Remittance

Remittance refers to sending of money from a person in one country to another person in the other country as a gift, often for family needs. For most developing nations, the remittance of money from their citizens employed abroad form the lifeline of economic development, social upliftment, and foreign exchange reserves.

It also forms the single largest source of income for these countries due to low economic development and fewer employment opportunities. They are of two types, namely- inward and outward. Wire transfers form the backbone of remittances globally, followed by money-remitting apps. Many countries believe that it facilitates terrorism globally. Migrant workers mostly use it for sending money to families in their native country, students, businesses, and medical tourists.

• Remittance can be defined as the overseas transfer of money from one party to another residing in another country.
• Remittances are of two types, inward and outward, which can be carried out by migrant workers from the host nation to their home country using wire transfer, bank transfer, or money transfer apps.
• For performing a successful remittance, one must provide full bank details of the recipient and the sender's remittance address to their foreign bank and pay the necessary fees for the transfer.
• Sometimes customers have to send remittance advice to the supplier to inform the full payment of the invoice.

Remittance of funds refers to the money transfer from the worker in a foreign country back to his family in his own country. It specifically means sending back money earned by workers employed in a foreign country to their home country for family needs. Remittances of money happen more from developed nations to developing nations. As per the International Monetary Fund (IMF), a total of $596 billion of global remittance took place in 2017, of which $450 billion were sent to developing nations.

Let us know about the types of remittances:

#1 - Inward Remittance

It means receiving money from the family of a migrant worker from a foreign in their bank account. For example, a Chinese sending money from America to China comes under this category.

#2 - Outward Remittance

It means sending money from a foreign land to a family in their home country or from a home country to a foreign land for studies, business, or medical treatment. For example, an Indian parent sending money to their child studying in America represents it.

After this, one should know the methods of remittance of money from one country to another using any of the below:

#3 - Wire Transfer

It is the most commonly used popular method of international remittance. However, sending from host countries with higher fees for such transactions becomes expensive. Nevertheless, it takes almost one week to complete the remittance.

#4 - Bank Transfer

Nowadays, people also send money directly into their bank accounts at their local bank in their native country from their host country. It usually happens by depositing the desired amount into the foreign bank account with instructions to transfer the money to the local bank account.

#5 - Money Transfer Apps

Many apps have also come to the fore for international money transfers, like PayPal or Stripe, that allow easy transfer of money by just using the mobile number and email of the sender and the recipient.

Let us discuss the steps to conduct a successful remittance:

1. First, the migrant worker approaches the money transfer agent to initiate a wire transfer or automated clearing house (ACH) Network.
2. Then the worker provides the amount to be sent overseas in cash, cheque, money order, or debit instructions.
3. After that, the sender provides the relevant documents, such as the recipient's bank name, routing number, and bank account number.
4. After that, the foreign remittance bank would use any remittance method.
5. Many online services like PayPal, Western Union, Kyodai Remittance, and Wise are being used for this purpose.
6. Migrant workers can also use  U.S. Postal Service money orders for remittance.

As per Title 22, chapter 1, subchapter C, Part 22, and Section 22.3 of the code of federal regulations, one can find the below rules of remittance:

1. All the remittances must be of the following types – checks or bank drafts drawn in favor of a US bank, money order in favor of the postal department or international or local bank, and US currency that has to be payable to the order of the department of state.
2. All fees must be paid in full before issuing any requested documents, which will be duly informed by the Department of State to the remitter.

Moreover, remittance limits are as follows:

1. The minimum amount for remittance is $10
2. The maximum daily limit is $25,000 per transaction
3. The annual limit is equal to or equivalent to $250,000

Let us go through some examples to understand the subject.

Example #1

Reports suggest that the remittance flow has continued to grow in 2023 despite the slow progress. The slight decline in growth can be attributed to the low income and employment opportunities for migrant workers amidst the challenge of inflation.

A major volume of remittance continues to be directed towards low and middle-income countries, with the more developed countries including Gulf Cooperation Council (GCC) and the United States. Despite the economic fluctuations, the U.S. continues to be the biggest supporter of remittance funds.

Example #2

As per a news report published by INC42 on Jan 10, 2024, it has been reported that Paytm will be investing 12051000 dollars in Gujarat International Finance Tec (GIFT) City to build a global finance ecosystem. It was announced on the eve of the opening of the Vibrant Gujarat Summit 2024. Paytm has aimed to streamline remittance happening across borders through faster mode and affordable solutions using AI. 

As such, the center will be generating employment avenues and recruiting engineers to develop world-class financial services and products. In line with this, PayTm has also installed more than 10000 PayTm devices throughout India to expand digital payment in rural areas, helping to increase its reach as well. 

Example #3

Let us assume Carlos is a migrant worker from Mexico working in the United States. He sends money to his family for daily needs and ration every month. For this purpose, he visits a local money transfer service provider. The provider obtains his personal information, recipient details, amount to be sent, and mobile number for the same. After that, the clerk of the service provider calculates the transaction fees and exchange rate and asks for a certain amount from Carlos.

Carlos then gives the money in US dollars to the clerk for processing the outward remittance to Mexico. After the completion of the process, the clerk gives the unique transaction number to Carlos. Moreover, Carlos informs his family of the details of the money remitted. Hence the family of Carlos in Mexico visits their local bank where the money was remitted with the identification proofs and transaction number and ID. Upon presenting the details required by the bank, they received the funds securely and quickly from Carlos in the United States

It can be understood as a documentary proof of payment issued by the customer in favor of any business to intimate them regarding the completion of invoice payment. It is most commonly used in customer-to-supplier trade transactions instead of family transactions. Whenever checks are involved in overseas transactions, they come into play. More importantly, it is optional to attach remittance advice. However, some businesses send these pieces of advice with the invoices to help the customers fill and send them back to the business.

Here are the differences between the two:

This has been a guide to Remittance and its meaning. Here, we explain its advice, examples, rules, types, steps, and comparison with wire transfer. You can learn more about financing from the following articles –

• Digital Remittance
• Remittance Technology
• Cross-Border Payments