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According to Oxfam’s report, Keeping the Life Line Open – Remittances and Markets in Somalia, Somalis abroad use money transfer companies to send home an estimated $1.3 billion annually. These companies have a presence throughout the Somali territories and beyond, and together they provide basic financial services.
In January 2015, Merchants Bank of California, which handles an estimated 60 to 80 percent of the remittances sent to Somali territories from the United States, announced the closure of its business with Somali-American money transfer operators (MTOs). This has created a heated debate amongst Somali communities all over the world due to the fact that remittances have played a huge role in boosting the Somali economy amidst the turmoil over the past two decades. In a bid to address this matter, Red Sea Cultural Foundation organized a public lecture and debate at the Hargeysa Cultural Centre, in Somaliland, under the theme: “Breaking the Lifeline: the Crisis Facing Somali Remittances from the US” on the night of 12 February 2015.
The discussion was led by Dr. Laura Hammond, Head of the Development Studies Department of the School of Oriental and African Studies (SOAS), with the participation of influential members from the government, international organisations, MTOs, university students, remittance senders and recipients.
From basic needs and school fees to business start up
Dr. Hammond discussed the recent decision of Merchants Bank, to close the accounts of Somali money transfer companies, in the context of similar dynamics that took place in the UK in 2013. Dr. Hammond reflected on a study she undertook for FSNAU “Family Ties: Remittances and Livelihoods Support in Puntland and Somaliland” on receipt of remittances in both urban and rural areas of Somaliland and Puntland.
Her study shed light on what Somalis primarily use the remittances for and highlighted that millions of Somalis are dependent on the remittances on a daily basis. A large portion of remittances are spent on basic needs and have also been used to build hospitals, schools, start businesses and other communal development projects. MTOs are also used by the students to pay their tuition fees, for traders to buy goods, and non-governmental organisations including UN agencies to deliver aid.
Impact on families ties and the new Somali generation
“Somalis have a deep-rooted traditional value where they uphold their family ties. One way of expressing this is through sending remittances. Therefore, breaking that lifeline means breaking up their relationships,” said Dr. Bulhan, a Somali-American scholar currently living in Somaliland.
“Cutting off the Somali lifeline will destroy the hope of many youth who are dependent on the remittances,” said Abduladif Abby, an aspiring Somaliland youth “the closure of MTOs will trigger the resentment on which terrorist groups thrive. But the truth is no one suffers more from insurgence than us Somalis!”
“Remittances are not sustainable though,” said Dr. Bulhan “because the young generation of the Somali Diaspora are not like their parents, connected to their families back home; they do not care anymore! So we’re likely to see a reduction of remittances sent from abroad in the next generation.”
Terrorist financing and money laundering
Dr. Hammond anticipated the possible impacts of the cut and the fact that people will pay higher rates, so less money may get through. “They will be forced to engage in illegal sending making them vulnerable; and for those who would like to engage in terrorist financing, money laundering, etc. this is a golden opportunity for them,” she explained.
During the discourse, the Minister of Somaliland National Planning and Development raised the rights of American and European citizens to send money back home to their relatives as being violated. Dr. Saad A. Shire also assured that Somalis will send the money anyway. “They will find more new ways,” he said.
More regulation and transparency
Looking into the future, Dr. Hammond reiterated the Oxfam recommendation to establish regulatory regime, including assurance for banks working with approved MTOs. She also mentioned the ‘Safer Corridor Pilot Project’ and maintained the need to educate banks about how MTOs work and what remittances are used for. She mentioned the requirement of more regulation and oversight on part of the Somaliland government and more cooperation and transparency by MTOs.
In conclusion, the debate was lively and among the issues raised was the need to have more open discussions on conventional banking systems in Somaliland, and a call to pass the regulatory laws on remittances and anti-money laundering.
With Oxfam America, tell the US Treasury: Step in and take action to keep the money transfer lifeline open