Somalia’s Remittance Lifeline

This week in Nairobi on September 11, there was a discussion forum on the importance of remittances from the Somali diaspora to the people in Somalia and it was attended by representatives of the Rift Valley InstituteADESO, Oxfam and Dahabshil

It was held just a few weeks ahead of a September 30 deadline which Barclays Bank in the UK have set as the date that they will cut off remittances to four companies including Dahabshil and the forum was on the reasons behind that decision and the impact it will have on Somalia.  The country receives about $1.5 billion a year in remittances (with about $150M coming from the UK) – which is more than foreign aid or private investments, and these funds support 40% of the population and amount to a third of the country’s GDP. Somalia was said to have the largest number of asylum seekers in the world in relation to their population, and they are first generation immigrants with strong links to their home country – hence a higher level of remittances to reduce hardship and insecurity back home. 

The participants at the forum emphasized that the cutoff of vital remittances to Somalia was not triggered by any transgression, but rather it was a knee-jerk reaction to repeated bad news about Somalia and misunderstandings that remittances support money laundering, piracy or terrorism. Dahabshil and other Hawala-like companies have complied with all requirements set by the UK and US, and conduct due diligence in handling the remittances (which at an average of $300 to individuals are relatively small), in a country without a banking system, commercial courts and no formal identification card systems – using agents, village and clans to triangulate and ensure that money goes to the intended recipients – all without bringing in dollars to the country. Dahabshil, which the New York Times reported to have 286 locations around Somalia (compared to one for Western Union), also know that there are gaps in the system meant to weed out suspicious transactions, that they can work with the UK to fix and improve without facing the threat of closure.

Barclays is the last large UK bank facilitating these transfers to Somalia, and there was some discussion about coming to some accommodation with them such as asking them to delay the cutoff by another 12 months to allow for partner institutions to develop alternatives, as well as the possibility of partner institutions setting up a trust fund to cushion Barclays in the event that the UK authorities levy a fine for continuing to facilitate remittances to Somalia. The finality of all the Barclays decision may be resolved at a  Ministerial meeting on Monday next week in the UK or a later EU meeting in Brussels.