About remittance funds and its role in the economy of developing nations

Every year, migrant workers send to their home countries billions of US dollars. In 2019, the World Bank report stated that the remittances total value reached an outstanding record of over 554 billion US dollars. For certain nations, these remittances comprise quite a big portion of their gross domestic product.


International payment transactions

Remittances are an international payment transaction such as that of a bank funds transfer that is sent by a migrant worker to someone in their home country. The money sent is that of the private saving of these migrant workers, which are spent by their families in their home county. 

Vital to the economy 

For a lot of developing nations, these remittances from their citizens who are working abroad do provide a vital source of funds for the economy. In particular cases, the total amount of remittances of the developing country do far exceed any aide sent by those developed nations and might only be exceeded by such the influx of funds like that of foreign direct investment.

Borrowing money

There are several developing nations that find it difficult to borrow money, in the same manner as a home buyer who would find it difficult to get a mortgage approval as it is their first time to establish such as credit line. These developing countries that are reliant on remittances typically have less than stable governments are also a lot less likely to be able to repay their debt or might even go into default. Organizations like the World Band may provide the countries with funding but then, the loans are believed to typically have strings attached.

Cross-border payment transactions 

An international payment transaction or a cross-border payment transaction by a migrant worker aids in the developing nations being able to drive their economy up due to the funds. However, there are those who mismanage their funds. If the money is effectively used, more countries that are reliant on remittance will experience stable economic growth in most of their regions.

Tracking the funds

Remittances before were often sent via wire transfer, and may also be sent using bank funds transfer. Take into consideration that there are also restrictions on the movement of funds in certain developing countries, as large amounts are also being monitored for criminal activities. It is more difficult to be able to track exactly how much funds are remitted yearly as many migrant workers no longer use international bank funds transfers and opt to use an alternative payment method. 

Send funds instantly

Most of the alternative payment solutions make it possible to send funds instantly, hence like a popular peer-to-peer app, it has become a preferred method of payment. It is also nearly impossible to tract where the funds are spent by the recipients and if they get to invest their money wisely. There are a few economists that do believe that the funds are used to make a payment transaction for necessities like food, shelter, and clothing. These payment transactions do not, as a general rule, spur economic development, as these are not considered as true investments.