrant remittances. Although most remittances are conducted through transparent channels like the internet or wire transfers, a significant amount of funds is still transferred through relatively covert channels.
Benefiting from the recent wave of fintech development, the cost of overseas remittances has been trending downwards. Fintech remittance platforms like Payoneer, Wise, and Worldremit have grown rapidly. In the face of competition from these emerging platforms, established remittance channels like Western Union are also constantly updating their hardware to adapt to the times.
In the emerging and massive global remittance market, the next focus should be on establishing reasonable regulations and paying attention to further development trends in remittances to reduce the costs and improve the security of sending and receiving money, while also promoting the goal of expanding financial inclusion.
Global Remittance Data
What is the total annual amount of global remittances?
According to data from the World Bank, in 2023, the total amount of global remittances was $860 billion, while the total amount of remittances flowing into low- and middle-income countries was $669 billion, accounting for 77.8% of the global total.
Which countries send the most remittances?
In 2023, the United States remained the country with the highest remittance outflows, followed by Saudi Arabia. Other member countries of the Gulf Cooperation Council (GCC) also ranked among the top in international remittance outflows.
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