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How Remittances Impact Human, Financial and Social Development

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Let’s assume your uncle lives abroad in order to make money to send back to his family back in Lebanon. Regardless of the channel through which he sends the money (whether it’s a remittance service, digital wallet, or bringing the cash back in person), this money transfer is called remittance. 

Remittances impact development in several ways, whether it be on the personal level or on the country’s economic level. This time around, we will focus on the socioeconomic impact that remittances have on the receiving person or country.

Types of Remittances:

First, it is important to identify the different types of remittances:

  • Outward remittance: Sending money to another country.

Ex: When a parent sends money to their child studying overseas, it is an outward remittance. 

  • Inward remittance: Receiving money from another country.

Ex: When a family receives money from a relative abroad, it’s an inward remittance. 

Remittance and Human Capital Development

Remittances have a significant influence and contribute a great deal to reducing poverty, increasing household income, and enhancing the standard of living.

  • The payment of essentials like food, healthcare, education, and housing is made possible by remittances to recipient households. They improve resiliency to outside events like climate change, as well as the ability to withstand risks including unemployment, disability, accidents, and disease.
  • Remittances help foster the development of human capital by enabling households to make investments in education. Education is known to be a crucial component of human capital that helps forge a strong nation.
  • Due to their larger disposable income, families who receive remittances have increased household savings. According to research, families are more likely to start saving, open bank accounts, and engage in other financial activities as the amount received increases.
  • Similarly, numerous studies have demonstrated that remittances encourage increased housing investment. This improves living conditions and boosts local economies by providing work opportunities for residents engaged in construction.

Remittance and Financial Capital Development

By increasing the likelihood of saving and investing in the country of origin, remittances aid in the building of financial capital.

  • Remittances help local economies grow by increasing demand and consumer spending for local goods and services. In turn, this helps to create jobs.
  • The amount of local capital may also rise as a result of remittances. Remittance-receiving households are more likely to finance new businesses or expand existing ones. In other words, remittances encourage entrepreneurship. This is due to the fact that they generate extra money that motivates the household to invest in businesses, foster entrepreneurship, save, buy land, or even buy jewelry.
  • Large remittance inflows, when made through official channels, boost recipient countries’ creditworthiness in international credit markets. They also stabilize national balances of payments accounts and raise national income.
  • Remittances help in the development of a financial system and reduce GDP volatility.

Remittance and Social Capital Development

Politics, economic activity, and social welfare are the three main elements of social capital that remittances have an impact on.

  • Remittance-induced social capital advances welfare through stimulating political engagement, fostering networks of trust and support, advancing gender equality, and fostering the social cohesion needed for a healthy community.
  • Remittances and gender also have a significant link. Male migration empowers spouses who remain at home to take on financial responsibilities for the family and society.
  • Female migrants tend to have high remittance capacity; if not, they usually stay behind and assist in the household. As a result, fewer family members drop out and more get enrolled in schools.

International remittances support cultural integration since they support community restructuring and cultural preservation.

  • Collective remittances accomplish this by maintaining regular contact with the household of origin, which government assistance could not reach. Where there is a shortage of public funding, collective remittances support community development initiatives.
  • Remittances have an effect on recipient families’ social standing and reputation. This is because their better access to finances enables them to enjoy social and family gatherings, build stronger social ties, and partially address social disadvantages.

In short, remittances improve social standing, lifestyle, and school dropout rates. They also help women feel more empowered by enabling them to engage in a variety of social and economic activities.

The cost of remittance transfers which is stubbornly high in some corridors is one of the major issues that still has to be resolved

Remittances within the wider development framework and the 2030 Agenda

The Sustainable Development Goal 10 of the 2030 Agenda for Sustainable Development has the explicit objective of “eliminating remittance corridors with costs higher than 5% by 2030”. It also includes lowering transaction costs for migrant remittances to less than 3%.

By implementing particular initiatives in high-cost migration corridors and creating better, more precise data to gauge transaction costs, IOM has taken immediate action to address this aim.

This objective is a part of a larger series of objectives that acknowledge the duty of governments to provide social protection to all sectors of the population. This includes public services like universal health care and education (Goal 4). (Goal 3).

If governments are not fully committed to the delivery of essential services and operational social security, health, and educational systems, remittances won’t always lead to development.

When remittances act as an extra source of income rather than the recipients’ only or main source, they have the ability to improve their quality of life.

Purpl as a Remittance Service

Purpl was created to contribute to the positive impact that remittances have, and they can be broken down as follows:

  • Enabling financial access to all (financial inclusion)
  • Making remittance costs cheaper 
  • Making the process of sending and receiving money quick, easy, and seamless
  • Fostering a community of financially literate and informed users

Want to know more?

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