16 Dec 2023
Online money transfers are gaining more popularity day by day. Remittances are a significant source of international funds, sometimes surpassing foreign direct investment flows (FDI). The causes of economic growth in developing economies and the reasons why some nations have stronger economic growth than others have been the subject of ferocious discussions for centuries.
This study uses a panel data set of six countries with high money transfer receipt rates—Albania, Bulgaria, Macedonia, Moldova, Romania, and Bosnia and Herzegovina—from 1999 to 2013 and aims to examine the effects of remittances on economic growth. Compared to other regions, these countries currently account for most of all remittance receipts due to the significant increase in remittance inflows they have seen. Remittances are typically the main source of foreign exchange earnings and account for more than 10% of GDP.
International money transfers follow specific regulations, just like any other economic sector. Regarding operations and innovation in the global remittance industry, remittance regulations are very important. Remittance regulations are fundamental to global money transfers in many ways.
Operators of money transfers must conform their operations to regional laws to do business there. Every country may have its own distinct set of rules governing international money transfers, making it difficult to expand or open a business there.
Workers' or migrant remittances are the payments made by migrants to their families to send a portion of their earnings back home in the form of money or goods. They have been expanding quickly over the past few years and now account for the majority of foreign income in many developing nations. Since many transfers happen through unofficial channels, it is difficult to determine the precise size of remittance flows.
In 2011, it was estimated that more than $483 billion in officially recorded international migrant online money transfers would have been sent home, of which $351 billion would have gone to developing nations. The specifics of how to record these flows in the balance of payments are being examined by an international technology group. It is estimated that informal channel flows are at least 50% larger than formal channels in terms of unrecorded flows.
Remittances are much larger than capital flows, such as foreign direct investment, which is primarily directed towards a small number of significant emerging markets. They are also distributed more fairly among developing nations. Remittances are crucial for low-income nations in particular. Unlike middle-income countries, which receive about 2% of remittances, low-income countries' GDP represents nearly 6% of remittances.
While there is some agreement regarding the results just covered, there is still considerable disagreement regarding the potential impact of remittances on other areas, such as whether they increase economic growth and lower poverty and inequality. In some studies, remittance flows have been found to positively affect economic growth and poverty reduction, but others are less certain.
Three steps make up a typical remittance transaction
The migrant sender can pay the sending agent for the remittance with cash, a check, a money order, a credit card, a debit card, or a debit instruction sent over the phone, by e-mail, or online.
The sending agency gives its agent instructions to deliver the remittance to the recipient's nation.
Payment is made to the beneficiary by the paying agent.
In most cases, real-time global money transfers are not used for settlement between agents; instead, the balance owed by the sending agent to the paying agent is settled periodically by a schedule through a commercial bank. Trade in goods is occasionally used to settle informal remittances.
A remittance transaction costs the sending agent's fee, typically paid by the sender, and a currency-conversion fee when sending local currency to a beneficiary who resides in a different nation. To collect remittances to cover unanticipated exchange-rate fluctuations, some smaller money transfer companies charge the recipient a fee.
Furthermore, by investing funds before disbursing them to the beneficiary, remittance agents, particularly banks, may make an indirect profit in the form of interest (or "float"). When overnight interest rates are high, the float can be significant.
Remittances are usually transfers made from one person or household to another by a kindhearted person or family member. Due to their focus on meeting the recipients' unique needs, they frequently help to lower poverty. According to cross-country analyses, remittances have generally decreased the population's proportion of the poor.
Recent household surveys used by the World Bank to conduct studies suggest that international remittance receipts may have helped reduce poverty by as much as nearly 11 percentage points in Ghana, 6 percentage points in Bangladesh, and 5 percentage points in Uganda. The percentage of people living below the poverty line is considered poverty.
Remittances are thought to be responsible for between a fifth and a half of the 11 percent decline in poverty that occurred in Nepal between 1995 and 2004, a period of political unrest.
Governments frequently provide financial incentives to boost remittance flows and direct them toward useful purposes. However, these regulations are more problematic than initiatives to increase financial service access or lower transaction costs. Tax incentives may draw remittances, but they also run the risk of promoting tax evasion. Matching-fund initiatives to draw money from migrant associations' remittances could divert funds from other local funding priorities, and initiatives to direct remittances to investment have had little luck.
Remittances should be handled similarly to other household income sources because they are private funds. Instead of focusing on remittances, efforts to boost savings and improve the distribution of expenditures should be made through improvements to the overall investment climate. You can check how the mobile app from ACE Money Transfer makes sending money abroad much simpler than ever.
By regulating consumption and enhancing living conditions, remittances can boost the welfare of households that receive them. Remittances can facilitate human capital accumulation by enabling better hygienic conditions, healthier lifestyles, access to quality healthcare, and higher educational attainment. Remittances can help unbanked households in underdeveloped rural areas overcome their credit constraints, enable asset accumulation and business investment, advance financial literacy, and lessen poverty.
Regulations are crucial in protecting both the interests of expats who send money home and the recipients of that money. Governments must, however, take the initiative, particularly in light of current technological trends that are changing the remittance landscape.
Remitters need to familiarise themselves with international money transfer laws and rules and not view them as a hardship or obstacle. They must be fully informed of the advantages and restrictions provided by their home country and always transfer money through authorized and legal channels. ACE is the best choice for people living abroad looking for the best money transfer service provider.
Evaluating regulations helps ensure that they achieve their intended goals, such as preventing financial crimes and protecting consumers. It also identifies areas where regulations may need adjustment to better serve the industry and its stakeholders.
Common goals include reducing money laundering and terrorist financing risks, ensuring fair and transparent pricing for consumers, promoting competition, and fostering financial inclusion.
Effectiveness can be assessed by examining key performance indicators such as compliance rates, cost of compliance, reduction in financial crime incidents, customer complaints, and the impact on market competition and innovation.
Industry stakeholders can provide valuable feedback and data to evaluate the impact of regulations. They can also advocate for regulatory changes when necessary to address emerging challenges or improve the industry's efficiency.
Effective regulations can lead to enhanced security for remittance transactions, increased consumer confidence, lower costs for both providers and consumers and greater financial inclusion, benefitting both the industry and the broader economy.