More hunger, terrorism in Somalia if money transfers stop - experts

by Katy Migiro | @katymigiro | Thomson Reuters Foundation
Wednesday, 11 September 2013 16:05 GMT

Customers queue at a Dahabshiil money transfer office in "Kilometer Five" street of Soobe village, southern Mogadishu, May 8, 2013. Photo REUTERS Feisal Oma

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Barclays' end-month cutoff would hit remittances worth one-third of Somalia's economy, cash used for basics like food, school and medicine, and worsen hunger and insecurity, experts say

NAIROBI (Thomson Reuters Foundation) – Charities and a U.N. official called on London-based Barclays bank to delay its planned closure of the accounts of Somali money transfer companies, saying closure would cause hardship and instability across the region.

Barclays plans to close the accounts of dozens of money transfer firms on Sept. 30 because of fears the funds might end up in the hands of groups branded as terrorists, such as the al Qaeda-linked al Shabaab.

Virtually all major United States banks have already stopped offering remittance services to Somali companies and Barclays is the only U.K. bank still doing so.

Somalis receive some $1.5 billion a year in remittances from the Somali diaspora - accounting for one-third of the country’s economy and two to three times the amount provided in aid.

“Once the remittances are gone, we are going to have regular cycles of real hunger in Somalia,” said Degan Ali, executive director of Adeso, a charity that works in Somalia. “What aid is providing in Somalia and private investment is minuscule in comparison to remittances,” she told a debate in Nairobi.

There is no longer famine in Somalia following four good rainy seasons, but 870,000 people – more than 20 percent of the population – still need food aid. One in six children are acutely malnourished.

“With the deterioration of the livestock market, the droughts that have been happening, the destitution of more and more pastoralists, remittances are really the lifeline and the backbone of the Somali economy,” said Ali.

An estimated 40 percent of Somalis receive remittances.

“Almost 80 percent of the remittances are used for basic social services, sending a kid to school, having access to health, having access to water,” said Philippe Lazzarini, the United Nations resident and humanitarian coordinator for Somalia.

“We are talking about the daily survival of the people.”

It is not only vulnerable households that depend on remittances but also businesses, for example truck owners sending money to Dubai to pay for spare parts.

There is no formal banking sector in Somalia as a result of two decades of civil war. Instead, Somalis’ money is moved around the world  using money transfer operators, whose accounts with banks in other countries are gradually being closed down.

“It is why you have stability and security in certain parts of Somalia,” said Abdirashid Duale, chief executive officer of Dahabshiil, the largest money transfer operator with 24,000 outlets in over 100 countries. “If you don’t get any money in those regions, you will have more instability, more hardship, more terrorists, because people will feel they are not part of the world and the world is against them.”


Somali money transfer companies also serve communities in Kenya, South Sudan and Ethiopia who receive money from family and friends living overseas.

Barclays’ closure of their accounts “will affect not only Somalia but … other countries as well,” said Duale.

Lazzarini warned that other banks might copy Barclays in cutting off Somali firms. “If the [Barclays] bank closes their accounts at the end of the month… other countries will follow,” he said. “Most likely other banks will come to the same kind of conclusion.”

Barclays said in June it planned to stop offering banking services to some Somali transfer firms because some of them “don’t have the proper checks in place to spot criminal activity and could therefore unwittingly be facilitating money laundering and terrorist financing.”

It was unclear why Barclays had decided to cut off the Somali firms now, at a time when others say the risk is lower than before.

“Two of the major sources of fear, of risk, in the financial sector have virtually disappeared over the last 12 to 24 months,” said analyst Matt Bryden, who used to work for the U.N.’s monitoring group on Somalia.

Al Shabaab has become much weaker as African Union peacekeepers have gained ground in Somalia, and maritime piracy has fallen dramatically thanks to tougher security aboard ships and increased naval patrols.

The bank has not made clear to the money transfer companies why it considers their accounts so risky, Duale said.

“We are happy to do whatever regulations require us to do,” he said. “That is all we are asking: tell us what we should do and we will do it.”

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