Remittances to Somalia

By Oxfam

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Oxfam works to ensure that members of the Somali diaspora can send money freely and securely to their friends and relatives in Somalia.

Every year, members of the Somali diaspora send approximately $1.3 billion to their friends and relatives in Somalia, exceeding all humanitarian and development assistance to the country and comprising between 25 and 40 percent of the country’s economy. Remittances helped many Somalis survive the horrific 2011 drought in Somalia, and remittances continue to help many families pay for food, water, education, and basic health services. This money—usually small monthly contributions taken directly from working Somalis in the diaspora—is nothing short of a lifeline for the Somali people.

The system that facilitates remittances to Somalia is under threat. Because Somalia does not have a banking system that is linked with international financial institutions, remitters turn to Somali money transfer operators (MTOs), which have the capacity to transfer money from around the world to cities, towns, and small villages all over Somalia. Utilizing a combination of formal business structures and social capital, these Somali MTOs are able to disburse cash freely in highly insecure areas without interference from armed groups.

However, Somali MTOs require bank accounts to help them wire money, and over the past 10 years their access to bank accounts has steadily declined. US regulations require banks to closely scrutinize money transfer companies. Rather than be more thorough, many banks have elected to simply close the accounts of money transfer companies, starting with those that are perceived as being low profit and high risk.

Banks have nearly universally shut their doors to Somali MTOs. In the US, the account closures have undermined the confidence of Somali-Americans in the US government and have seriously endangered the lives and livelihoods of millions of Somalis.

Listening to Somalis

Oxfam first became involved in the effort to keep remittances flowing to Somalia at the request of organizations in Somalia that partner with us to carry out lifesaving humanitarian assistance. In the midst of the 2011 food crisis, the organizations learned that a critical US bank was planning to close the accounts of all Somali MTOs. These partners warned that a disruption in remittance flows would lead to catastrophic outcomes for communities already suffering from drought and, in some cases, heavy fighting.

Somali MTOs scrambled to find alternative bank accounts, and in most cases succeeded, but our partners stressed that the companies needed reliable access to banking services in order to end the crisis.

A Collaborative Approach

To develop a policy agenda based on sound evidence, Oxfam joined forces with Adeso, an international humanitarian and development organization founded by Somalis, and the Inter-American Dialogue’s Remittances and Development Program. Following research in Somalia, Washington, DC, and major Somali-American communities in the US, Oxfam and these partners released Keeping the Lifeline Open.

We produced Lifeline in anticipation of a crisis in the US, but as the paper was released, a crisis was brewing in the United Kingdom. Barclays Bank, the last bank to offer accounts to Somali MTOs in the UK, had announced its intention to close nearly all of its MTO accounts, including all of its Somali accounts. Oxfam supported Somali diaspora leaders in the UK campaigning for Barclays to postpone the account closures and for the British government to find a policy solution to stabilize the British-Somali remittance corridor. The diaspora effort, identified as the top campaign in 2013 in The Huffington Post, successfully pushed Barclays to postpone the closures four times and persuaded the British government to review its regulation of remittances and establish a “safer corridor” for remittances between the UK and Somalia through capacity building, technical assistance, and cooperation with Somali MTOs.

The way forward

Banks continue to indiscriminately close MTO accounts, partly because they are operating in an extraordinarily murky and difficult regulatory environment. Oxfam calls on the US government, Somali authorities, banks, and MTOs to ensure that Somalis are able to freely and securely send money to their loved ones.

We call on banks to:

  • Expand service to Somali-American MTOs.
  • Individually assess the risk and compliance practices of each company.

We call on Somali authorities to:

  • Enhance regulation of the money transfer industry and Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) enforcement.
  • Take steps to establish a reliable commercial banking sector.

We call on Somali MTOs to:

  • Continue to invest in training of agents and AML/CFT compliance.
  • Agree on best practices and standards for AML/CFT compliance.
  • Increase investment in mobile money transfer technology.

We call on the US government to:

  • Ensure regulation does not result in a cutoff of banking services for Somali MTOs.
  • Establish a “safer corridor” for remittances to Somalia through collaboration with the private sector.
  • Develop contingency plans for disruptions in remittance flows.

Further reading

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