The term Remittance signifies deportation of money or fund by an individual living in the foreign land to another individual residing in his countries of origin. This inflow of money generally occurs from a developed country to a developing country, and this transfer is done by a migrant worker. This money which is popularly called as remittances are a critical part of international cash flow, and it has got prime significance because labor force from a developing country is exported to a developed country. More is the remittance, the finances of a country is improved.
Effects of Remittance
- Remittances affect the finances of a country largely. It can improve the financial condition of a developing country.
- Remittances affect the livelihoods of a given country. When there is cash inflow from a developed country, the currency value is more and hence the value of money increases when it is transferred to a developing country increasing the livelihood of people.
- Remittance has a significant role in the GDP of a country. It increases the GDP. It represents more than 10% of GDP of a country.
- It can affect Foreign Direct Investment (FDI) as well. It increases the flow of FDI
Significance of Remittance
The phenomenon of Remittance is relatively new, and today it is one of the primary sources of foreign capital flow. A country’s growth largely depends on cash flow from a developed country because it contributes to a major portion of incomes of that country. Remittance has a larger impact on the economy of a developing country than the economy of a developed country because 27% of GDP is constituted by remittance and that’s quite a big percentage. Hence we cannot ignore remittances when we consider the economic growth of a developing country.
According to World Bank, the percentage of remittance received by a developing country is increasing every year. This is because more and more educated and talented people are getting settled in the foreign land where they are receiving a higher salary. They are sending a portion of this money to their friends and relatives residing in a developing country which in turn is increasing the cash flow or remittance. According to a survey done by the World Bank, remittance flow in developing countries has grownby 6.3 % in 2013 as compared to 2012.
Sources of External Financial Flow:
- Remittances- this covers the major part of the external financial flow.
- Foreign Direct Investment- the second largest source of cash flow from a foreign
Factors Contributing To Increased Percentage of Remittance over the Years:
- Migration of potential labour force from developing countries to developed country for better living conditions and high salary.
- The transaction of money between individuals living in two different countries has become easy and quite efficient. Today money can be transferred at a faster rate and with a meager transaction cost. This system has seen some technological improvement over the years which have acted beneficially for developing countries.
Remittance Made Easy:
Companies like InstaRem, worldremit, WorldFirst, MoneyGram, OFX and to name a few have made money transfer easy. InstaRem is a Singapore based online money transfer company which has only one mission that is “Instant remittance”. It tries to provide a gratifying experience to its customers by carrying out an easy money transfer procedure across the borders.
Remittances do not only contribute to the development of a country but also have a lot of sentiments attached to it. It is money transferred by a person staying in the far away land to his loved ones. These funds should be moved very easily without taking much time. Thus remittances not only contribute to the economy of a country but also change the livelihood and financial status of the individual receiving the money.