Sending funds across borders has always been part of human activity. The earliest practice could be traced to the commencement of trade among towns, facilitated by traders who travel within these towns and workers who send resources to their loved ones at home via these traders.
Fast-forward to the 19th and 20th centuries. Several European countries became heavily dependent on remittances sent by emigrants abroad. Thereon, governments began to see the economic impacts of remittances.
Economic policies regarding remittance were developed as a result, and ever since, remittance has transformed from a nameless practice to a standardized industry within the world of finance.
What is Remittance?
Remittance is the common term given to money sent by foreign workers or workers living abroad to family members back in their home countries. Such funds can be sent via wire transfer, cash pick-up, or online transfer. To put it in black and white, you perform a remittance the moment you send money from your country of residence to family members or friends in another country.
In this case, remittance involves three parties:
- The Remitter: This is the expatriate or foreign worker who sends money home
- The money transmitter: Generally, this is the medium through which the money is sent. The transmitter can be a bank, a money transfer shop, or remittance software.
- The Beneficiary: Families or friends of the expatriate who receive the money sent
However, this definition of remittance is limited in two ways.
First, it does not take into account money sent across borders in the form of payment for goods purchased. Neither did it consider money sent in the form of government relief aids to citizens in the diaspora. Money sent by wealthy individuals across borders to areas in crisis is equally not included.
Secondly, remittance is not limited to international money transfers alone. Substantial funds are transferred from urban cities or areas to rural places within a country or continent every year. This is known as domestic remittance and it is fast becoming an industry on its own.
International Remittance
A direct definition of international remittance is the money transferred by migrants in developed nations to beneficiaries in developing or under-developed nations. This remittance also includes money transferred by citizens of developed nations working abroad, back home.
However, the majority of international remittances are sent to developing and under-developing countries. In 2018, the World Bank reported that a total of $528 billion out of the global remittance of $689 billion was sent to developing and under-developing nations.
The United States, Saudi Arabia, and the United Kingdom rank among the top senders of remittances globally. This is due to the number of migrants working in these countries.
As of 2018, India remains the top receiver of remittance with over $80 billion received by the Indian economy from expatriates abroad. In Africa, Egypt and Nigeria are by far the top receivers of international remittance averaging a combined $15 billion annually.
Since the 20th century, international remittance has always played a critical role in the economic growth of many developing and under-developed countries. Major capital flows enter into many labour-exporting countries through workers’ remittance. For some other nations, remittance contributes more than 10% of their GDP, outstripping Foreign Direct Investment and even international aid.
International remittance is often done by bank transfers and money transmitter companies and is directly influenced by foreign exchange rates.
Domestic Remittance
Domestic Remittance refers to the money sent by workers in urban regions of a country or continent to rural areas within that same country or continent. There have been debates on whether to limit domestic remittance to intra-country money transfers or extend it to intra-continental transfers.
While international remittance deals with a distinctive division of economic class between sending and receiving nations; i.e from developed countries to developing countries; domestic remittance focuses on the transfer of wealth from developed cities, areas, and states to villages and small towns within a country.
Remittance sent by internal migrants to rural areas provides vital supplementary resources to families and businesses within these areas.
, Unlike international remittance where a chunk of money transfers can be recorded through the transfer medium used, the channels of domestic transfers are much more difficult to understand. This is especially true in Africa and Asia where people carry money with them back to their villages.
Studies have further shown that more households are dependent on domestic remittance than on international remittance. This is understandable given the cheaper cost of sending domestic remittance and the far higher number of internal migrants as compared to migrants living in other countries.
An example of this is South Africa whose annual domestic remittance is within $11 billion to $13 billion, which is equivalent to 4% of the country’s GDP as compared to the country’s annual international remittance.
International and Domestic Remittances – Similarities
One obvious thing with both domestic and international remittance is that they both involve sending money home. Monies sent by migrant workers go far beyond just supporting families. It has become an economic lifeline for many households.
Opportunities for Money Transfer Businesses
If you operate a remittance business, chances are you already know the weights that remittance – local and international – pull in for developing countries.
You would have further redefined your perspective since the outbreak of COVID-19 given remittance took a new dimension and was largely conducted online. It has become clear that online is the future of remittance.
Remittance is digital today and growing strong. Smart money transfer operators operating locally are adapting their businesses and switching to using world-class remittance software to go online.
We advise you to adopt the Money Transfer Application. It is the foremost local and international remittance software globally. With MTA, your money transfer business is guaranteed access to any country in the world, fully compliant to country-specific compliance rules, and highly secured.
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