What Is a Remittance
A remittance is funding that is sent or transferred to another party usually abroad. Remittances can be sent to another country via a wire transfer, mail, draft, or check. Remittances can be used for any type of payment such as an invoice, but it's typically used to pay family members back in a person's home country.
Remittances have played an increasingly large role in the economies of small and developing countries. Since the late 1990s, remittances have exceeded development aid, and in some cases make up a significant portion of a country's gross domestic product (GDP).
According to a report by the World Bank in 2018, $466 billion in remittances were sent to low-income and middle-income countries in 2017. If we include high-income countries as well, the total amount of remittances jumps to $613 billion. For low-income countries or countries where their economy is struggling to develop, remittances represent one of the largest sources of income for their people.
Remittances are an enormous source of income for developing nations since the payments are typically used to help family members back in a person's home country.
Economic Importance of Remittances
Remittances from abroad are also a source of income for those living in emerging markets like Mexico. In 2015, Mexicans abroad sent over $24 billion back home, which was more money than the country generated from selling oil. Remittances are often used as a way to help raise the standard of living for people abroad and help combat global poverty.
Struggling Venezuela has seen its population migrate to other countries over the years. With so many refugees and immigrants living abroad, the result has been a surge in remittances. In 2017, over $1.5 billion in remittances were sent to family members remaining in the beleaguered country.
Remittances are seen as an important part of disaster relief and often exceed official development assistance (ODA). Remittances are also used to help those living in less developed nations open bank accounts, which helps promote economic development. Some countries limit remittances to wire transfers to banks.
Transparency in Tracking Remittances
The methodology that countries use to record the amount of money people are receiving via remittances is rarely made public. While the majority of value transfers occur via web or wire transfers where they can be more easily accounted for, a fair amount of money is transferred in ways that are more opaque.
As a result, concerns have been raised among financial intelligence units that remittances are one of the ways in which money can be laundered or violent activities like terrorism can be sponsored.