Loading the player...

What is a 'Remittance'

A remittance is the funds an expatriate sends to his or her country of origin via wire, mail, or online transfer. These peer-to-peer transfers of funds across borders are economically significant for many of the countries that receive them.

BREAKING DOWN 'Remittance'

Remittances have played an increasingly large role in the economies of small and developing countries. Since the late 1990's, remittances have exceeded development aid, and in some cases make up a significant portion of a country's gross domestic product (GDP); for example, remittances from overseas workers back to Nepal amounted to 25% of the nation’s GDP in 2014.

Remittance payments also comprise a substantial amount of the flow of capital between countries. In 2014, $583 billion in USD was transferred between countries – $436 billion of which was received by developing countries. The countries receiving the largest share of remittances are the BRIC nations China and India. Those countries received $69.97 and $59.49 billion dollars in 2013 by 2015 estimates.

Other examples include Latin American and Caribbean countries receiving a total of $66.5 billion in remittances in 2007, more than foreign direct aid and development aid. (Three quarters of this came from migrant laborers inside the United States.) The Philippines has also historically received a significant amount of remittances, amounting to $21.3 billion in 2010. Remittances to many African countries have historically been more difficult to track. A paper from University of Iowa’s Center for International Finance and Development estimated $40 billion USD was sent via 20 to 30 million African immigrant laborers annually.

Remittances are seen as an important part of disaster relief and often exceed official development assistance (ODA). Remittances are also seen as a method to get those living in less developed nations to open bank accounts. Some believe this, in turn, helps promote economic development. Some countries limit remittances to wire transfers to banks. Banks usually end up limiting the services they use to specific money transfer companies.

Transparency in Tracking Remittances

The actual 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. This has raised concerns among financial intelligence units that remittances are one of the ways in which money can be laundered, or violent activities, like terrorism, sponsored.

Still, remittances play an important role in the growth of developing countries. In 2004, at the G8 Summit, member countries agreed to take on the problem of the relative high cost of moving funds across borders. In 2008, the World Bank established a database, where people could compare prices of different transfer services and ideally create more competition among the providers, bringing down the cost for consumers. In 2011, the Gates Foundation estimated that cutting transfer fees from 10% to 5% could "unlock" up to $15 billion a year in poor and developing countries.

  1. Remittance Letter

    A remittance letter is a document sent to a creditor along with ...
  2. Financial Innovation

    Financial innovation has come through advances over time in financial ...
  3. Current Transfers

    Current transfers are current account transaction in which a ...
  4. Wire Transfer

    A wire transfer is an electronic transfer of funds across a network ...
  5. Book Transfer

    A book transfer is the transfer of funds from one deposit account ...
  6. Due Bill Period

    In the context of corporate actions (such as dividends, issuance ...
Related Articles
  1. Insights

    Three Things to Know About the Remittance Economy

    Up until the turn of this century, remittances were ignored by most economists in development economics. But, the remittance economy is growing and is fast becoming an important part of a country's ...
  2. Insights

    How Tech Companies are Disrupting the Remittance Market

    Mobile apps by many financial tech firms are increasingly gaining high revenues from international remittances.
  3. Tech

    Bitcoin's Most Profitable Use: the $600 Billion Overseas Remittance Business?

    Bitcoin is increasingly being used as a medium for global money transfers.
  4. Tech

    The World Will Soon Use Bitcoin to Send Money Home

    New players are constantly challenging the dominant, conventional mechanism of payment transfers that existed before bitcoin and blockchain arrived.
  5. Investing

    Best Ways to Send Large Sums of Money Abroad

    Understand why it may be difficult to send large sums of money internationally. Learn about the top five ways to send large sums of money abroad.
  6. Investing

    How Diaspora Bonds Work

    Developing and emerging nations with sizable populations living overseas are using diaspora bonds to raise financing from emigrants.
  7. Tech

    Best Ways to Send Money to the Phillipines

    When you need to send funds to friends or family in Metro Manila or elsewhere in the Philippines, these four services make it fast and simple.
  8. Investing

    5 Money Transfer Tips For Foreign Workers

    If you are working in the U.S. as a foreign worker, here are some tips for sending money back home.
  9. Tech

    Bitcoin Startups in India Raise Significant Funds

    Bitcoin exchanges in India are gaining fundraising.
  10. Tech

    India's Bitcoin Startups & the Fundraising Gold Rush

    Unocoin created history with the largest fund raising so far in India for any digital currency venture.
  1. What is the difference between a current account deficit and a trade deficit?

    Learn the meanings of the macroeconomic terms "current account deficit" and "trade deficit," and understand the differences ... Read Answer >>
  2. Are there any regulations on transfer pricing?

    Learn about transfer pricing, its role in intra-business calculations, and how the U.S. government regulates transfer pricing ... Read Answer >>
  3. How does transfer pricing help business?

    Explore several ways that transfer pricing helps businesses. Transfer pricing can often help streamline accounting and business ... Read Answer >>
Trading Center