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The Special Position of Somalia’s Remittance Industry

Development agencies wish to see an increased flow of remittances; Financial agencies wish to see formalisation of remittance flows through banks. Law enforcement agencies wish to reduce the scope for the remittance business to be used for money laundering and financing crime generally.”

 by Mohamed Mukhtar Ibrahim
Sunday, November 11, 2018


The non-bank financial entities in Somalia have played a critical role in an economy where the state has been absent or weak. The thriving mini-industry has offered money transfer solutions to locals, diaspora Somali’s and investors across the board in need of money transfer services both locally and globally. Its special position in a promising economy goes without mention as a critical ingredient growth and development of a “new Somalia”. This article has been drawn from the recently published “Somali Remittance Report: Challenges Faced by the Somali Remittance Industry.

The Somali money remittance business has its own special characteristics. Notably, Somalia is one of the poorest in the world and for many years, the country has suffered from internal conflict. With large scale immigration reported over the last three decades of instability, it is estimated that there are about twelve million Somalis of whom around two million live abroad. The historical migration of Somalis out-side the Horn of Africa is highly inter-related to the development of money transfer arrangements, starting from Franco Valuta system, to High Frequency Radio services, to the current branded Somali remittance companies.

Today, the country is yet to have effective banking and regulatory financial institutions that can provide the services required by individuals and private businesses in Somalia. Furthermore, internal and external investment is exceptionally reduced due to multiple risk factors inevitable in an economy that is just beginning to find its footing. However, the expansion of the traditional ‘Hawala’ services, which have been offered by remittance companies for over four decades, enables the remittance companies to act, not only as money-transfer agents, but also as conduits for trade and as quasi-banks. Each remittance company has agents in various countries throughout the world and the process of remitting funds is simple. An individual will contact an agent of the remittance company in his/her country residence, presents the cash they intend to remit, pays the “statutory fees”, and presents detailed information of the intended recipient. The agent then deposits the cash in a local bank account.

The maintenance of the money transfer process by the Somali Remittance Companies (SRCs) is critical, but not easy. To outsiders, it may seem a simple process of transferring value from A to B, while to others it is a murky system where money changes hands secretly under the table or in an alleyway, and messages are passed on orally without leaving any trace. In fact, it is a very sophisticated business, which must overcome day-in day-out technical, regulatory, security, cultural, institutional, logistical and managerial challenges, in an environment which is anything but hospitable.

Somali Remittance Process and Technicalities

The remittance process consists basically of two flows: an information flow and a value flow, each with its own challenges and technicalities

The information flow process consists of seven stages

        i.             Receiving information from the sender including personal details, identity, amount and destination,

      ii.            Transmitting information electronically,

    iii.             Organising, sorting, and filtering information at a central processing unit,

    iv.             Notifying the paying agent and the beneficiary of value,

       v.            Taking the personal details and the identity of the beneficiary,

    vi.             Informing the sender and/or the send agent of payment made, and

  vii.            Keeping and updating records.

This process is however faced by cultural, regulatory, technical and managerial technicalities which have evolved over time and upon which the efficiency of process largely relies upon.

On the other hand, the value flow process consists of six stages

        i.            Receiving money from the sender over the counter at the send point,

      ii.            Depositing money into a bank account,

    iii.            Transferring money to a central account,

    iv.            Transporting money to the paying point,

      v.            Safe keeping money, and

    vi.            Paying the beneficiary.

The Evolving Industry

The main qualities of remittance companies are honesty and the speed with which they deliver the money. At the beginning of the 1990s, the strategic tools were the HF radios which was one way of getting contact with people from the outside world. After 1994, things improved dramatically when Olympic (AST/ TELCOM) and Al-Barakat’s telecommunication company BETELCO started operating.

In 1997 Nation-link joined them and two other companies, NetXchange and Amana entered the market. The Somali operators obtain a significant part of their revenues and profits from incoming calls, rather than outgoing ones.

The scale and nature of remittances gives rise to several public policy issues at both national and international level: Remittances make a massive contribution both to alleviating poverty and funding economic development. Higher the remittances are the greater the beneficial effects.

The development of SRCs have led to a broadening and deepening of financial markets; they have also provided the much needed competition to commercial banks which often are reluctant to deal with lower income people.

Because Somali remittance companies are largely unregulated, and certainly subject to much less onerous regulation than banks, there is a risk that they can be used to circumvent controls in the banking system dealing with money laundering and crime generally. In effect, the US decision to close Al-Barakat on 7th November 2001 affected this sector dramatically consequently having tremendous impacts on the others.

Development agencies wish to see an increased flow of remittances; Financial agencies wish to see formalisation of remittance flows through banks. Law enforcement agencies wish to reduce the scope for the remittance business to be used for money laundering and financing crime generally.


With increasing demand for the remittance services, and recognition of the trickle-down effect of proceeds from the industry, there is an increasing need for key stakeholders including the government to offer more regulatory and technical support to the industry. The special position that the SRCs hold in Somali’s economy cannot go unmentioned as the country strives to revive its economy from all fronts and largely relies on remittances from external sources. The expanding business environment in Somalia offers a wide range of opportunities to local Somalis, diaspora Somalis and foreign investors; this has been made possible by increased remittances. In addition to money transfer, remittance companies offer savings and transactional accounts for business and private clients for safe keeping, transportation and savings towards projects and investments.

Mohamed Mukhtar Ibrahim
[email protected]


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