You have probably heard the term remittance being tossed around from time to time. It has been a buzzword for a while now and it is a huge component of the global economy. So, what exactly is remittance?
What is remittance?
Remittance is the transfer of money by a foreign worker to an individual in his or her home country. A vast number of people all over the world are employed outside of their home country. The money that they earn from working abroad is known as remittance, which can be used to support their family, friends, and others back home.
Sending money doesn’t have to be the only type of remittance. You can also send goods, commodities, or other items. If you’re like most people who send money abroad, you’re probably already familiar with the concept of remittance. If not, no worries — in this article we’ll explain it in more detail and outline why it’s so important.
Why is remittance so important?
Rural areas can be bypassed by economic growth and outpaced by urban communities. But, remittances help to balance this out. Money sent from relatives living in the city or around the world to those still in rural areas can make a world of difference. Here are three facts that highlight why remittance is so important globally:
1 billion people are involved in remittances
Remittance is an important part of the global economy.The value of remittance flows has increased five-fold over the last 20 years and a staggering one billion people are involved in remittance, either sending or receiving. Out of these, 200 million are migrant workers who send money to their families back home, and around 800 million people benefit from these flows.
70+ countries rely on remittances
More than 70 countries rely on remittances. They are an engine for national socioeconomic growth and an important factor in poverty alleviation and development. Migrant workers are the backbone of these countries’ economies, sending money home on a monthly basis. On average, they send between US$200 and US$300 every other month, which can make up as much as 60% of a household’s total income. The money they send back is a lifeline for millions of families.
Migrants contribute to the Sustainable Development Goals
Migrants make a huge contribution to the SDGs, which are 17 goals outlined by the United Nations that, if reached, would eliminate poverty and have a transformative impact on all of humanity. Migrants often send money from abroad to their family, enabling them to avoid poverty and hunger, improve their access to better health care, get an education, and live in a cleaner environment. In addition, migrants contribute to economic growth in developing countries and support projects that promote equality.
The global value of remittances
Remittances have always been a critical source of income for many families across the world. In fact, remittances are the most significant source of foreign income earned by developing countries. The importance of remittances cannot be overemphasised, especially for developing countries that are often tied to the performance of their expatriates and highly dependent on their income and capital.
Although COVID-19 had a significant effect on remittance flows, they remained resilient in 2020. In 2019, recorded remittance flows to low- and middle-income countries reached $548 billion. In 2020, remittance flows were just 1.6% less than that total, at $540 billion.
Barriers to remitting money; reducing costs; increasing speed and efficiency
Despite the fact that the development of the internet has created many possibilities for people to get in touch with each other and help them solve different issues, the cross-border payments system still has not been improved. For example, money transfers from the USA to Australia are still being performed via SWIFT or telegraphic transfers.
Sending money abroad can be really costly. The average cost of sending money globally is 7% of the amount sent with currency conversions, fees, and bank charges. However, recent advancements in technology are changing the way international money transfers are conducted. Mobile technology, for example, has already made it possible to send money digitally. And blockchain might soon help to make transactions more secure. With the right legal environment, these services could become more accessible for everyone.
Intergiro is here for your international transfers
Intergiro helps businesses that want to grow and send money abroad. With access to 8 different currencies, businesses can. With its B2B2C offering, Intergiro.3d, Intergiro can also support businesses who want to support the remittance market directly. Get in touch today to find out how we can help with your company’s international payments or building the next remittance giant.