Barclay Bank’s Remittance Cutoff Poses Major Threat To Somalia Businesses

Barclays Bank’s decision to stop its services in Somali transfer firms may be diverting terrorist, but it could also be strangling the Somali economy.

Reuters recently reported that Barclays Bank announced it would withdraw banking services from over 250 money transfer businesses in Somalia. The directive was initially established in effort to avoid fund transfers falling into the hands of terrorists, and to stop any further encouragement of civil conflict across the nation. However, the Somalia government is begging the British government to reconsider its actions in fear that cutting off services will disrupt the country’s remittances. Additionally, officials are concerned that the removal will inadvertently encourage the emergence of illegal transfer replacements.

Barclays made the announcement earlier last week, after recognizing Somalia is fighting to stop an Islamist insurgency.

According to Reuters, the bank announced in a public statement, “It is recognized that some money service businesses don’t have the proper checks in place to spot criminal activity and could therefore unwittingly be facilitating money laundering and terrorist financing.”

But Somalia government members expressed growing concern that the sudden withdrawal would be detrimental for its people, who heavily rely on remittances from the UK. On July 1, an urgent appeal was sent to David Cameron, the British prime minister, to help stop the movement. Critics of Barclays’ decision claim that remittances in Somalia are “lifeline” for millions of individuals who do not have formal banking services.

Officials indicated that the Somali community would be negatively affected by the pull out, and emphasized that $500 million worth of remittances are sent out each year.

“It’s a lifeline. Probably one quarter of Somalia’s GDP is from remittances,” Somali Central Bank Governor, Abdusalam Omer said to Reuters.

“There are about 2 million people who receive some support from the diaspora and that goes into buying food, shelter, medicine, schooling,” he said.

In addition to stifling remittances, the Somali economy may also be threatened by an increase of illegal channels aiming to replace the formal banking money transfer gap. Somalia is a nation with little to no alternatives for the money transfer service, and people may become desperate to support themselves.

Families depend on remittances to pay for survival, but it is important to note that businesses are equally dependent. Barclays’ shut down will inevitably affect such businesses that may potentially cripple the economy. 

Daily Nation reported that Barclays’ initiative underscores the nation’s urgent need to reform its monetary policies. However, shutting down operations entirely will only have adverse consequences for Somalia and its economy.

To read the full story at Reuters click here, or to read the full story at Daily Nation click here.