Is Global Financial Inclusion at Risk?

Is Global Financial Inclusion at Risk?

August 18, 2016

Crisis in Somalia

Recent headlines detailing the current money remittance crisis in Somalia hint at an even more troublesome problem; diminishing global inclusion.

The Somali remittance crisis is nothing new. Political unrest in the 1990s led to the collapse of social and financial systems and laid the groundwork for the decade(s) of struggle that followed. Of the country’s 10 million inhabitants, over 40% rely on remittances from friends and family abroad to finance daily life (food, water, clothing) and small business ventures. Without a formal banking system, hawalas (money transfer services) are the driving force of the economy. According to a recent OxFam report, the Somali people rely on an estimated $1.3 billion a year from their diaspora around the world, including more than $200 million from the U.S, to survive. These remittances exceed humanitarian aid to the country and account for somewhere between 25-45% of the GDP.

The battle to comply

Civil unrest in the region has made it hard for MSB banks to determine exactly where their money transfers end up, creating a compliance nightmare. Financial institutions are facing strengthened regulation as FinCEN promises to enforce the BSA/AML and keep money from reaching the hands of terrorist groups like al-Shabab. As a result, banks are opting to de-risk rather than implement sustainable compliance practices, making financial inclusion even more elusive.

To add insult to injury, Merchants Bank of California, the last US bank to handle money remittances to Somalia, halted all money transfers to the country in February. The relatively small MSB bank accounted for roughly 60-80% of all remittances crossing the border from the US and the effects from this decision can be felt by the diaspora nationwide. On March 31st, the Australian WestPac Bank ended all of its banking services to money service businesses sending remittances to Somalia. And so the crisis continues to worsen as remittances from the Somali diaspora living abroad around the world are prevented from reaching loved ones back home. As MSBs face debanking on a grand scale, the unbanked of the world lose their chance for financial inclusion.

It’s not over for Somalia

Liban Egal, a Somali technology strategist, entrepreneur, and chairman of the First Bank of Somalia, has announced a plan to help MSB services and banks track where transferred money ends up. His pitch includes the use of biometric identification. A fingerprint scanner bought from a firm in India coupled with the CamelCash smartphone app, currently owned and developed by FSB, will hopefully make this vision a reality. Egal explains his hope to Reuters, “We are betting that if we show this system to a (foreign) bank and say ‘now we know who is sending the money’, then the risk assessment people (at the bank) might look twice.” Solutions like this one could help open up the vital money transfer avenues so that much-needed remittances can once again flow into Somalia.

At NCC, we understand the delicate balance between compliance and profitability. We are committed to powerful MSB solutions that serve the international money service business industry through redundant banking.

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