Remittances

One of the key ways that nations around the world are growing and developing is through remittances. Remittances are money transfers initiated by foreign workers who are sending part of their earned income to loved ones at home. Remittances are a growing part of many international economies as the recipients of remittances use the money to better their own financial situation and stimulate local economies by spending money. Many estimates show remittances from the United State and various foreign countries at between $250 and $400 billion each year, and that figure is growing at a rate near 30% per year.

As migrant workers have placed greater importance on sending money home, efforts have been made to make transferring money to foreign countries easier and less expensive. The G8 and Department for International Development (DFID) banded together in 2004 to create a website called www.sendmoneyhome.org. The goal of the site is to allow migrant workers to explore and ascertain the fastest and easiest ways to send money to their home countries. The growing importance placed on having the ability to send money to loved ones overseas has given rise to a number of companies working to make the remittance process even easier and less costly. Remittances have gotten to the point that, in most countries, funds can be received within one or two business days.

The top countries currently receiving remittances from foreign countries currently include India, China, and Mexico. In 2005, remittances to India totaled over $25 billion, accounting for over 3% of India’s GDP, and increasing every year since. In Latin America, 75% of the remittances come directly from the United States and in many of these countries, remittances account for more than 10% of the nation’s GDP. The infrastructures of these countries are being enhanced greatly as a result of the money that is sent home by loved ones working abroad.

Currently, the top countries sending remittances include the United States, Germany, and Saudi Arabia. These countries are known as “net remitters,” while countries relying on remittances as a source of income are considered “net receivers.” In the United States, 70% of foreign workers remit funds to their home countries regularly. Of these remitters, 60% are considered “poor” and half are under the age of 35.

One of the advantages of making the remittance process easier to initiate has been in times of need, such as sending aid after a disaster. In many cases, loved ones who have lost their homes or possessions in natural disasters are able to access cash more quickly through direct remittance than by simply waiting for aid and donations to arrive. This is sure to be a growing trend as transferring money overseas is becoming an easier process.

The main challenge for people wishing to remit funds is the fact that many are poor and don’t have access to financial institutions to help facilitate the transfer. However, many financial institutions are creating programs to make money transfers easier and less expensive, which is likely to continue the growth trends in remittances.