UNBANKING THE SOMALI POOR – IS BARCLAYS REALLY TO BLAME?

The withdrawal of remittances from Somalia could undermine stability, but it’s regulators, and not just banks, that are responsible

Failure to facilitate the flow of remittances by the UK could also undermine efforts at securing stability in Somalia. Photograph: Jose Cendon/AFP

By John Plastow

Barclays has been placed in the dock of public opinion over its decision to withdraw banking services from UK money transfer systems that fail to meet the regulatory criteria, with potentially devastating consequences for vulnerable communities in Somalia.

But central to the issue is the policy of the regulators and the overall response of the financial sector. We need Barclays and other banks, together with the regulators, to join aid agencies and allies to find a durable solution, not just a quick fix.

Remittances provide an essential lifeline for Somalia. Many families depend on money sent from relatives and friends living overseas to survive (UK transfers are currently estimated at between £100m to £500m per year). The majority of money sent is used by families to cover basic household expenses including food, clothing, education, and medical care. Now this source of income could dry up. In a country already challenged with insecurity and years of limited government capacity, restrictions on the ability of families to receive money could be disastrous.

Currently a whopping 2.5 billion people across the world lack access to financial services. CARE International UK has long recognised that this is a major barrier to poverty reduction. We are one of the largest facilitators of informal village savings and loans groups globally. We are also starting to work with formal financial providers to see how they can adapt their products and services to better reach the poorest.

One of those partners is Barclays. The bank has taken serious and innovative steps to adapt its business model in a number of developing countries, providing new group accounts and overdraft facilities to poor customers that would never previously have stepped foot inside a formal bank.

So, how to square this commitment to exploring new models of banking with the poor, with its decision to stop facilitating money transfers from the UK to those that fail to meet the regulatory criteria in Somalia?
Barclays is following others in the formal financial sector, who have already pulled back for fear of punitive fines from regulators. Many banks have been chastened by the fines exacted on the likes of HSBC (who had to pay a record $1.9bn), and have been reducing their risks of money laundering and accusations of financing for terrorism. Central therefore to the problem are regulatory policies in the US and the UK, which the administrations in both countries need to weigh in terms of costs and benefits, or see their own policies in the region undermined.

That there are actors in Somalia who have an agenda to challenge the security of others is not in question. What must be challenged is that instruments intended to enhance security will clearly have a major negative impact on those who are most at risk. Failure to facilitate the flow of remittances by the UK could also undermine efforts at securing stability in Somalia (anyone remember the London conference a few months ago?) and wider poverty reduction efforts.

Banks and regulators need to sit down with the aid agencies, the remittance industry and others to find a longer term solution. Recent research from Oxfam and our own experience of sending cash to Somalia has demonstrated that many Somali money transfer organisations are working to prioritise anti-money laundering mechanisms and are involved in efforts to combat financing of terrorism. While no money transfer program is fail-safe, these companies have demonstrated that it is possible to carry out a secure and reliable money transfer program in a challenging legal and regulatory environment.

John Plastow is the director of programmes at CARE International UK
 Source: The Guardian