Remittance Definition - Investopedia

A remittance is a payment of money that is transferred to another party. Broadly speaking, any payment of an invoice or a bill can be called a remittance. PersonalFinance Banking WhatIsaRemittance? Aremittanceisapaymentofmoneythatistransferredtoanotherparty.Broadlyspeaking,anypaymentofaninvoiceorabillcanbecalledaremittance.However,thetermismostoftenusednowadaystodescribeasumofmoneysentbysomeoneworkingabroadtohisorherfamilybackhome. Thetermisderivedfromthewordremit,whichmeanstosendback. KeyTakeaways Aremittanceismoneysenttoanotherparty,usuallyoneinanothercountry.Thesenderistypicallyaforeignworkerandtherecipientarelativebackhome.Remittancesrepresentoneofthelargestsourcesofincomeforpeopleinlow-incomeanddevelopingnations,oftenexceedingdirectinvestmentandinternationaldevelopmentassistance. 0:43 Remittance UnderstandingRemittances Mostremittancesaremadebyforeignworkerstofamilymembersintheirhomecountries.ThemostcommonwayofmakingaremittanceisbyusinganelectronicpaymentsystemthroughabankoramoneytransferservicesuchasWesternUnion.Peoplewhousetheseoptionsaregenerallychargedafee.Transferscantakeaslittleastenminutestoreachtherecipient. Remittancesplayanincreasinglylargeroleintheeconomiesofsmallanddevelopingcountries.Theyalsoplayanimportantroleindisasterrelief,oftenexceedingofficialdevelopmentassistance(ODA).Theyhelpraisethestandardoflivingforpeopleinlow-incomenationsandhelpcombatglobalpoverty. Infact,sincethelate1990s,remittanceshaveexceededdevelopmentaid,andinsomecasesmakeupasignificantportionofacountry'sgrossdomesticproduct(GDP). AccordingtotheWorldBank's2019MigrationandDevelopmentBrief,$529billioninremittancesweresenttolow-andmiddle-incomecountriesin2018—anincreaseof9.6%overthepreviousrecordhighof$483billionin2017.Thisfigureissignificantlylargerthanthe$344billionofforeigndirectinvestmentinthesecountries,excludingChina,in2018.Includinghigh-incomecountries,thetotalamountofremittancesjumpsto$689billion,upfrom$633billionin2017. Remittancesarealsousedtohelpthoselivinginlessdevelopednationsopenbankaccounts,atrendthathelpspromoteeconomicdevelopment. The2020EconomicCrisis The2020economiccrisishadasevereimpactonmigrantworkersandtheirfamiliesbackhome. TheWorldBankestimatedinlate2020thatremittancestofamilymemberswoulddropby14%in2020comparedtopre-epidemiclevels.Itforesawrisingunemploymentamongmigrants,aslowingofnewmigrations,andanincreaseinreturnsofmigrantstotheirhomecountries. 6.8% Theglobalaveragecostofsendinga$200remittanceinthethirdquarterof2020,accordingtotheWorldBank. Foravalidreason,thereisaconcernaboutthehighcostofglobalremittances,especiallywiththeelevateddrivetowardsglobalfinancialinclusion.Topromotetransparency,somecountrieslimitremittancestobankwires,butbanksarethemostexpensivetransferchannel,andwiresareparticularlyamongthehighest,accordingtotheWorldBank. Inthefirstquarterof2019,bankschargedanaverageof11%intransferfees.Postofficeschargedonaveragemorethan7%.Thefeescanexceed10%whenthedestinationisinAfricaoraPacificOceanisland. ExamplesofRemittances Forlow-incomecountriesorthosewithstrugglingeconomies,remittancesrepresentoneofthelargestsourcesofincomeforthenativepopulation.In2015,forexample,Mexicansabroadsentmorethan$24billionbackhome,whichwasmoremoneythanthecountrygeneratedfromsellingoil. ThecollapseoftheVenezuelaneconomycausedanenormousmigrationtoothernations,andacorrespondingincreaseinremittancestofamilymembersleftbehind.In2017,morethan$1.5billioninremittancesweresenttofamilymembersremaininginthebeleagueredcountry. AccordingtotheWorldBank,thetopremittancerecipientsin2018wereIndiawith$79billion,followedbyChina($67billion)andMexico($36billion). SpecialConsiderations Thereareconcernsamongfinancialintelligenceunitsthatremittancesareoneofthewaysinwhichmoneycanbelaunderedorviolentactivitiesliketerrorismcanbesponsored. Themethodologycountriesusetorecordtheamountofmoneypeoplereceiveviaremittancesisrarelymadepublic.Whilethemajorityofvaluetransfersoccurviaweborwirewheretheycanbeeasilytracked,afairamountofmoneyistransferredinwaysthataremoreopaque. Recentfintechwavesininternationalmoneytransfersareforcingfeesdown.RisingplayersincludePayoneer,Wise,andWorldremit.WesternUnionismodernizingitstools.Regulationandoversightareyettofollowtoensureasaferfinancialinclusion. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. WorldBank."MigrationandDevelopmentBrief33."AccessedJan.15,2021. WorldBank."COVID-19:RemittanceFlowstoShrink14%by2021."AccessedJune12,2021. WorldBank."RemittancetoShrink14%by2021."AccessedJune12,2021. NBCNews."MexicoGotMoreMoneyfromRemittancesThanfromOilRevenuesin2015."AccessedMay11,2021. Bloomberg."VenezuelanRefugeesSendBillionsBackHome,HelpingtheLuckySurvive."AccessedMay11,2021. WorldBank."RecordHighRemittancesSentGloballyin2018."AccessedJune12,2021. RelatedTerms ForeignRemittance Aforeignremittanceisatransferofmoneyfromaforeignworkertotheirfamiliesorotherindividualsintheirhomecountries.Newappsforsendingmoneyabroadhavemadeitlessexpensivethaneverbefore. more HowaWireTransferWorks Awiretransferisanelectronictransferoffundsacrossanetworkadministeredbyhundredsofbanksaroundtheworld. more WhatDoesEurobankMean? Aeurobankisafinancialinstitutionthatacceptsdepositsandmakesloansinforeigncurrencies. more GrossDomesticProduct(GDP)Definition Grossdomesticproduct(GDP)isthemonetaryvalueofallfinishedgoodsandservicesmadewithinacountryduringaspecificperiod. more WhatIsMicrofinance? Microfinanceisabankingservicethatisprovidedtounemployedandlow-incomeindividualswhohavenoothermeansofgainingfinancialservices. more HowHawalaWorks Hawalaisawaytosendmoneyinformallywithoutthemovementofactualcurrency.Readhowhawalaworks,whereitisillegal,andhowgovernmentsregulateit. more PartnerLinks RelatedArticles BehavioralEconomics IntroductionToRemittances CryptocurrencyNews CouldBitcoinBeUsedfortheOverseasRemittanceBusiness? Government&Policy InternationalCOVID-19EconomicStimulusandRelief Banking 8Low-CostWaystoTransferMoney EmergingMarkets EmergingMarkets:AnalyzingthePhilippines'sGDP Economics WhatIstheBalanceofPayments?