Since the announcement by Barclays in May 2013 that it intended to close the bank accounts of all but 19 of its 165 clients in the remittance transfer business, following the earlier withdrawal by other banks from the sector, there has been significant “behind the scenes” political wrangling and negotiation. Justine Greening, Secretary of State for International Development, has described the issue as “one of the most important things I’ve dealt with in my political career”.
In the absence of any formal banking system, money transfer operators (MTO) are a financial lifeline for the Somali regions. An injunction prohibiting Barclays from closing the accounts of the largest Somali money transfer operator (MTO) means that this company is able to continue operations for the time being. The UK Department for International Development has chaired a series of private meetings and consultations with the aim of establishing a “safer corridor” for remittances to Somalia in partnership with existing MTOs. The objective is to implement this within 12 months. In the meantime, the future of the US$1.2 billion annual remittance flow to the region hangs in the balance.
An effective and sustainable solution will require concerted political will and co-operation at the highest level – and an appreciation of the unique nature of the Somali financial market.
In response to sustained pressure from Somali campaigners, MPs and influential commentators about the dire consequences of any disruption of remittances to the Somali regions, the UK government released a ministerial statement on 10 October 2013. It promised an Action Group on Cross Border Remittances and a pilot project to “help secure remittance channels to Somalia”.
Whilst this statement of intent was welcomed, a “Factsheet on Somali remittances” circulated by the government just a week later contained a number of statements which prompted renewed concern that the government was misinformed on certain key issues.
The most contentious pieces of advice to the diaspora were as follows:
1. “To use one of the many small Somali remittance companies which do not need a bank account”.
This statement showed no appreciation of the close ties between remitters and specific remittance companies (often based on clan or regional links but also service-related). A subsequent claim by government that “most Somali remittances are made through small scale businesses that operate in cash” was derided.
The advice was particularly perplexing given that concerns about money-laundering and terrorism financing had been used by Barclays, and other banks before it, to justify bank account closures. The suggestion that Somalis who had previously used operators regulated by the Financial Conduct Authority (FCA) and HM Revenue & Customs should now resort to using wholly unregulated – and invariably more expensive – operators was not well received.
2. “To use mobile payments, which are widely used in Somalia, and can be sent from the UK”.
The mobile money market is developing rapidly in the Somali regions, but it is still very much in its infancy and concentrated in certain urban areas. The claim that the payment of bills by mobile money is higher in Somalia than anywhere else in the world – a claim often cited by government – appears to have its origins in a World Bank database which treated findings from a 2011 survey of 1000 people in the city of Hargeisa, capital of Somaliland, as if they were representative of all Somalia. Moreover, the same database claims that 31 percent of Somalis have an account with a formal financial institution, somewhat implausible in a region virtually devoid of such institutions.
Dahabshiil injunction against Barclays – and action
At a court hearing on 15 and 16 October, Dahabshiil sought an injunction against Barclays for “abuse of market dominance”. Mr. Justice Henderson concluded that there were grounds for a full trial. This meant that Dahabshiil could continue to continue to bank with Barclays until the trial, currently scheduled for October 2014, although Barclays have successfully sought an appeal against the injunction ruling.
After the injunction, press comment understandably dwindled, awaiting developments, while campaigners openly questioned whether the government was prepared to take decisive action. However, the signal importance of remittance transfers to the Somali region – and the singularity of a market with no established banking system – has now been accepted. In early January 2014, DFID announced details about the Action Group on Remittances and its Working Group on Safer Corridors.
The Working Group on Safer Corridors is responsible for implementing, within 12 months, a reliable and secure remittances channel to the Somali regions. It will have an advisory group comprising members of the Somali Money Services Association (SOMSA), and representatives of Somali community associations, the British Bankers Association (BBA), NGOs active in the region, the Treasury, HMRC, the Home Office, the World Bank and the FCA will also be involved. The implementation group will comprise the World Bank, Financial Sector Deepening Africa (FSDA), and the Consultative Group to Assist the Poor (CGAP).
Cause for concern
The UK government’s renewed commitment to finding a solution is to be welcomed. However, there are no proposals on the table to counter the serious handicap for Somali MTOs of having had their bank accounts closed by Barclays, or others before them.
DFID has emphasised that the safer corridor will “protect the commercial interests of existing players” in the Somali remittance transfer market. The intention is to “strengthen existing channels”, thereby “giving banks and others comfort on regulatory matters” and ensuring that banks “get back into this market”. Yet the absence of banking facilities jeopardises the survival of larger Somali MTOs.
the UK government cannot force a bank to provide banking facilities to Somali – or any other – MTOs
In short, there is a real risk that by the time a solution is found, the “existing players” will be counted on fewer than the fingers of one hand – a situation that is bad for competition and bad for regional “reach”, as many MTOs have predominantly local or clan presence.
Carrot and stick
The official line is that the UK government cannot force a bank, even one substantially owned by the taxpayer, to provide banking facilities to Somali – or any other – MTOs. Similarly, providing a bank with an indemnity against, for example, a fine for money-laundering if it provides the required banking facilities is not an option due to the risks to the UK taxpayer. This may be technically correct, but it is disingenuous.
UK banks are routinely forced, or rather “persuaded”, by government with the use of stick or carrot (or a combination of the two). One need look no further than the Help to Buy scheme, through which the UK Treasury has provided (taxpayer-funded) guarantees to the tune of up to £3.5 billion to induce banks to provide 95 percent mortgages in a property market which most commentators consider “frothy”.
Persuasion or inducement, for which there are precedents, or possibly even setting up a UK remittances bank operated by an existing bank (with the necessary indemnities, of course), need to be revisited as a matter of extreme urgency.
A prize for the taking
Last week Justine Greening MP, Secretary of State for International Development, met with representatives of a number of UK Somali communities in Ealing Town Hall. “It’s one of the most important things I’ve dealt with in my political career”, she told the audience. The minister also sought to give reassurance that “the best experts on the planet are working on a solution”.
There are a great many “cooks” toiling on the Action Group on Remittances and Working Groups “broth”, representing very different – and sometimes diametrically opposed – interests and objectives. Ensuring that some cooks do not spoil the broth will be a key priority for the Action Group’s independent chairman and senior ministers. But there is a prize for the taking. According to Justine Greening, if the various partners can make a safer corridor for Somali remittances work then “it will be adopted everywhere”.
All over the globe, money transfer companies – and the banks through which they operate – are on the back foot, buffeted by regulatory headwinds. Yet no one disputes the vital importance of remittances to developing countries. This will be even greater as the US Federal Reserve starts to apply the brakes, however carefully, to its money stimulus programme. A resolution must be found in the interests of the global economy, and for humanitarian reasons.
Justine Greening has assured UK Somalis that the Prime Minister has personally voiced his recognition
Ultimately, this is a straightforward test of political will (of the cross-party variety). Justine Greening has assured UK Somalis that the Prime Minister has personally voiced his recognition that a rapid solution to this situation is “massively important”. Any solution, however, will require politicians of sufficient rank and determination to insist on one being found.
Meanwhile, Somalis from all walks of life and countries continue to voice their deeply-felt concerns about the consequences if remittance flows to the Somali region diminish, or are choked. After all, remittances are not only a lifeline for many individuals and families but the engine of the region’s economy – the prime source of cash that can’t be embezzled or “diverted”. As such, it is worth remembering, they are also an essential pillar of the £1.5 billion “New Deal for Somalia” announced by donors in September 2013.