As almost any Somali living in the U.S. will tell you, sending money to relatives and friends back home is just something that we do. I’ve grown up seeing my grandparents, parents, aunts and uncles do it for years — it’s a fact of life. It’s no surprise that every year, Somali migrants send approximately $1.3 billion to Somalia — a sum far larger than all the official development assistance and direct foreign investment that Somalia receives.
When my family left Somalia to go to Yemen, I remember that we used to receive money each month from relatives in the United States. My parents used this money to cover basic household expenses, and for a period, we had no other source of income. I was too young at that time to understand how important this money was, but I can certainly appreciate that now.
At that time, my family’s situation was not exceptional. Even today, around 41 percent of Somali households receive remittances from overseas on a regular basis. This money is used to buy food, water, and clothes, take care of the sick and send children to school. This is money that millions of people rely on to make ends meet, and many would go hungry without it.
Traditionally, the flow of money to Somalia was facilitated by what Somalis refer to as ‘Hawalas,’ or xawilaad in Somali. This was a system based on relations of trust rather than a formal banking system. It allowed people to transfer funds without paper money ever having to move across the border. While 30 years ago this was a rather informal system, today it’s quite sophisticated, and the companies are usually referred to as Money Service Businesses (MSBs). They have branches around the world, Internet services and smartphone apps, just like most global financial businesses.
Today when I want to send money to my uncle and his family in Puntland, Somalia, all I have to do is go to an agent in Minneapolis or LA, and hand over the amount I want to send, along with my uncle’s contact information. Within a matter of minutes, I’ll get a text message confirming that he’s received the money, even though he’s over 8,000 miles away. This is both incredibly efficient and remarkably inexpensive, with fees far lower than a Western company would demand.
But since 9/11, these Somali money transfer companies have come under increased scrutiny, and banks have come to see MSBs as high-risk clients. In the past few years, many of these banks, especially in the U.S. and UK, have closed the accounts that MSBs need in order to be able to transfer the money overseas. To comply with regulations to combat money-laundering and terrorist financing, MSBs have put measures in place to improve security and transparency in line with global financial standards, but the accounts continue to be closed — and the ultimate victims are the Somalis who rely on remittances from abroad.
If Somalia had a functioning banking system, none of this would be a problem. I could directly wire money into my uncle’s account, and he could go withdraw it at his local branch, or better yet his local ATM. But this is not the case. Services like Western Union are not really an option either, as they only have one branch in all of Somalia, and charge up to three times as much as MSBs to send money there.
Small steps are being taken to protect the remittance flows. Last week, Congressman Keith Ellison of Minnesota — who represents my hometown of Minneapolis — led a successful bipartisan effort to introduce the Money Remittances Improvement Act of 2014 to help Somali families send money home. This legislation, HR 4386, has passed through the House of Representatives and is now going to the Senate for review. It would reduce burden and risk on the banks that service the MSB accounts, improving the likelihood that banks will keep these accounts open. Even the Treasury Department, which has been issuing guidance to strengthen security and oversight over money services, supports this bill.
I’m the first to agree that we need to ensure that money being sent to Somalia ends up in the right hands. But the legitimate need to ensure that transfers are transparent and secure shouldn’t hurt the most vulnerable populations in Somalia, which depend on remittances from overseas for their daily survival. We need to find a solution that meets the regulatory requirements without harming the senders and receivers of remittances.
The human cost of not finding a solution would be astronomical. As we speak, 2.9 million Somalis are facing a humanitarian crisis due to poor rainfall and increasing food insecurity. On May 7, a group of 22 non-governmental organizations working in Somalia, including Adeso, warned the world about the risk of Somalia sliding towards a catastrophic hunger crisis if we don’t act now. Remittances are helping to keep Somalis alive now, and they are needed more than ever.
Remittances to Somalia are voluntary, family-to-family support, and help to reduce reliance on official foreign aid from American tax dollars. It only makes sense ensure that we keep this critical lifeline open.
