A Comparison between Remittances and Aid

Remittances have always been an essential part of some people’s lives. It is the sending of money from an immigrant to his home country. For example, people in developing countries send one person to a developed country so he can send money back to the family. Oftentimes remittances make up a fair portion of the developing country man’s income, and it shows in the GDP (up to 30% in some countries). Arguably, it is a form of aid, as it helps people in another country who are poor and the person who is sending the money is consciously aware of his doings. However, the fact that it is private and for “personal benefit” makes remittances a different from aid.

Unlike aid, which is the transaction of money from government to government, government to international organization or any other permutation, remittances are private transactions. Perforce, regulation is different. International organizations such as World Bank or the UN should have similar values for total aid. However, they will not agree on the remittances, as the UN reported $3 billion in 2006 while the World Bank reported $276 billion. This causes concern for regulators due to its difficulty of obtaining accurate figures. The figures proposed are the amount through official channels. The true amount is much greater. While aid usually transmits by the millions, remittance channels by the hundreds. Due to the privacy, regulators also do not know what this money is for. It could be used for terrorist acts, and it would be controversial to label this as aid, for example.

Equally, due to the privacy, the money is generally used to sustain a family, an area that traditional aid may not necessarily cover.  Aid goes to many places, dictated by the government or international organizations: technological skills and people, resources, security, education, humanitarian relief and finally long-term aid and poverty relief. The percentage that actually goes to the population is diminished. But, with remittances, all (or most) of the money will be used to support the poor people in the home country. In this sense, remittances serve the population better, as the citizens choose how to spend it, not the government.

Looking back at the definition of aid, there is a part of “altruism”, or helping poor strangers that really don’t have a connection with you. Conversely, the connection between remittances, the immigrant and the people in his home country is evident: they are related and bounded by family ties. The immigrant feels a certain responsibility towards the people whom he helps because of their anterior connections established. Immigrants actually have a true devotion to give monthly, unlike people who respond to charity ads to donate monthly out of pity and humility. And the transaction is more direct: while aid from one country to another is usually monitored or regulated by an organization or the government, remittances can be as direct as sending an envelope to the post office. Hence, there is more personal connection between remittances than aid.

To conclude, remittances stand different from aid. Sometimes, it’s even better, as it helps the poor directly instead of aid that can be used to stabilize governments, not helping the population directly. It can also mean worse, as sometimes the money can be used for terrorism while aid is actually used to alleviate poverty. Because of this flexibility, remittances needs its own category.


Houji Yao