Remittances to Somalia

A few years ago the United States put stricter regulations on the sending of money abroad in a process known as remittances, out of concern that money may end up in the hands of extremist groups. Remittances are money that immigrants in a rich country send back home to their families. The flow of remittances worldwide is huge; the World Bank estimates they will be about $500 billion in 2015. Around $1.6 billion of that annual total goes to Somalia, a larger amount than foreign aid and investment. According to the UN, nearly 40% of Somalis receive remittances, in a country where GDP per capita is around $1000. Remittances are an economic lifeline for families who have relatives working in rich countries, and are an important factor in the positive benefits of migration.

In February, the last US bank handling transfers to Somalia stopped providing the service, citing US bank regulations, effectively cutting off every Somali who receives money from relatives in the US. This is a huge blow to the Somali economy, and will put millions further into poverty. The reason for the regulations is to prevent transfers to terrorist groups, such as Al-Shabab. But such groups have illicit sources of financing, and some degree of networks in multiple countries. The average Somali has no other options. It is unknown to what extent if any terrorist groups in Somalia are financed this way, making the benefits, if any, highly uncertain against high and certain costs.

Not to mention that increased poverty is a threat to well-being itself. Without resources, more Somalis may be pushed into the arms of extremist groups or militias that can provide them with some level of income or resources. Poverty is fertile ground for violent extremism. The intent of the regulations was to make people safer by defunding terrorist groups. The effect is to increase poverty, and reduce safety. It is a cautionary tale about judging regulation by its intent rather than effect.

Fortunately Somali-American groups in the US, and their representatives, have been pressuring the US to revise the relevant banking regulations. Supposedly remittance services will become available again to Somali-Americans this month; it can’t happen too soon.