{"id":3978,"date":"2014-01-17T18:05:05","date_gmt":"2014-01-17T18:05:05","guid":{"rendered":"https:\/\/africaresearchinstitute.org\/wordpress\/?p=3978"},"modified":"2022-02-27T18:55:26","modified_gmt":"2022-02-27T18:55:26","slug":"somali-money-matters-an-update-on-the-remittances-saga-by-edward-paice","status":"publish","type":"post","link":"https:\/\/africaresearchinstitute.org\/wordpress\/somali-money-matters-an-update-on-the-remittances-saga-by-edward-paice\/","title":{"rendered":"Somali money matters \u2013 an update on the remittances saga"},"content":{"rendered":"

Since the announcement by Barclays in May 2013 that it intended to close the bank accounts of all but 19 of its 165 clients in the remittance transfer business, following the earlier withdrawal by other banks from the sector, there has been significant \u201cbehind the scenes\u201d political wrangling and negotiation. Justine Greening, Secretary of State for International Development, has described the issue as \u201cone of the most important things I\u2019ve dealt with in my political career\u201d. <\/em><\/p>\n

In the absence of any formal banking system, money transfer operators (MTO) are a financial lifeline for the Somali regions. An injunction prohibiting Barclays from closing the accounts of the largest Somali money transfer operator (MTO) means that this company is able to continue operations for the time being. The UK Department for International Development has chaired a series of private meetings and consultations with the aim of establishing a \u201csafer corridor\u201d for remittances to Somalia in partnership with existing MTOs. The objective is to implement this within 12 months. In the meantime, the future of the US$1.2 billion annual remittance flow to the region hangs in the balance. <\/em><\/p>\n

An effective and sustainable solution will require concerted political will and co-operation at the highest level \u2013 and an appreciation of the unique nature of the Somali financial market.<\/em><\/p>\n

Misguided advice <\/strong><\/p>\n

In response to sustained pressure from Somali campaigners, MPs and influential commentators<\/a> about the dire consequences<\/a> of any disruption of remittances to the Somali regions, the UK government released a ministerial statement<\/a> on 10 October 2013. It promised an Action Group on Cross Border Remittances and a pilot project to \u201chelp secure remittance channels to Somalia\u201d.<\/p>\n

Whilst this statement of intent was welcomed, a \u201cFactsheet on Somali remittances<\/a>\u201d circulated by the government just a week later contained a number of statements which prompted renewed concern that the government was misinformed on certain key issues.<\/p>\n

The most contentious pieces of advice to the diaspora were as follows:<\/p>\n

1. \u201cTo use one of the many small Somali remittance companies which do not need a bank account\u201d.<\/strong><\/em><\/p>\n

This statement showed no appreciation of the close ties between remitters and specific remittance companies (often based on clan or regional links but also service-related). A subsequent claim by government that \u201cmost Somali remittances are made through small scale businesses that operate in cash<\/a><\/i>\u201d was derided.<\/p>\n

The advice was particularly perplexing given that concerns about money-laundering and terrorism financing had been used by Barclays, and other banks before it, to justify bank account closures. The suggestion that Somalis who had previously used operators regulated by the Financial Conduct Authority (FCA) and HM Revenue & Customs should now resort to using wholly unregulated \u2013 and invariably more expensive \u2013 operators was not well received.<\/p>\n

2. \u201cTo use mobile payments, which are widely used in Somalia, and can be sent from the UK\u201d.<\/strong><\/em><\/p>\n

The mobile money market is developing rapidly in the Somali regions, but it is still very much in its infancy and concentrated in certain urban areas. The claim that the payment of bills by mobile money is higher in Somalia than anywhere else in the world<\/a> \u2013 a claim often cited by government \u2013 appears to have its origins in a World Bank database<\/a> which treated findings from a 2011 survey of 1000 people in the city of Hargeisa, capital of Somaliland, as if they were representative of all Somalia. Moreover, the same database claims that 31 percent of Somalis have an account with a formal financial institution, somewhat implausible in a region virtually devoid of such institutions.<\/p>\n

Dahabshiil injunction against Barclays \u2013 and action<\/strong><\/p>\n

At a court hearing on 15 and 16 October, Dahabshiil sought an injunction against Barclays <\/a>for \u201cabuse of market dominance\u201d. Mr. Justice Henderson concluded that there were grounds for a full trial<\/a>. This meant that Dahabshiil could continue to continue to bank with Barclays until the trial, currently scheduled for October 2014, although Barclays have successfully sought an appeal against the injunction ruling.<\/p>\n

ALSO READ<\/span><\/strong> –\u00a0Somalia, remittances and unintended consequences: in conversation with Abdirashid Duale\u00a0<\/a><\/p>\n

After the injunction, press comment understandably dwindled, awaiting developments, while campaigners openly questioned whether the government was prepared to take decisive action. However, the signal importance of remittance transfers to the Somali region \u2013 and the singularity of a market with no established banking system \u2013 has now been accepted. In early January 2014, DFID announced details about the Action Group on Remittances and its Working Group on Safer Corridors.<\/p>\n

The Working Group on Safer Corridors is responsible for implementing, within 12 months, a reliable and secure remittances channel to the Somali regions. It will have an advisory group comprising members of the Somali Money Services Association (SOMSA), and representatives of Somali community associations, the British Bankers Association (BBA), NGOs active in the region, the Treasury, HMRC, the Home Office, the World Bank and the FCA will also be involved. The implementation group will comprise the World Bank, Financial Sector Deepening Africa (FSDA), and the Consultative Group to Assist the Poor (CGAP).<\/p>\n

