By Dr. Mohamed O. Nur
The current Somali Money Transfer System illustrates the need for a greater international effort to create an acceptable international money transfer system in the growing number of countries where the state has collapsed, the paucity of international aid is acute, and nationals are trying to do more for them. The biggest challenge facing the international community is how to improve the well-being of people living in such states. It is certainly the case, as the United Nations Development Program (UNDP) found in Somalia, that current money transfer systems in that country do meet acceptable international standards and the means to identify suspicious transactions and money-laundering schemes. But international efforts will be more meaningful if they are directed at building a financial architecture rather than just deploying the blunt instrument of sanctions. An alternative policy action of this type has been initiated by the UNDP, which is working with foreign governments and Somali’s remaining money transfer and remittance companies to comply with standard financial rules and regulations and help firms institute standard bookkeeping, auditing, and reporting.
The international community can best serve the channels through which remittances are transmitted by helping construct a financial architecture that reduces the transaction costs of intermediation and increases its transparency. Recently, the World Council of Credit Unions launched the International Remittance Network to facilitate remittance transfers from the United States. It does not charge recipients a fee and offers better exchange rates, but as yet its services are confined to its members. The Inter-American Development Bank is helping create a common electronic platform in the region between sending and receiving countries and within receiving countries. But there is considerably greater scope in this regard. In particular, the international community should fund a more substantial effort to underwrite the development and maintenance of common electronic platform (including clearing –house and payment systems) that would facilitate remittances transfers.
To increase the long-term productive impact of remittances, governments needed to promote greater competition and entice formal financial intermediaries, especially banks, to expand operations in areas with higher levels of emigration. Although it is true that Hawala-like informal transfer systems are extremely efficient in that they provide much needed services at low cost, the net amount of capital they bring in is virtually zero. The reason is that Hawala can only function if inflows are equal to outflows, which means that the transactions are balanced through capital flight. Thus while remittance-receiving household benefit from the operation of such systems, the net financial and foreign exchange gains to the country are significantly less than if the flows came through formal channels. Moreover, if the propensity to save is higher among the remittance-receiving households than in others, formal systems are likely to raise national savings rates. This would suggest that the presence of an extensive network of financial intermediaries in these areas could help leverage remittances for broader economic development. Countries with large remittance flows through informal channels could consider subsiding the intermediation costs through formal channels as well as offer other incentives, such as less costly financial products like life insurance or access to mortgages. Remittances could be also be used to securitize future receivables to augment foreign credit ratings. In addition, governments also need to more actively monitor and regulate labor market intermediaries, who often fleece potential migrants.
In conclusion, are remittances a new development paradigm or another destabilizing force of globalization? They are certainly one of the most visible –and beneficial-aspects of the role of international migration in reshaping the countries of origin. In a variety of settings, remittances are quietly transforming societies and regions and are the most manifest example of self-help undertaken by poor households in the global arena. In particular, they are augmenting private consumption and alleviating transient poverty in receiving countries. However, their effects on structural poverty and long-term economic development are still poorly understood, which is surprising given their importance.
Recently some senators are taking great role of helping Somali Money Transfer Companies in the United States, especially Minnesota which has a large size of Somali immigrant residents that have no other means of helping their devastated people and country without the process of Hawala since there is no functioning central government and banking system in Somalia.
As Somali-American citizens we need to support the above mentioned initiative that some of US Senators are trying so hard to help the Somali Money Transfer Companies to be a legitimate and efficient way of Somali Diaspora lives and their families at home. Most of Somali Money Transfer Companies have gone through strict guidelines of Complying USA Patriot Act by doing all necessary requirements, such as knowing your customer, ID for all remitters, doing Currency Transaction Report and Suspicious Reports, training their employees for any updates to FinCen and USA Patriot Act guidelines and having Quarterly Auditing in compliance with Treasury Department.
In the near future, The United States of America, European Countries, Arab League, AOU needs to help Somali people by establishing Commercial Banks by allowing Somali Money Transfer Companies to participate and facilitate the process of becoming full fledged Commercial Banks, but first we have to establish a functioning Somali Government or get Financial Recognition with the help of UNDP.
Dr. Mohamed O Nur
Assistant Vice President/Manager
E-mail: Mohamed.o.nur@wellsfargo.com
WELLS FARGO Oakland Metro Market, Greater Bay Region