What is a Remittance?
If we were to look at the dictionary definition of the word ‘remittance’, it refers to money that is sent as payment or as a gift. The act of paying for the purchase you are making is the remittance. There are a number of other words that are often used interchangeably with the term ‘remittance.’ These include: remuneration, compensation, consideration, recompense and payment. You’ve probably heard any number of these words more frequently than you’ve heard the term ‘remittance’. But there are specific situations in which this term is used more often, in fact, even dictionary definitions will indicate that remittances are ‘sent’ and generally refer to ‘sending money from a distance’.
Remittance in Developing Countries
One of the more common ways that remittances are used nowadays is for the benefit of those in developing countries.
In developing countries, where there simply are not enough jobs and opportunities available, people leave their home country to make a new life for themselves in another other country. The family they leave behind may not able to support themselves without some assistance.
Support for the family will generally fall on the one (or more) person sent abroad, with the family dependent on remittances being sent back to them.
Remittances will generally be in the form of wire transfers or cash or cheques as they are a ‘known’ and easy method to transfer and easy to cash out by the person receiving the money.
Remittances amounting to over $500 billion dollars already being sent across borders by friends and family, and that t is expected to grow more than 5% over the next few years. This is a direct result of increases in immigration, with more people migrating from developing countries to countries with more opportunities.
With advancements in technology, the ability to utilise remittance is evolving evolving. Where once it was required that payments be made in cash, cheque or wire transfer through a physical retail outlet, this is less often the case as mobile money and digital wallets begin to proliferate. In developing countries where many other luxuries may be denied, there is the opportunity for using less expensive and far more secure methods to transfer the money (remittances) from one person to another.
Stay tuned for our next 101 articles:
• What is an airtime top-up?
• Remittances are more than just cash
• Mobilising Remittances