• published: 07 Aug 2013
• views: 261

Every month I visit a small grocery store in a non-descript building in Columbus, Ohio, where I live, to use a service that keeps Somalia alive: "Hawala", the traditional money transfer system used throughout the Middle-East, Africa and South Asia. Similar to Western Union, Hawalas present a way to easily transfer money from one country to another, using a wide network of agents and central clearinghouses that make such transfers quick, cheap and reliable. Like many other members of the Somali diaspora, I use Hawalas to transfer badly-needed funds to friends and family at home. But the system is threatened by a new wariness among international banks used to clear the cash, which could sever an essential financial lifeline to Somalia just as it emerges from decades of civil war. In Britain, Barclays bank has given hundreds of Hawalas until August 12 to shut down - a step which could halt the flow of as much as $12m a month sent to Somalia from Britain. The decision by Barclays, the seventh largest bank in the world and one of the most influential globally, signals to other Western financial institutions, already suspicious of the Hawala system, not to do business with these organizations altogether. Here in the United States, scrutiny of the Hawala system over fears of money-laundering has seen banks threaten similar shutdowns. Oxfam, in a recent study with the humanitarian organisation Adeso and the Inter-American Dialogue, found that US banks are closing the accounts of Somali money transfer operators at twice the rate of their counterparts in Latin America. For those who have kept Hawala accounts open, the relationship can be described as antagonistic at best. Many banks have instituted draconian due diligence requirements for Hawala business accounts, often preemptively shutting down accounts they deem suspicious. The Barclays decision could be a tipping point, leading other banks in Europe and North America to follow suit, potentially cutting off the flow of billions of dollars from Diaspora communities to Somalia. While often depicted in the West as the financial tool of terrorist groups, Hawalas are in fact part of a sophisticated international money transfer system to speed foreign exchange inflows and investment capital. Instead of attempting to shut down Hawalas, Western banks and regulators should work to understand the Hawala system and work with remittance companies to help strengthen security within that framework. After 22 years of a civil war that saw the destruction of financial infrastructure in Somalia, Hawalas like the one I use have filled large gaps left by government institutions, banks, charities, and development agencies. Losing them would mean disaster - both for my family, and for the country at large. More than total international aid As much as $2bn is sent annually to Somalia by diaspora communities around the world - that's more than a third of the country's GDP. Ninety percent of Somali foreign currency earnings come from remittances, and 80 percent of businesses in the country are launched with start-up capital sent from abroad. By contrast, total humanitarian aid to Somalia in 2011 was just $1.3bn, making remittances the single largest source of currency entering the country. A previous effort to shut down Hawalas in 2001 was followed by a significant spike in malnutrition rates among children living in remote regions of Somalia. UN officials attributed this partly to the sudden cut off of remittance funds. During the 2011 famine NGOs and international aid organizations used Hawalas to send food vouchers to families at risk of starvation, to pay employees, and to finance emergency aid programs. In late 2010, I received a call from an uncle who lives in a small town near the Somali-Ethiopian border - drought had killed off all his livestock and food stores were running low. With five children to feed he was desperate and running out of options. I sent him money through a Hawala to feed his family - part of a wave of international assistance that poured in through the Hawala system. While most Hawala transactions are legitimate, there have been times when the system's informality and relative anonymity have been exploited to fund illegal activities including terrorism. Hawala transfers have been linked to the 1998 bombing of the US embassy in Nairobi, and to the Somali extremist organisation Al-Shabaab. Of course, Hawalas are not alone in being misused: Al-Qaeda used formal banking transactions and currency exchanges to finance the September 11, 2001 attacks, and last year UK-based HSBC agreed to pay a record $1.92bn fine to resolve money-laundering charges by US regulators.