What is Remittance? Types of Remittance Explained.
Every now and then we come across newspaper headlines that reads “Sharpest decline in Remittance” “Decline in Remittance predicted” “Economy fall due to remittance decline” and many more of such. Before we talk about how economy gets impacted due to fall or rise in remittance, we need to understand what remittance actually is.
What is Remittance?
Regarding the word formation, the term is derived from the word “remit” meaning “to send back”. Thus, in simple words, remittance refers to the act of transferring or sending certain amount of money by one party to the other. Most often people consider the transfer of funds overseas as remittance but the transfer within the country also comes under the same. As the trend of foreign migration is escalating, mostly among the working age group more so from the developing nations, the word “remittance” today has become a common household term. As a non-residents national, people face the need to send across money back home to their families for different purpose of life.
How helpful is remittance?
The remittance facility has been one of the major boon for most families of developing nations. These remittance facilities have helped most families to sustain their livelihood as well as improve their living standard. Most families of developing nations depend on the money sent by their family members back home in order to fulfill their basic and additional needs. Not just families, but remittance facility also play a very important in economic growth, development of the country. Similar to many developing nations like Haiti, Kyrgyzstan and Honduras; Nepal’s economy also relies on remittances. Almost 30% of Nepal’s GDP is contributed by remittance indicating it to be one of the most important source of revenue.
What are the types of remittance?
Since we have learned what remittance is and its role in economic growth, infrastructural development of a nation, let’s find out the different types of remittance based on the process of transaction. Based on same, remittance is divided into two different categories:
- Inward Remittance
- Outward Remittance
The term inward remittance indicates transfer of funds from one account to another either domestically or internationally. In order to understand inward remittance, an easy example has to be the fact that most of the families have children living abroad either for work or study purpose and when they send money back home, it is termed as inward remittance for the family at home country. Likewise, when parents send across money to their children, it becomes inward remittance for them.
The transfer of funds out of the country or overseas is termed as outward remittance. For instance, if parents transfer funds from their account to their children’s foreign account in order to support them, that becomes outward remittance for the parents. Outward remittance is applicable for the countries that send money whereas inward remittance is applicable to those countries that receive the same.
- A remittance refers to the money sent by one party to another within or outside the country.
- Remittance is one of the important source of revenue for a country and plays a vital role in its economic growth and development.
- There are two types of remittance: Inward Remittance and Outward Remittance