Cause for concern<\/strong><\/p>\n

The UK government\u2019s renewed commitment to finding a solution is to be welcomed. However, there are no proposals on the table to counter the serious handicap for Somali MTOs of having had their bank accounts closed by Barclays, or others before them.<\/p>\n

DFID has emphasised that the safer corridor will \u201cprotect the commercial interests of existing players\u201d in the Somali remittance transfer market. The intention is to \u201cstrengthen existing channels\u201d, thereby \u201cgiving banks and others comfort on regulatory matters\u201d and ensuring that banks \u201cget back into this market\u201d. Yet the absence of banking facilities jeopardises the survival of larger Somali MTOs.<\/p>\n

\n

the UK government cannot force a bank to provide banking facilities to Somali \u2013 or any other \u2013 MTOs<\/p>\n<\/blockquote>\n

In short, there is a real risk that by the time a solution is found, the \u201cexisting players\u201d will be counted on fewer than the fingers of one hand \u2013 a situation that is bad for competition and bad for regional \u201creach\u201d, as many MTOs have predominantly local or clan presence.<\/p>\n

Carrot and stick<\/strong><\/p>\n

The official line is that the UK government cannot force a bank, even one substantially owned by the taxpayer, to provide banking facilities to Somali \u2013 or any other \u2013 MTOs. Similarly, providing a bank with an indemnity against, for example, a fine for money-laundering if it provides the required banking facilities is not an option due to the risks to the UK taxpayer.\u00a0 This may be technically correct, but it is\u00a0 disingenuous.<\/p>\n

UK banks are routinely forced, or rather \u201cpersuaded\u201d, by government with the use of stick or carrot (or a combination of the two). One need look no further than the Help to Buy scheme, through which the UK Treasury has provided (taxpayer-funded) guarantees to the tune of up to \u00a33.5 billion to induce banks to provide 95 percent mortgages in a property market which most commentators consider \u201cfrothy\u201d.<\/p>\n

Persuasion or inducement, for which there are precedents, or possibly even setting up a UK remittances bank operated by an existing bank (with the necessary indemnities, of course), need to be revisited as a matter of extreme urgency.<\/p>\n

A prize for the taking<\/strong><\/p>\n

Last week Justine Greening MP, Secretary of State for International Development, met with representatives of a number of UK Somali communities in Ealing Town Hall<\/a>. \u201cIt\u2019s one of the most important things I\u2019ve dealt with in my political career\u201d, she told the audience. The minister also sought to give reassurance that \u201cthe best experts on the planet are working on a solution\u201d.<\/p>\n

There are a great many \u201ccooks\u201d toiling on the Action Group on Remittances and Working Groups \u201cbroth\u201d, representing very different \u2013 and sometimes diametrically opposed \u2013 interests and objectives. Ensuring that some cooks do not spoil the broth will be a key priority for the Action Group\u2019s independent chairman and senior ministers. But there is a prize for the taking. According to Justine Greening, if the various partners can make a safer corridor for Somali remittances work then \u201cit will be adopted everywhere\u201d.<\/p>\n

All over the globe, money transfer companies \u2013 and the banks through which they operate \u2013 are on the back foot, buffeted by regulatory headwinds. Yet no one disputes the vital importance of remittances to developing countries. This will be even greater as the US Federal Reserve starts to apply the brakes, however carefully, to its money stimulus programme. A resolution must be found in the interests of the global economy, and for humanitarian reasons.<\/p>\n

\n

Justine Greening has assured UK Somalis that the Prime Minister has personally voiced his recognition<\/p>\n<\/blockquote>\n

Ultimately, this is a straightforward test of political will (of the cross-party variety). Justine Greening has assured UK Somalis that the Prime Minister has personally voiced his recognition that a rapid solution to this situation is \u201cmassively important\u201d. Any solution, however, will require politicians of sufficient rank and determination to insist on one being found.<\/p>\n

Meanwhile, Somalis from all walks of life and countries continue to voice their deeply-felt concerns about the consequences if remittance flows to the Somali region diminish, or are choked.\u00a0 After all, remittances are not only a lifeline for many individuals and families but the engine of the region\u2019s economy \u2013 the prime source of cash that can\u2019t be embezzled or \u201cdiverted\u201d. As such, it is worth remembering, they are also an essential pillar of the \u00a31.5 billion \u201cNew Deal for Somalia<\/a>\u201d announced by donors in September 2013.<\/p>\n

by\u00a0Edward Paice<\/a>, <\/strong>Director of Africa Research Institute<\/a><\/p>\n

Featured image courtesy of Oxfam<\/p>\n","protected":false},"excerpt":{"rendered":"

Edward Paice argues that an effective and sustainable solution to the issue of Somali remittances will require concerted political will and an appreciation of the unique nature of the Somali financial market.<\/p>\n","protected":false},"author":7,"featured_media":13147,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[17],"tags":[320,395,318,321,352,198,102,384,385,386,383,387],"class_list":["post-3978","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-abdirashid-duale","tag-bank","tag-barclays","tag-dahabshiil","tag-department-for-international-development","tag-dfid","tag-diaspora","tag-justine-greening","tag-money-transfer-operator","tag-mto","tag-remittance","tag-somali"],"aioseo_notices":[],"yoast_head":"\nSomali money matters \u2013 an update on the remittances saga - 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