Puntland State
of Somalia
Meeting on Money / Value Transfer Service
Garowe, Puntland State of Somalia August 12 – 14, 2013
Statement by the
President of Puntland State of Somalia
H.E. Abdirahman Mohamed Mohamud (Farole)
All Praise and Thanks be to Allah.
The Deputy Parliament Speaker, the Ministers and Honorable
Parliamentarians, Private Sector, Representatives from UNODC, World Bank and
INTERPOL,
Excellencies, Ladies
and Gentlemen:
Good morning. I am pleased to address you at the opening
ceremony of this three-day Meeting on Money / Value Transfer Service that
brings together Puntland Government, Private Sector representatives from Money
Transfer Companies (Hawala), Telecom and Banking Industries, Industry Experts,
and supporting institutions of UNODC, World Bank and INTERPOL that co-
organized this important meeting with Puntland Government institutions. This is
an important and timely topic around the world and Puntland is honored to host
this meeting.
I would like to briefly address three major issues:
1. Background on the
formation of Hawala companies;
2. Challenges;
3. Recommendations
for the way forward;
Background
The state collapse of 1991 in Somalia led to the political
disintegration of the nation-state and produced the breakdown of institutions
and basic services, even though the Somali financial institutions totally
collapsed well before the political collapse. With the emergence of this
vacuum, the Somali private sector stepped in to cover basic services in a range
of critical areas, including education, healthcare, telecommunications, and
banking industries.
The Somali money-transfer companies, known as Hawala
companies, emerged in the mid-1980s to fill the gap of the Somali financial
institutions weaknesses and to satisfy the country’s growing financial
transactional needs. There was a government foreign exchange restriction in
place at the time. In effect, the emerging Hawala system served as a substitute
for the Somali Commercial Banking activities. At the time, due to the government’s
restrictions on foreign exchange, two types of exchange rates developed: the
government official rate and the market rate, which the government considered
the “black market rate” but was in effect the market rate.
Additionally, the prescription of the International Monetary
Fund (IMF) in Somalia in 1980s introduced higher official exchange rate, which
in turn led to higher market exchange rate (black market). This development
generated ever growing higher inflation every time the official rate is raised
and ultimately led to the state’s economic collapse.
Currently, the Somali Central Bank lacks institutional
capacity and serves solely as the Government Treasury, whilst important Central
Bank functions are lacking, such as banknotes issuance, monetary policy, and
the Central Bank’s role as government’s economic adviser.
In the early 1990s, Somali entrepreneurs transformed Hawala
system into prominent companies serving the growing demand of Somali refugees
in camps and Somalis displaced people within the country. Hawala offices were
at first established in Somali refugee camps in neighboring countries and in
Somali communities resettled in Western countries, in a makeshift way to
address the immediate needs of the Somali people in difficult times, and this
was indeed commendable thanks to the first Somali entrepreneurs who undertook
this important initiative to address the Somali people’s needs.
As such, Hawala system played an important role to alleviate
the plight of Somali refugees in the 1990s and today that important role
continues. Today, Hawala system contributes to the livelihoods of Somali
families in Somalia, creates employment and investment opportunities, and eases
business transactions and international trade, in the absence of commercial
banking system operating in the country. Currently, some Hawala companies have
grown into private banks and have established a pool of funds as a Saving Bank.
Without Hawala service, the lives of the Somali people certainly would have
been at higher risk for starvation, poverty and without a future.
Challenges
Understandably, there are many challenges facing the Hawala
system, as it operates many countries around the world. Governments want to
know and understand the flow of money back and forth to promote accountability
and impose necessary safeguards to ensure legal transactions.
A second challenge is that, currently, there are too many
Hawala companies operating in the market. This is a challenge for two reasons:
1) all countries where Hawala system operates do not have standard regulations,
including Somalia; and 2) too many Hawala companies create workload for
financial regulators.
The third challenge is the risk of bankruptcy and illegal
transactions. The Somali Hawala industry has a history of companies going
bankrupt, thereby losing the funds of Somali investors and depositors.
Additionally, Hawala companies might at times engage in illegal activities that
potentially fund criminal activities in Somalia, including terrorism, piracy,
human smuggling, and other criminal activities. Those involved in piracy ransom
transactions and transfer, which includes private security companies and
possibly some Hawala companies, also impose major threat to Somali security.
Recommendations for the way
forward
The issue of money transfer is an important matter as it
affects the livelihoods of the Somali people in Somalia and the Diaspora
communities who send remittances to relatives and support the country’s
economy. Certainly, the benefits of the Hawala system far outweigh its negative
aspects. However, Somalia and the world have to trek carefully to balance the
Somali people’s needs and the necessary checks and supervision, to ensure legal
transactions and prevent security risks.
Today, the Somali people in refugee camps and inside Somalia
are dependent on Hawala system for their economic livelihoods. It is estimated
that Hawala system contributes to the Somali economy nearly US$2billion per
year, constituting a big portion of the Somali fragile economy today. Thus,
stopping Hawala transactions constitutes imposing economic sanctions on Somalia
that could potentially create black market activities and security risks.
Our government’s position is to promote Hawala companies’
compliance with international standards and regulations, good practices, and
accurate reporting systems for information sharing purposes. This compliance
satisfies the concerns of governments in Somalia and around the world, whilst
ensuring that the country’s economic lifeline is not disrupted.
Additionally, Somali governmental authorities – at the
Federal and State levels – require international assistance to enforce Hawala
compliance internally to meet domestic and international requirements and
thereby strengthen Somali financial institutions to tackle security challenges
at home.
Similarly, the telecom industry’s mobile money transfer
systems require government regulations to meet security and revenue
requirements. Both the Hawala systems and the Telecom industry should comply
with government regulations and pay taxes, as taxation funds government’s
provision of security for economic development.
During discussions over the course of three days, it is my
hope that this important meeting will produce tangible recommendations for the
way forward to ensure the economic livelihoods of Somali people, while
protecting security and taxation standards and regulations.
Thank you and God
bless.
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