Importance of Remittances

Remittances contribute to the financial and social inclusion of needy people worldwide and to the economic growth of a country. They also play an important role during financial crises. The recent World Bank report on remittances is a testimony to the fact that remittances flows have remained more resilient as compared to private debt and equity flows and foreign direct investment.

Remittances are stable and may even tend to be counter-cyclical in times of economic hardship. Remittances are now more than double the size of net official flows and are second only to foreign direct investment as a source of external finance for developing countries. In 36 out of 153 developing countries, remittances are larger than all capital flows, public and private.

Remittances could also help in reducing poverty, as it could be the poor who migrate and send money to their families. Some may argue that it is actually the rich who can migrate and send back remittances. Remittances could also be used to promote literacy. Studies show that the school dropout rate is lower and enrollment rate is higher in households that receive remittances.

There is tremendous potential for using remittances to encourage development in countries. Remittances could increase when the home country’s economy is going through a patchy phase. During such times, an individual might prefer to remit more to aid his family’s consumption back home. The money sent home could also be used to promote economic growth, increased investment and community development.

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