Kenya is stopping remittances of $70 million a month from reaching its Somali community

Cash swap
Cash swap
Image: P Photo/Farah Abdi Warsameh
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In its latest move to counter the terror threat engulfing its country, the Kenyan government has banned at least 86 entities and individuals it accuses of financing or supporting terror activities in the country.

The list of banned individuals and entities is led by Mohammed Kuno, the man Kenyan government accused of masterminding the deadly attack on a university in Garissa, a northeastern town that lies 200 km from Somalia border.

However, the biggest casualty is the Hawala system, an informal money remittance method that involves transfer of cash without any records of parties involved in the transactions. The system is heavily relied on by Somalis in Kenya–both Somali Kenyans and refugees from war-torn Somalia.

Others affected are bus companies owned by Somalis, local non-governmental organizations that champion human rights and a local cleric who has been waging ideological war against Somalia-based al-Shabaab Militant group.

The government has also frozen the accounts of the 86 entities and individuals mentioned in the list, instructing all banks and financial institutions to deny services to those on the list. Its fear is that the informality of these transactions allows for funds to be used to support terrorist activities.

The move is likely to cripple the local economy of Somalis in Kenya who are engaged in every sector of the wider economy. It is estimated that between $70 million to $100 million a month is transferred between Somalis, mainly from those in the United States and Europe to family and friends back home in Kenya and Somalia.

Many Somalis rely on the system, which charges a lower rate than traditional global money remittances firms like Western Union. In practice the system, while informal, is not in markedly different from mos In a typical Hawala transaction, the sender of the money gives the cash to the Hawala agent who electronically notifies the other agent in the location of the recipient, issuing instructions to release an equivalent sum of money deposited to him to the intended recipient.

According to Al Jazeera:

The Somali diaspora sends home more than $1.2 billion annually — a sum larger than foreign aid and investments combined. Remittances are a crucial component of the Somali economy, making up more than half of the nation’s gross national income. An estimated 73 percent of Somali households use the cash transfers to pay for food.

Already, some members of Kenya’s Somali community see malice in the move by the Kenyan government and are questioning the manner in which the ban was affected.

“The move to ban Hawala will affect every single Somali in this country because we are interconnected and we use the system to help each other. Now if few misused it, why not go after them instead of crippling our livelihood,” said Abdulaziz Sheikh, a resident of Somali-dominated Eastleigh neighborhood in Nairobi who depends on money sent by relatives from abroad.

Some of the Hawalas are regulated by Central bank of Kenya. However, the government has urged citizens to use formal banking system that are Sharia compliant. Banks and microfinance institutions operating in Kenya were also given 48 hours to file transaction reports with the Central Bank.

The Hawala system is already facing challenges in the US and UK. The banks that handled the majority of remittances to Somalia terminated all accounts of money transfer companies by early February. These Banks feared that some of the services could unwittingly be facilitating money laundering and terrorist financing. A charge that most Hawala companies deny.