Overview

A remittance is a non-commercial transfer of money by a foreign worker, a member of a diaspora community, or a citizen with familial ties abroad, for household income in their home country or homeland.

Money sent home by migrants competes with international aid as one of the largest financial inflows to developing countries. Remittance is more than three times as large as the total global foreign aid. In 2021, $780 billion was sent to 800 million people, while foreign aid totalled $200 billion. Most remittance flows from high-income countries to lower-income countries. Workers' remittances are a significant part of international capital flows, especially with regard to labor-exporting countries.

A substantial share of remittance ends up in the hands of banks and money-transfer companies due to fees imposed on money transfers. Governments can play a vital role in enabling migrants to support their families more effectively by implementing measures that help reduce transaction costs.

Global extent

Remittance has been defined by the World Bank as the part of the earnings which a migrant worker sends back to family members in the country of origin. Worldwide, the flow of remittance has increased from US$72.3 billion in 2001 to approximately US$483 billion in 2011. According to the World Bank, in 2018 overall global remittance grew 10% to US$689 billion, including US$528 billion in 2019 to developing countries. Overall global remittance was expected to grow 3.7% to US$715 billion in 2019, including US$549 billion to developing nations.

According to the World Bank, remittance flows to low- and middle-income countries grew by about five percent in 2022, reaching US$626 billion.

Remittances make up a significant portion of economies of developing countries. Many receive over 10% of their gross domestic product (GDP) in remittances each year, with some exceptional cases as high as a third of their GDP.

International remittances have a major impact on developing countries around the world because the majority of remittances, some $441 billion in 2015, goes to developing economies. This amount is nearly triple the $131 billion of global Official Development Assistance.

Major operators

The licensed money transmitter Western Union allows customers to designate a recipient who can pick up that money directly at any Western Union or from a Western Union affiliated agent. Western Union also operates as bureau de change with a fee ranging from eight to twelve percent. Western Union is the world's leading handler of remittance and the 170,000 Western Union agents handle about 25 percent of the total global remittance traffic.

Other companies such as MoneyGram have also been a key player for decades. Pure play money transfer providers may be owned by parent companies with more diverse interests. Two players dominate the international electronic funds transfer for interbank payments between two bank accounts. These are the Clearing House Interbank Payments System (CHIPS) and the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Businesses as well as banks can subscribe to the international communications network Telex and initiate international financial transfers.

Although the remittance market share diversified when fintech startups entered the market in the 2010s, Western Union continues to dominate the majority of the remittance market share. Since the advent of fintech, many digital remittances have emerged on the scene, leading to the rise of comparison platforms or aggregators such as FXcompared and Monito in Europe and in Southeast Asia.

Economic effects on developing countries

The extent to which remittances produce benefits for developing countries is argued.

Remittances are generally thought to be counter-cyclical. The stability of remittance flows amidst financial crises and economic downturns make them a reliable source of foreign exchange earnings for developing countries. As migrant remittances are sent cumulatively over the years and not only by new migrants, remittances are able to be persistent over time. This is particularly true of remittances sent by circular migrants, migrant workers who move back and forth between their home and host countries in a temporary and repetitive manner.

At the state level, countries with diversified migration destinations are likely to have more sustainable remittance flows.

From a macroeconomic perspective, there is no conclusive relationship between remittances and GDP growth. While remittances can boost aggregate demand and thereby spur economic activity, other research indicates that remittances may also have adverse macroeconomic impacts by increasing income inequality and reducing labour supply among recipient countries.

Role in emergencies

During disasters or emergencies, remittances can be a vital source of income for people whose other forms of livelihood may have been destroyed by conflict or natural disaster. According to the Overseas Development Institute, this is being increasingly recognized as important by aid actors who are considering better ways of supporting people in emergency responses. Refugees and other displaced populations also often remit to family members left behind in conflict areas.