New assessment confirms major drop in remittances to Somalia

Tuesday October 6, 2015

Katra Arale is among those in the Somali Diaspora who send money to family members in Somalia who are struggling to survive there. For 15 years, since arriving in the US at age 22, Arale has worked in janitorial services, cleaning a government building in Minneapolis. A mother of three children all born in the US, Arale says she’s glad to share her salary with her extended family in Somalia. Katra Arale sends at least $300 home every month. Sometimes, it’s as much as $400 or $500. The money helps her father, who is disabled, his wife, and their children. Photo: Coco McCabe / Oxfam

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The conclusions of a new assessment shouldn’t be overhyped, but it’s clear that something is wrong with Somalia’s remittance lifeline. Governments need to take action now to help families meet their everyday needs.

In recent years, Somali money transfer operators (MTOs), which represent the only legitimate mechanism through which the Somali diaspora can send money to their loved ones in Somalia, have struggled to maintain bank accounts. Remittances play a vital role in supporting vulnerable Somali families, with 41 percent of urban-dwelling Somalis receiving remittances. They spend the vast majority of the cash to meet basic needs like food, shelter, health care, and education.

Some MTOs have continued to operate in the US, but the situation is extremely fragile, with few guarantees of how much longer they’ll be able to continue. Some MTOs have closed agent locations and many have capped the amount of money each customer is permitted to send, raised fees, and resorted to unusual methods of transmitting cash. During some periods, it has been extremely difficult to send money.

The response of the US Treasury Department – most recently articulated by Adam Szubin at his September 17 confirmation hearing for the role of Under Secretary of the Treasury for Terrorism and financial Crime – is “money is getting through.” Oxfam and other humanitarian organizations have doubted that this tells the full story. While MTOs continue to operate and most customers are able to send and receive remittances, we have worried that the restrictions may have reduced the flow of money and that the difficulties some people may have receiving remittances may have been under-reported.

Today, we can say for certain that money is not getting through – at least not like it was before.

For the first time, we have a real-time snapshot of how remittances to Somalia are helping Somali families provide for their most basic needs. The Food Security, Nutrition, and Analysis Unit – Somalia, an arm of the Food and Agriculture Organization, today released a remittance assessment based on a survey of nearly 2,300 households in urban areas and among displaced populations across Somalia.

The assessment’s conclusions are distressing. In cities other than the capital Mogadishu, a large proportion of remittance recipients surveyed- approximately 35 percent – reported a decline in remittances. If these findings accurately reflect the situation throughout the country, hundreds of thousands, and perhaps millions, of Somalis could be failing to obtain the support they depend on from abroad.

It’s difficult to say exactly how much of the decline has been caused by disruptions in the money transfer system, but it’s a lot. 36 out of the 113 households that reported a decline in remittances (nearly a third) said that money transfers were no longer available in the countries where their relatives were living.

An additional 60 households (over half of those who experienced a decline in remittances) chose the response “family members/friends/relatives friends reduced the amount they sent.” Since that response is so broad, some of these respondents may have received less because their loved ones abroad simply earned less or wanted to save more for themselves, but it may also be because of the inconveniences, limitations, and fees related to MTOs’ banking problems.

While it’s important not to draw hyperbolic conclusions from this relatively small data set, the news is not good. The bottom line is that at least a third, and possibly much more, of the reduction in remittances relates to problems with the money transfer system. It’s also clear that the statement “money is getting through” belies the harsh reality for thousands of Somali families that, in many cases, are missing out on the support they’re counting on to meet their most basic needs.

The US government has taken some welcome steps to help Somalia build a reliable banking system that is capable of preventing money laundering and the financing of terrorism, and the passage of an anti-money laundering bill in Somalia’s Parliament will help build foreign banks’ confidence in Somalia over time. But both are long-term solutions that will do little to address the fact that Somalia’s money transfer system is failing now, and a further, larger-scale disruption is possible at any time.

What’s needed right now to ensure vital remittance flows aren’t further disrupted in the short-term is a direct and creative approach that urgently brings banks, whose services are needed by MTOs to send money abroad, back into the fold. The government can do that either by reducing the risk for banks or increasing the incentives for opening bank accounts for Somali MTOs. It’s a basic, common sense formula for making sure money gets safely to legitimate recipients and stays out of the reaches of criminal networks.

The time for action is now. “Money is getting through” is no longer an acceptable excuse, if it ever was.

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