The Role of Remittance in Financial Inclusion for Families
For many people who send money overseas, remittance is often a big part of their financial responsibility. The money sent abroad to family members could be an important part of their family’s livelihood back home.
When it comes to the role of remittance on financial inclusion for families, this can be seen through two aspects: First, it provides a source of income for many families, which allows them to maintain their standard of living. Second, it also helps to improve their financial status by increasing their savings and investments.
In a recent study by the IMF (International Monetary Fund), it was found that remittances with low ratios of remittances to GDP (Gross Domestic Product), tend to reduce financial inclusion when used as a formal financial method. Alternatively, remittances with high ratios of remittances to GDP, above 13% on average, that are used as formal financial and usage channels, often enhance financial inclusion significantly.
What is Financial Inclusion?
Financial inclusion is an economic concept that refers to the ability of individuals to access and use financial services. It is often used synonymously with the term inclusive finance, which includes a broader scope than just banking services.
The objective of financial inclusion is to provide everyone with equal opportunities to participate in society through economic growth and development. Especially for those who already have some kind of financial access but still face barriers to using it properly for their needs.
Ideally, financial inclusion means that everyone should have access to a bank account, credit, or insurance. It also means that people are able to save money and make payments electronically rather than having to go to a physical bank branch every time they need to pay or receive money.
Financial inclusion can mean different things depending on who you ask, but most descriptions could include:
Accessibility: All people should have equal access to financial products and services regardless of their personal net worth or company size. Everyone should be able to open a bank account or apply for a loan — even if they don't have any collateral or credit history.
Affordability: Financial products should be priced in accordance with individual circumstances, so that anyone can afford them without being burdened by high costs or interest rates.
So, how does remittance play an important role in financial inclusion for immigrant families?
Remittance is one of the fastest growing segments in the financial services industry. Easily becoming a major financial solution for families by helping people send money back home to support family members abroad.
In a World Bank study, a large household data set was used to analyze the receipts of internal remittances from households in countries like Guatemala, and international remittances from the United States. Contrary to other previous studies, this study finds that instead of spending solely on consumption, households receiving remittances tend to spend 45 and 58 percent more on investment goods like education, health care, and housing respectively, than households with no remittances. This is often seen to contribute favorably to a country's economy.