With the increasing number of overseas Filipino workers (OFWs) globally, money remittances have been constantly boosting our country’s economy. This has been an ongoing trend in our recent history. Our modern-day heroes have proved to be a vital source of financial support for their families’ daily consumption needs, investments, and savings. OFWs work selflessly away from their loved ones to fulfill their dream of providing them with stable and financially secure lives.
Aside from that, it has been shown that international remittances lead to increased investments in various sectors, including health, education, and small businesses. At the national level, receiving large amounts of international remittances has increased opportunities for accelerated growth and development.
What is Money Remittance?
Money remittance is the act of transferring money from one city or location to another. This process works similarly to a money transfer, as none of the parties need a bank account. Many people rely on money remittance because of convenience. The entire transaction can be completed in a matter of seconds, and the sender can choose to have the money delivered to the receiver via cash pick-up or bank transfer. Money remittances are also regarded as a major source of income for people in developing countries, as many of their residents working in foreign locations send money back to their loved ones.
You can send money either via online transfer or by mail. This financial service can also be facilitated through wire methods. The funds collected from money remittances make a significant contribution to the economy of the receiving country.
According to the World Bank’s 2018 report, the Philippines received $32.6 billion, or P1.72 trillion, in remittances in 2017. During that year, our country was the third largest recipient of remittances worldwide. Additionally, the majority of those remittances are sent by OFWs. This demonstrates the critical role of remittances, especially those sent by hardworking overseas Filipno workers, in our country’s financial flow. The figures also highlight the importance of workers in foreign lands not only to their respective families but also to our nation.
How Do Money Remittances Work?
Now that you know what money remittance means, it’s time to learn how this service works. Money remittances are a significant source of cash inflow for any country. The transfer of funds benefits developing countries greatly.
The process involved with money remittances is relatively simple. First, the money is transmitted through a wide range of legal channels, such as mail, bank transfer, money order, or through an authorized money transfer operator. The funds will then be transferred from the sender’s current location to the recipient who is in a different location.
These funds are calculated and converted automatically based on the current exchange rates. After that, the money will be credited to the receiver’s account or be made available through cash pickup using their country’s currency.
Money remittances are classified into two types, depending on the nature of the transaction. These are outward remittances and inward remittances.
Outward remittance is also known as wire transfer outward remittance. This means that the remitting bank will send the funds to the correspondent banks using a specific instrument. The equipment will then transmit instructions for the designated payee to send a specific amount.
Telegraphic transfer, mail transfer, and draft transfer are prime examples of outward remittance instruments.
When someone who lives and works in a foreign country sends money home, this is also considered an outward remittance. This type of money remittance is usually employed to meet ongoing financial obligations in their home country. Some of its primary purposes are to pay mortgages and to support family members.
Outward remittance has also been shown to benefit remitters. Aside from the lower cost of the draft transfers, using this method can help you avoid an array of trade risks. These include not receiving goods after payment, goods shortage, and poor product quality. To protect yourself from these unfortunate circumstances, you should use outward remittance as a cash-on-delivery payment method when your goods are delivered.
In contrast, an inward remittance indicates that money was transferred into your bank account. It can be either domestic remittance, where money is sent within the country, or international remittance, where the money is sent from another country. Inward remittances contribute significantly to a country’s economy, especially the gross domestic product rates.
This type of remittance can be done in exchange for the export of goods or services, investment, donations, gifts, and so on. When you make this type of transaction, you will be given a certificate that extensively explains the details of your remittance.
Aside from that, inward remittances are known as the main method used by institutions to provide relief to various countries and areas in need. These are prevalent during natural disasters such as floods, earthquakes, and tsunamis.