SOMALIA FACES CRISIS AS REMITTANCES CUT

A money exchanger counts Somali shilling notes in Mogadishu, Somalia.

Somalia could face a financial crisis with close to $1.3 billion in annual remittances as the last major US bank stopped money transfers to the country and to the Dadaab and Kakuma refugee camps in Kenya.

A fortnight ago, California-based Merchants Bank closed all its accounts with Somali MTO’s; Australia’s Westpac Bank has also announced that it will close Somali remittance accounts soon. The move follows a decision in 2013 by Barclays, one of the biggest banks in the UK, to cut its ties with a company in Somalia that had been a recipient of large amounts of remittances.

READ: Disaster for Somalis as Barclays UK pulls out of remittance business

Australia’s’ Westpac currently partners with Somalis MTOs, but this relationship came under threat in August last year when the bank announced its intention to close the accounts.

Last month, United States Treasury undersecretary David Cohen said that the remittances could be providing a funding channel for terrorism and money laundering. In 2014, Somalia received $215 million from its citizens in the US.

“While remittance payments to poorer and less-regulated countries present terrorist financing risks, we are eager to develop a more secure transfer system where legitimate customers can be served but terrorists and criminals are turned away,” Mr Cohen said.

Remittances from the US represent the single-largest share of the estimated $1.2 billion that Somali expatriates worldwide wire to relatives and associates at home and in refugee camps. That sum represents more than one-quarter of Somalia’s gross domestic product.

READ: US banks criticised for banning remittances to Somalia

A report by Oxfam and Adeso, a charity and development agency, states that Somali money transfer operators are responsible for transferring an estimated 60-80 per cent of remittances from the US.

Adeso’s executive director Degan Ali said annual remittances to Somalia dwarf the yearly humanitarian aid, development aid and foreign direct investment budgets combined.

“If banks end their relationships with money transfer operators, families stand to lose the only transparent means of cash transfer open to them. Many will be forced to use informal channels to send and receive funds from loved ones overseas,” Ms Ali said.

Oxfam Somalia Country Director Enzo Vecchio said more than 40 per cent of people living in Somalia rely on remittances to meet their basic daily needs, such as food, health and education, and unless US and European governments take action to restore the full flow of remittances through formal channels, many Somali families will struggle to survive.

“Governments must urgently make good their promises to keep this crucial flow of cash open. If not, three million Somalis risk going hungry this year, families will not be able to afford health care, and a generation of children could be kept out of school” said Mr Vecchio.

Nicholas Kay, the UN special envoy for Somalia, also expressed concern about the impact of blocking all money transfers.

“They are the lifeblood and survival mechanism for many, many Somalis, so from a humanitarian perspective it is clearly worrying if there is a complete stop in remittances,” he said in an interview last week with Foreign Policy, a Washington-based online journal.

A dozen members of the US Congress have requested an urgent meeting with Secretary of State John Kerry aimed at devising alternate and secure ways of sending funds to Somalia.

The East African