What are remittances?

A remittance is a transfer of money by somebody to his or her home country or a country where several members of somebody’s family reside. Many people move to work in the UK or the West in order to send remittances back to their country of origin. 

Globally, remittances reached $440 billion in 2015 and the top five remittance receiving countries were India, China, Philippines, Mexico and Nigeria. Other West African communities as well as Bengali and Pakistani communities are also big remittance givers.

This image below shows the flows of remittances from the UK to countries all over the world, with India and Nigeria receiving a particularly high amount. Pew Research have created an interactive site which shows inflows and outflows from countries across the globe – click here to have a look.

The Importance of Remittances

Remittances are the key driving force for many economies and provide a major source of external development finance. In 35 developing countries, remittances are larger than all capital flows, public and private.

Remittances are thus an effective means of reducing poverty. They are often sent to the poorer members of society and typically are altruistic transfers that do not need to be paid back.

Check out this below TEDx video (12 minutes) if you want an in depth insight into how remittances impact the developing world.

Making Money From Remittances

Many banks and companies offer remittance services and the average global cost of sending money is around 8% the total value of the transaction. This means this service is in general very profitable. Some new services however offer considerably cheaper rates. For instance, Transfer wise has seen rapid growth over the last year as they charge between 0.5-2% of the total value. You’ve probably seen some of their adverts:

How to Avoid Being Overcharged When Sending Money AbroadThe two key drains on your lump sum will be the fee and the exchange rate. Be careful about ‘commission free’ transfers as often the exchange rate is changed to make up for the loss. There are several tools online which will show you who can give you the best rates – check out the Travel Money Maximizer by Money Saving Expert and click on the ‘delivery’ tab.