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Why remittances are a big deal for Somalia

Daniel Gerstle

Note: There will be a local public forum on this issue tonight, 6 pm, sponsored by Oxfam and the local Somali Youth & Family Club, at the Pine Ridge Apartments complex, 3725 South 180th Street, SeaTac. 

Somali migrants send an estimated $1.3 billion back home each year. The $215 million that Somalis living in the US send back to Somalia is nearly as much as the $242 million that the US provides in aid to Somalia. Money sent as remittances accounts for 60% of the average Somali’s income.

Recent developments are making it harder than ever for Somalis to send and receive money. The UK-based Barclays bank recently imposed severe restrictions by cutting off partnerships with 250 remittance agencies. Concerns about the security of money and not knowing where it was being spent were cited as reasons for the change.

The money sent to Somalia by individuals is a vital source of income for many people living in the country. Oxfam credits remittances for helping to reduce the negative impacts of the 2011 drought. Money transfer operators (MTOs) are the only source of banking for some Somalis, but the operators depend on partnerships with foreign banks. When banks suddenly end partnerships, people are cut off from the money they need.

It is becoming harder for Somalis to send money despite improvements by the MTOs to reduce money laundering and comply with foreign bank standards.

“They have invested significantly in compliance systems, policies, and training to ensure that they do not run afoul of US anti-money laundering/combating the financing of terrorism (AMl/CFT) requirements, but most US banks have ignored these investments,” says an Oxfam America report on the state of remittances in Somalia.

The US fined the bank HSBC $1.9 billion for not following regulations on preventing and monitoring money laundering. The concern in the case was focused on drug money flowing out of Mexico, but it is cited as influencing Barclays decision in Somalia.


Remittances are even more important for Somali refugees. Relying heavily on aid and humanitarian support, money sent through remittances help refugees get by and create their own opportunities, says Annisa Omar.

“Refugees living in the Horn of Africa region are without citizenship. They face difficulty securing housing, welfare or employment. Our remittances enable our relatives to establish businesses and support themselves,” wrote Omar in African Arguments.

An investigation by Oxfam reveals the impact of account closures and makes recommendations for how US banks can improve so that remittance channels remain open. The authors suggest that services can expand by taking a careful look at Somali-American MTOs.  Aside from the banks, the US government should pay closer attention to the issue.

Given the long civil war in Somalia and its tentative progress, money returning to the country through remittances supports the nation’s economic development. One idea is for the Treasury Department to set up an automated clearinghouse that would aggregate all transactions. That information would be then used by regulators to identify any abuses or irregularities in money sent. The US can also assist Somalia in developing regulations and tracking mechanisms to ensure that MTOs are not sources of funding for terrorists or money laundering tools.

MTOs for their part can better train their agents, work closely with establishing regulations in Somalia and meeting US-based rules, and support the development of mobile money technology for Somalia. Recent data on mobile money in neighboring Kenya reveals that more than two-thirds of all Kenyans have either sent or received money through their phones. Kenya’s  mobile money giant M-Pesa, run by telecoms company SafariCom, has grown to account for more than $300 million in person-to-person transfers a month.

Mobile money services are already in use in Somalia, but they can be improved by allowing for international transfers. Making that happen will require coordination with Somali authorities and compliance with US federal and state regulations.

“People in remote areas with no access to banks credit their mobile accounts to keep their money secure, make everyday purchases such as food and fuel, and even pay school fees,” says the report.

There is hope that the decision by Barclays does not portend more challenges to the sending of remittances to Somalis. Oxfam’s report, issued ahead of Barclays carrying out its new rules, is optimistic that changes can be undertaken to ensure that the the remittances that are a vital lifeline for many Somalis remain available.


About Author

Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]