A recent decision by Barclays Bank to close the accounts of 250 money transfer organisations working around the world will have a particularly severe effect on Somalia’s efforts to emerge from two decades of conflict.
The timing of this decision could not have been worse; just when the country has formed the first government to be internationally recognized in two decades, when piracy is at a historic low, and the al Shabaab insurgents seem to be weakening, the main channels by which remittances, foreign investment and international aid funds flow to reach those who need them are in danger of being closed down.
A study recently conducted by FAO’s Food Security and Nutrition Analysis Unit, based on interviews with over 700 households in Puntland and Somaliland, estimated that 42% of the population relies on remittances. These funds are used for basic food, education and medical expenses, as well as to start up small businesses and settle debts. One third of recipients said that if remittances were stopped they would not be able to afford basic food. More than 80% of the sample relies on a single sender of remittance support, and 93% of recipients get their money through Somali money transfer organisations.
If Somali money transfer companies lose their accounts with Barclays, not only will members of the diaspora living in the UK and many other European countries be unable to legally send money to Somalia, many aid agencies will also have difficulty. Money transfer companies need the services of a bank in order to transfer funds from the UK to a holding company, usually located in Dubai. From there traders with letters of credit are able to withdraw funds in hard currency, repaying the credit inside the Somali territories in local currency. This makes it possible for money to circulate without having to incur the risks associated with being physically imported or exported. In addition, money service businesses must have a bank account with an accredited bank in order to remain licensed by the Financial Services Authority to operate; if they lose their accounts they will lose their licenses and be unable to operate legally not only in the UK, but in most of the rest of Europe and in Ethiopia.
According to Abdirashid Duale, CEO of Dahabshiil, the largest of the Somali money transfer organisations, “Over 95% of the international organisations in Somalia, including the United Nations, World Health Organisation, World Bank, Oxfam and Save the Children, rely on [Dahabshiil] to provide payment services for their staff, contractors, government institutions and partner NGOs.”