What are remittances? What role do they have in developing countries?

  • ERemit
  • 3 minutes read

Tackling the first question of “what are remittances?” the answer is as follows. According to Wikipedia, “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”. Yes, this definition gives a sharp idea of the term remittance. It is the form of money transfer that helps migrant workers to send money back to their family members residing in the home country, out of familial bonds and love.

international money transfer , although having larger benefits for individual alleviation and family needs, also plays a major role in the economy of developing countries. The development of the family standards has an indirect impact on the development of the nation as a whole. Remittances have “first-round effects” on the family financing such as:

  • Survivalist financial support:
    For all the basic survival needs of the families like food, shelter and clothing, remittance money comes for rescue.
  • Smooth balancing of income & expenditure:
    With remittance money coming, families in home countries can keep a balance between the income and expenditure, a misalignment of these will lead to debt.
  • Education and Health:
    Quality education and medical treatment are always costly in most countries. Thus, remittance money can support all the students and parents to meet their necessities accordingly.
  • Repayment of debts:
    Belonging to low-class or middle-class families, there might be financial debts. With remittance money, the debts can be repaid, at the earliest.

Now let us see how remittance money benefits the local and national economies.

  • Spending has a multiplier effect on local economies:
    The remittance money spent to purchase various goods and services has a multiplier effect on local economies. How? Because the money spent creates incomes for others and stimulates economic activity generally.
  • Stabilises the national currencies and foreign exchange:
    Remittances are potentially stabilising factors for national currencies. How? By presenting them with a stable flow of foreign exchange. Thus, alleviating the balance-of-payments and debt crises of developing countries.
  • Boosts financial development even in times of economic distress:
    Even when the home country is facing economic distress, remittances allow consumption smooth in individual households. In this sense, they provide a potentially stabilising stream of earnings for national economies too.

In the individualistic/familial terms and as the nation as a whole, remittances are real potential boons to developing countries. Online money transfers help all developing nations in times of financial support. The increasing scale of immigrations and remittances, assist the upheaval of the economy in developing countries.