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A Somali refugee walks in front of a camp for internally displaced people in Mogadishu December 4, 2012/AFP


Somalia facing ‘cash flow disaster’

A Somali refugee walks in front of a camp for  internally displaced people in Mogadishu December 4, 2012/AFP

A Somali refugee walks in front of a camp for internally displaced people in Mogadishu December 4, 2012/AFP

NAIROBI, September 11- War-torn Somalia will be dealt a devastating blow if international banks carry out threats to stop money transfer systems sending funds that dwarf levels of foreign aid, experts warned Wednesday.

With their country ravaged by decades of conflict and no formal banking system, diaspora Somalis depend on money transfer services to support their families, sending some $1.3 billion (1 billion euros) each year, according to a recent report by aid agencies Oxfam and Adeso.

But Barclays, the last major British bank working with transfer companies, has said it will close all accounts with money transfer systems on September 30, cutting a $500 million (380 million euro) yearly flow.

“Remittances are more and more the backbone of Somalia’s economy,” said Degan Ali of Adeso, an African charity and development agency.

“It is also a lifeline for the whole trading and business system,” she said, noting remittances were double that spent in humanitarian aid last year.

International banks have been tightening rules in a bid to comply with international regulations against money laundering and the funding of groups accused of terrorism, but experts said that there had been no actual cases recorded of regulatory failures by Somali companies.

Closing organised transfers could drive them underground.

“Why let something happen that could increase money laundering and possibly terrorism?”, Oxfam’s Ed Pomfret said, speaking at a meeting in the Kenyan capital, where he called for regulatory changes to keep the remittances flowing.

Long term solutions would be to set up formal banking systems, said Philippe Lazzarini, United Nations humanitarian chief for Somalia, warning that cutting transfers in the meantime would “greatly undermine” development efforts.

Somalis send money back home via transfer businesses which can accept deposits abroad and immediately credit recipients back home.

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But regulations require transfer systems pass money through a bank account.

“We are not asking for a favour and will follow the rules Tell us what we should do and we will do it,” said Abdirashid Duale, head of Dahabshiil, a key Somali transfer company, headquartered in Dubai with some 24,000 outlets in over 140 countries.

Other countries across the world will also be impacted by cuts to the transfer companies, but none face the extreme challenges of Somalia.

“If Barclays is saying they believe it is too risky, why would another bank then want to come in? All banks approached so far have said no,” Duale said. “That is why we need the regulators to get involved.”

Somalia has been fought over by multiple warlords since the collapse of central government in 1991, but large parts are now relatively peaceful and are developing.

“If those areas don’t get the money it will create instability again, it will feed radicalism, and it will bring about what the banks are worried about,” Duale added.

Ironically, the move to cut transfers follows a rapid drop in some of the most controversial sources of finance in Somalia cash from piracy and Al Qaeda linked Shebab insurgents  said Matt Bryden, former head of the UN Monitoring Group for Somalia.

“It’s a draconian decision that is going to have a terrible impact,” Bryden said.

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