Remittances – An Essential and Growing Facet of the World Economy

Remittances are a simple concept: emigrants send earned income to people back home. We’re all familiar with the practice. Many of us have friends and neighbours who were born overseas. They’ve lived in their new home-nation for months, years or even decades. But they have lots of loved ones who still live in their country of origin.

Very often they have moved from a poor or developing nation to a comparatively rich one, where more wealth is available for workers and where the currency is more valuable.

By sending money back home, these emigrant workers can ensure a higher standard of living for the loved ones.

This is an everyday scenario that we have grown accustomed to. Practised by millions of migrants around the world, funds sent to developing nations total figures are in the hundreds of billions (USD). The World Bank estimates that 2014 Remittance totals were $582 Billion, counting money sent from one nation to another. Most of this ($435 Billion) was sent from wealthier nations to poor or developing nations, sometimes accounting for great percentages of individual nations’ GDP.

The remittance market has seen a big growth in the last decade, from a little over 200 billion US$ in 2004, to almost 600 billion in 2014, and will grow with each passing year. The technological advancements and the fact that more and more people start to work in foreign countries will help the market get bigger and bigger.

232 million people in the world are considered international migrant workers. This is 3.1% of the total global population. And most of them regularly send money back home to families and friends. These are individuals who send money home to their families and support their families.


Countries that receive most remittances

At a global level, the countries to receive the most remittances payments over the course of 2013 were:

Back in the USSR :  Some countries rely strongly on this kind of income as it a big percentage of their GDP. One main recipient is the countries that were previously part of the old Soviet Union: Tajikistan = 48.8% Kyrgyz Republic = 31.5% Moldova = 24.9% These are significant figures, and the vast majority of funds are being sent from Russia. With the recent Ruble crisis that has depreciated its value to a large extent, these countries’ economies are directly impacted. According to the World Bank, 9 countries that rely on remittance inflow from Russia could collectively lose more than $10 billion in 2015.

By Countries

India is the largest receiver of remittance funds in the world, at $71 Billion. These funds are generated by an estimated 14 million migrant workers born in India, who have since moved to richer nations to earn their living. Because India is so populous (1.251 billion people in 2015), remittance inflows only account for about 4% of GDP. This is similar to other large recipients of remittance inflows, nations like China ($64 Billion), the Philippines ($28 Billion), and Mexico ($24 Billion). Even though these numbers are relatively small when considered within these nations’ larger economy, there are some countries that are kept afloat by remittances.

Countries that send most remittances

Globally the most predominant countries for international remittances transfers are:


The brave new world of remittances

According to the October 2014 Brief released by World Bank, the traditional way of sending money through banks accounts and wires is still the most preferred option. But the online, which now accounts for only 23%, will see a big increase in the next year as the fees are smaller than traditional banks.

Remittance fund totals rise steadily every year, at rates hovering around 4-5% annual growth. At this rate, remittance outflows far outpace private equity and portfolio increases in many of the nations where this wealth is generated in the first place. Forced migration has been on the rise since World War II, with war, economic distress, famine, and disease being driving forces behind many individuals’ moves. Most emigrants move from a very poor nation to a developing nation, with Iran and Pakistan hosting a greater percentage of migrants than any other nations.

Mobile platforms are the next step that has the attention of all the remittance company in the market as the technology gets cheaper and easier to implement with each passing year. Everybody has or will start developing mobile apps for both Android and iOS as mobile traffic is slowly surpassing desktop traffic in almost any market.

Remittances – An important source of income from Channel on Slideshare

What happens when remittances are nontransferable?

There are many countries blacklisted by UK and USA banks, which makes them very inaccessible. Not only banks have to comply with these directives, but also commercial money transfer companies as the ones listed on this website are forbidden from sending them money. In extreme cases, there is no legal way to transfer money in and out of the country, for instance North Korea, and until very recently Iran.

Though financial sanctions have been proved to be a useful way of preventing hostile companies from growing and funding terrorism, it is also harming the diaspora.

Remittance Companies

So how do migrant workers send money back home? Many remittance channel agents have been in operation for years or decades. Companies like Western Union, MoneyGram, UAE Exchange, Xpress Money, and countless others have become familiar to all, through advertising placed in emigrant-rich communities. But as web and mobile technologies make it easier and faster to send money to other nations, many competitors are emerging, and costs are going down. More and more people are sending remittances every year, but it’s getting harder for agents to take large percentages.

Foreign Exchange Companies like MoneyCorp or Currencies Direct have a wide global reach while taking an average margin of approximately 1% on popular currencies. The minimum transfer amount is $250 and $100 respectively, making it very relevant for remit transfer.

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Average costs were down to 7.9% in 2014, down from 8.9% in 2013.

Many people send $200 or less in the form of remittances. 10 years ago, agents often took 10%, or more, of figures this low. Competition can be expected to continue lowering the cost of sending remittances. As emigration continues to rise, due to war, climate change, and countless economic and cultural factors, remittance sending is only going to increase.

Lowered costs will also drive remittances up, both inflows and outflows. It’s an interesting industry, one that plays a large role in the global economy. As the world becomes increasingly integrated, remittance money will only become more a part of our daily lives, no matter where you live.