In today’s connected world, people move to other countries in search of greener pastures and improved living. Every year, diligent migrant workers send billions of dollars to their home countries. For some developing nations, these funds make up a sizable chunk of their gross domestic product. Inward remittance, therefore, is one of the most recognized links between economic advancement and migration.
Here’s an extensive look into how to use inward remittance and its importance to businesses.
What Is Inward Remittance and Its Different Forms?
Inward remittance refers to the transfer of money from migrant workers to family or friends in their home country. However, this common understanding is only a partial reflection of the statistical meaning of international remittances. The International Monetary Fund explains inward remittance as the sum of these two key parts:
This refers to the revenue that temporary migrant workers gain from the host country. Employees’ compensation also covers earnings by people working at embassies, foreign companies, and international organizations. Although the migrant’s entire revenue is included in this definition, the sum may never get transferred to the country of origin.
While employees’ compensation includes earnings by embassy workers and others working at international companies, these employees may not all be migrants. Therefore, they don’t need to transfer money elsewhere.
These refer to all financial transactions between resident and non-resident parties. The residents in this definition may be migrants or non-migrants. Additionally, there are internal remittances that take place within a country’s borders.
Not all remittances are monetary. Social remittances refer to behaviors, ideas, social capital, and identities that flow between different countries. This type of remittance includes inventive concepts, policy reforms, political ideations, technological skills, knowledge, and transnational networks.
How Do You Use Inward Remittance?
Many parties and factors are involved in the inward remittance process. Below is an in-depth analysis of these factors.
The remitter is the sender of the money who first goes to the bank to submit a request for payment to the recipient’s bank account. The remitter’s bank may request the following information before green-lighting the transaction:
• Remitter’s name and address
• Nationality of bank
• Bank branch details
• Bank account number
• Bank swift code
Upon finalizing the transaction, the sender’s bank provides an update on the transfer. The remitter can then send a piece of remittance advice to the recipient of the funds. This action may serve to notify them of the payment of an invoice.
This is the beneficiary of the internal remittance who may be receiving payment for services rendered. The remittee’s bank holds onto the funds upon receiving them to check for compliance before properly finalizing the transaction. The remittee then contacts their bank and provides any required documents, such as:
• Remittance information including the remitter’s name and amount in foreign currency
• Payment invoice
• Purpose code for the type of transaction
If you’re the remittee, proper record-keeping in all inward remittances is vital for future reference. You must also have a copy of the Foreign Inward Remittance Certificate (FIRC), which you can obtain from your bank.
What Is the Foreign Inward Remittance Certificate?
The FIRC is a testimonial or documented proof of all transactions entering your home nation from foreign nations. Most statutory bodies use a FIRC as confirmation that you received payment in foreign currency.
If you’re receiving a sum of money from a foreign country through a broker, you must obtain this documented approval. If you don’t have an account with an authorized bank, you won’t be able to receive your money.
What Are the Different Kinds of Foreign Inward Remittance Certificates?
There are two main types of FIRCs.
A physical Foreign Inward Remittance Certificate is simply a physical representation of the FIRC.
An e-Foreign Inward Remittance Certificate acts as an alternative to the physical FIRC. The home bank completes the procedure upon receiving the declaration or advice from the remitter’s bank. It also gathers any other information that’s vital for documentation.
Afterward, the bank produces an Inward Remittance Message (IRM) on the official government money remittance portal. When the documents meet all the requirements, the IRM number converts into the e-FIRC number.
How Do You Request a FIRC?
To obtain a FIRC, you must send a message to your bank with the following information:
• Account number
• Day of the fund transfer
• Transfer amount
• Reason for the transfer
• Recipient details
• Unique Transaction Reference (UTR) number
• Afterward, the recipient must pay for the FIRC’s issuance, which may be provided electronically or physically.
What Information Does the FIRC contain?
The FIRC contains the recipient’s name and mode of payment—either through direct cash payment or a credit to the recipient’s account. The certificate also indicates the name and address of the approved bank remitting the funds and the remitter’s address.
This approved bank is the first financial institution to handle the remittance transaction. The strategy avoids confusion in authorizing a bank account jurisdiction of FIRC issuance when the transaction goes through different bank accounts like in bank remittance.
Other details include the actual amount of foreign direct investment in foreign currency and the prevailing exchange rate. There’s also information on the equivalent amount transacted in local currency. An authorized signatory from the approved designated bank then signs the FIRC after you fill out all the details.
Afterward, the FIRC gets issued to the account holder’s address. This may take place within a period not exceeding 15 days from the date of remittance of the funds. You should take care not to lose the document since obtaining a duplicate can be a complicated and time-consuming process.
What Are the Benefits of Inward Remittance?
Inward remittance serves to protect developing countries against financial setbacks. The remittance achieves this by improving the consumption and purchasing power of a family or business. This results in increased access to better education, food, health care, lifestyle, housing, and stock.
Moreover, inward remittance directly helps the beneficiaries, since the process doesn’t involve middlemen and therefore lowers the chance of corruption. There has also been an introduction of incentives like tax-free accounts that encourage foreign remittance through legal means.
Overall, inward remittance improves a country’s gross domestic product and per capita income. The most satisfying advantage is that the remitter can keep track of how and where their money is spent. Thus, inward remittance serves as an important tool in record-keeping across border business transactions.
Commonly Asked Questions
How Can You Remit Money?
Given the amount of money being remitted worldwide in this day and age, you shouldn’t be surprised to find several remittance options. The most common method is through wire transfer or bank transfer, where you send money between two banks. Another route is through mobile money, where you send funds to an e-wallet.
Cash pickup is also becoming quite popular. With this method, you send money to the provider of your choosing. Your beneficiary picks up the money at that location after showing their ID and confirmation number.
Lastly, there’s home delivery, where your cash gets delivered to a specified address. The recipient shows their ID before receiving the cash. This method is especially useful in remote places or congested towns where traveling may be time-consuming.
How Do You Obtain Inward Remittance?
You can obtain inward remittance if you’re a salaried worker receiving compensation in foreign currency. This also applies to freelancers getting paid in foreign cash. In addition, you can obtain inward remittance by running an e-commerce shop that gets paid in foreign currency.
How Long Does Foreign Inward Remittance Take?
Authorized banks generally take one to two business days to complete an inward remittance transaction. However, if it’s your first time receiving foreign inward remittance, you’ll likely have to wait three to four working days.
Is It Safe to Remit Money?
Money transfers across different nations can be quite stressful. Luckily, your payments will be safe and secure as long as you pick your provider carefully. Also, ensure you have the full details of your recipient before initiating the transaction.
Is Remitting Money Expensive?
Before picking a specific remittance method, ensure that you check the provider’s service fees. In addition, check the prevailing currency exchange rates at the time of transfer and the time you need to process the transaction. The transfer fees, extra service fees, and exchange rates are important factors that contribute to the overall cost of remittance.
Sending money to countries that process more remittances than others can be cheaper due to the higher transaction volume. When in doubt, contact your provider and ensure they have transparent pricing.
Inward remittance is an important source of income that can be quite tricky to process. Following the setup protocol is vital to ensure the money’s quick and efficient disbursement.