Africa Focus: Aid agencies warn of crisis in Somalia after cut in money transfers

African aid agencies on Thursday warned of financial crisis in Somalia after principal banks in the West facilitating money transfers to the Horn of Africa nation broke ties with the operators over terrorism fears.

The agencies said in a joint report released in Nairobi that humanitarian crisis looms following the move by banks in Australia, U.S., Britain and elsewhere to cut ties with the money transfer operators that make remittances possible to Somalia.

“Over 40 percent of people living in Somalia rely on remittances to meet their basic daily needs, such as food, health and education. Governments must urgently make good their promises to keep this crucial flow of cash open,” said Oxfam Somalia Country Director Enzo Vecchio.

“If not, 3 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,” Vecchio added.

Just three years on from a devastating famine that killed 258, 000, Somalia continues to be in the grips of humanitarian crisis.

Statistics show Somalis abroad remit 1.3 billion U.S. dollars back home annually, representing 25-45 percent of the country’s Gross Domestic Product.

U.S.-based Merchants Bank on Feb. 6 closed all accounts with Somali money transfer operators (MTOs).

According to the operators, Merchants Bank is responsible for transferring an estimated 60 percent to 80 percent of remittances from America to Somalia.

Similarly, in Australia, Westpac Bank has announced that it will close Somali remittance accounts soon, and last year in Britain, Barclays Bank also closed accounts of Somali MTOs.

“This is not just extra money; this is money that I need to survive on a daily basis,” Hawa Abdullahi Warsame, a Somali woman living in northern Somalia said in a report by the aid agencies.

“Not only am I dependent on it, but over 10 relatives – my entire extended family – are as well. I have sick relatives who need medication, and children that I am trying to provide an education for. This money is vital for that,” she said.

The Horn of Africa nation has no formal banking system and money transfer operators provide the services people in foreign countries would expect from a bank.

Degan Ali, Executive Director of the African Development Solutions (Adeso), said annual remittances to Somalia dwarf the yearly humanitarian aid, development aid and foreign direct investment budgets for Somalia combined.

“If banks end their relationships with money transfer operators, families stand to lose the only transparent means of cash transfer open to them,” Ali said.

“Many will be forced to use informal channels to send and receive funds from loved ones overseas, and ultimately much less money will go through,” she said.

The aid agencies said the steps taken by a number of Western governments over the past year have been largely positive, but ultimately not enough to prevent the critical lack of access to banking services that now exists for Somali MTOs.

The agencies said Britain has made some progress with its “Safer Corridors” initiative, which aims to build banks’ confidence in Somali MTOs by strengthening their accountability and transparency mechanisms.

The British government, however, needs to move quickly to implement the programme and ensure more active engagement with the banking sector.

In September 2014, the U.S. Treasury Department publicly acknowledged that MTO account closures could be disastrous for U.S. and Somali interests and promised to clarify expectations for banks partnering with MTOs perceived to be high risk.

The Treasury Department and USAID have also worked with Somalia’s Central Bank to improve its financial management systems.

The agencies warned that unless the U.S. government takes urgent and extraordinary action to restore the full flow of remittances through formal channels, many Somali families will struggle to survive.

Analysts say that while the closure of formal remittance channels would hurt Somali communities, it would benefit criminal networks that prey on informal money transfer systems that are invisible to regulators and law enforcement officials.