Let us change Hawala to Functioning Banks?

by M. A. Sheikh Abdulahi

When Somalia’s last central government collapsed in early 1991, all the government institutions including banks, telecommunications, education, security and many more were subject to complete havoc. Until today only a mere few have been restored. One of the most important government institutions yet to be functioning as needed is the central Bank of Somalia. The central Bank is the major financial gateway of the country, where the country is interconnected financially to the rest of the world. Today Somalia’s central bank merely exists by name. We require this bank to be set in motion so that we may send and receive money worldwide through our central bank.The problems of Hawala become everlasting and recurring every time a major terrorism incident happens in the world. But it is the only channel that you can send money to Somalia since the beginning of the last decade of 20st century. This is an informal way of sending funds and that is why it attracts the attention of the international community at the time of major terrorism incidents. We should come up with an alternative channel that is transparent, sustainable and complied to the international telegraphic transfer. This will enable us, as Somali Diaspora, to continue supporting our loved ones at home.

Members of the Somali community are equipped with a detailed understanding of the area of business. Because of this, soon after the collapse of the central government; they conjured a method which enabled them to send and receive money both locally and internationally – Hawala. As there wereno telephone systems after the collapse of the government, Hawalas used looted military radios to communicate. Trust played a pivotal role among the Somali community whilst sending and receiving money.

The fleeing Somalis reached everywhere in the world soon after the civil war. Where ever Somalis settled they started sending or receiving money. The reason was obvious as nearly every Somali was missing one or more of his or her relatives.  Hawalas started on individual base but later they united and became companies registered to the countries they operate. Soon after the Hawala businesses progressed, they acted as banks as they were to keep cash and become dominant financially countrywide. Using the modern technology,today Hawalas are even quicker than any other bank in the world when it comes to receive or send money worldwide.

Despite the popularity, domination and effectiveness, Hawala until today is not a legal channel to send or receive money even though it is the only way you can send money to Somalia if you are outside of the country. Whenever there is a major terrorism incident which has taken place in the world, no matter where, it affects the Hawala financial channel of Somalia, but we argue one reason “this is a life line for the Somalis”. Where we are in the world, we organise taskforce committees to deal with the problem – for the continuation of this life line channel – without later thinking of how we can make it legal or come up with a formal and sustainable channel to replace it.

In Somalia there has not been a government since 1991. But in 2009 until 2012 there has been a transitional government and in September 2012 a worldwide recognised government have been in office. Though in saying that, this government is not yet made the Central Bank functioning as a financial gateway of the country.

Why we cannot send money to Somalia in a way that is similar to any other country in the world? It is a question that we need to get an answer for it. Sending money to Somalia through a formal channel using Central bank of Somalia is a way that is beneficial to both the government and the people as well.  The government’s role is to urge and encourage the Hawala companies to unite and create private commercial banks, or government owned, which cater for the public. The central bank will receive the hard currency and provide local currency to the local commercial banks so that they give it to the individual beneficiaries.

There are a number of reasons why we cannot follow this channel. First the central bank is not functioning as required and because of that cannot send money through. Secondly we don’t have working local commercial banks. Thirdly the central bank has no local currency to compensate the foreign currency it receives.  And lastly Hawala companies are developing their services but not willing to transform themselves into local commercial banks.

Central Bank should be printing new bank notes to replace the current devalued one. Currently telecom companies are acting as banks, controlling the cash in the country. They control it by using their mobile money transfer technology locally. All these things are contributing the Hawala system become suspicious and not transparent. If there is no smooth and transparent way of handing money to the individual beneficiaries, Somalis who are away from their relatives could face uncertain future to keep the life line for their families. This is because of the terrorism and the money laundering problems around the world are affecting these informal ways of sending remittances to a war torn country like Somalia.

To conclude this, we need to work together to get rid of this informal and old fashioned way of sending money to our homeland. It really worked for us during the hard times. It is now time to work formally. The Central bank and the remittance companies should work together and speed up creating local banks to cater for the community. The Central Bank of Somalia should soon provide enough local currency to replace the dominant US Dollar in our cash market.

M. A. Sheikh Abdulahi
Former staff Ministry of Finance and Founding member of GSD Network