Keeping Somalia's Lifeline Open
Somalia’s financial lifeline remains under threat as banks in US, UK, Australia, and elsewhere have broken ties with the money transfer operators that make remittances possible.
Each year, Somali migrants around the world send approximately $1.3 billion to family members and friends in Somalia, accounting for 25 to 45 percent of Somalia’s Gross Domestic Product. These flows constitute a lifeline for at least 40% of the country’s population who rely on money from abroad to meet basic household needs, open and sustain small businesses, send children to school, and invest in their communities. Remittances to women, in particular, result in investments in education, health, and nutrition. Worldwide, more money is sent to Somalia in the form of remittances than the amount the country receives in humanitarian assistance, development assistance, and foreign direct investment combined.
“This is not just extra money; this is money that I need to survive on a daily basis,” says Hawa Abdullahi Warsame, a Somali woman living in northern Somalia. “Not only am I dependent on it, but over 10 relatives – my entire extended family – are as well. I have sick relatives who need medication, and children that I am trying to provide an education for. This money is vital for that.”
Money Transfer Operators (MTOs) offer a critical link in the process, transferring funds from the diaspora and distributing cash to recipients throughout Somalia. Somalia lacks a formal banking system, so the MTOs serve a critical need. But in recent years, banks and regulators have increasingly perceived the remittance sector as a high-risk area due to fear of terrorist-financing and money-laundering penalties. Banks in the United States and Great Britain are closing the bank accounts of these MTOs. These account closures mean that families now face the possibility of being unable to receive funds from friends and relatives that they desperately require for survival.
The steps taken by a number of Western governments over the past year have been largely positive, but ultimately not enough to prevent the critical lack of access to banking services that now exists for Somali MTOs. There remains a need for Western governments, regulators, banks and Money Transfer Operators to sit down at the same table and find a durable solution so that remittances can continue to support families, while meeting standards to prevent terrorist-financing and money-laundering concerns.
What we’re doing
In 2013, we worked with Oxfam America and the InterAmerican Dialogue to share a comprehensive picture of the remittance issue in the US and possible solutions to account closures. We launched the report, Keeping the Lifeline Open: Remittances and Markets in Somalia, through events in the United States in June and August 2013, and subsequently in Kenya and the United Kingdom. The report fostered greater engagement with the Somalia diaspora, helped strengthen relationships with US, UK and Somali government officials, and attracted significant media attention around remittances.
Although our report focused on the US, in May 2013 Barclays Bank announced that it would close the accounts of more than 100 MTOs by the end of September. Barclays Bank was the last bank in the UK still providing this service to Somalia, so the repercussions could be serious. In collaboration with Oxfam, CARE, World Vision, Save the Children and others, we worked to raise public awareness around this important issue and lobby government representatives in the UK, including through the production of a joint briefing paper. In mid-April 2014, Barclays and Dahabshil reached a settlement out of court. While this provides a temporary respite for Dahabshil and all its customers, it does not offer a long-term, sustainable solution to secure the flow of remittances from the UK to East Africa.
In February 2015, we issued a new report Hanging by a Thread: The ongoing threat to Somalia’s remittance lifeline. Since, we have remained engaged with money transfer companies and government representatives to find a lasting solution to this pressing problem.
Degan Ali, Adeso’s Executive Director, is available for comment. For more information, contact email@example.com, or +254 727 305 525.