For almost the last decade, the survival of the remittances industry has been at the front of most Somali people’s minds. It is, without a doubt, a lifeline that must be secured against many internal and external challenges like money laundering and the financing of terrorism, which raise the risk of doing business with these valuable operators who contribute so much to Somalia’s socio-economic development and entrepreneurship. The Federal Government and all its financial institutions, including the Ministry of Finance, the Central Bank and the Financial Reporting Centre, are working with the Somali Money Transfer Businesses (Hawalas) and the financial sector actors to ensure that the safe transfer of remittances through the attainment of correspondent banking relations in key global financial centers including London and New York is realized. While this vital national and international regulatory work is on-going, and clearly a priority, a more existential threat lies ahead.
Businesses are built on customers. Customers are king and all enterprises dedicate substantial effort and resources to understanding their customer base and planning a long term future of engagement to survive in often difficult trading environments. The Somali remittances companies operate across the world and almost all exclusively depend on the Somali diaspora’s connection to home and the remittances they send to loved ones to operate and remain profitable. All Hawalas understand this customer base, but the future should start to worry them as a new generation is increasingly replacing the first generation of refugees who primarily sent money home to support families and for investment.
At the beginning of the year, I went to a Hawala company to send money to family members in Hargeisa and Mogadishu with a cousin who was born in Denmark but was living in London with his parents. Once I sent the money, he was surprised to learn that I had not bought anything or exchanged the money for any other form of goods or services. Once I informed him of the need to support family members in Somalia who were not as fortunate as we were financially, he was shocked.
“But why don’t they work?” my cousin asked. “I can’t be doing that like mum and dad because I have to live my life.” When I inquired about what “living his life” meant, he said he needed a mortgage, car and to save to invest in businesses for himself and his future family. When asked about his family in Somalia, the young man was clear. He simply replied, “I don’t know them.”
The exchange with my cousin is not unique to just him but is a creeping change of wind sweeping the next generation of young Somalis who the Hawalas surely hope will replace their parents. Yet, the real challenge in this assumption is that it is no longer bankable as a business plan. The truth is that the link between the first generation of Somalis and their family members and dependents in Somalia was stronger than it would ever be with the next generation. The first wave of Somali refugees after the civil war had deep connections with Somalia because, for many of them, it was their real life, and they left behind families, friends, businesses and in some way, hoped they would return one day when things improved. In essence, the first generation of remitters knew who they were sending to and understood why it was important. For the next generation, both motivations are not as strong because of their lived experience.
Generalizations are, of course, not great as the basis for intelligent assumptions. There will be those young Somali diaspora members who will undoubtedly continue to support their families in Somalia unconditionally like their parents. Many parents also educate their children to do this too and work very hard to nurture and support inter-generational family bonds through regular communication across borders. However, without the real personal connection, responsibility and collective familial mindset, the majority of the next generation of Somali diaspora cannot be expected to, and are unlikely to, send as much and as frequently as the generation before them. This lack of personal connection can also pose a challenge to the due diligence process, often known as Know Your Customer (KYC), which is crucial in the sending and receiving relationship in remittance transactions.
What does not also help the situation is that this younger, better educated, and integrated group seeks to make a life where they live and do not aspire to return to Somalia. Moreover, their parameter of success, socialized into them in their new countries of birth or settlement, is one of individual development, progress and prosperity. This means saving and investing disposable income to increase financial comfort while paying their mortgages, car payments, university loans and saving for retirement. The Covid-19 health pandemic has also created a more uncertain economic future in which many young Somali diaspora have either lost their jobs or feel financially insecure enough to focus solely on building fiscal buffers against future economic and financial disruptions and shocks, especially, where they have existing regular financial obligations like mortgages and other debt repayment.
Hawalas will have to re-evaluate their business plans and invest more in strategic communications, public relations and outreach with their wealthier next generation potential customers in the diaspora. Some already invest in Somali TV and social media advertising as well as support cultural events like Somali Week events globally, but this needs to expand to connect their future clients to their families in Somalia. Hawalas to date have been a cash-in and cash-out business but now they must become more sophisticated.
Somali Hawalas are expanding their customer base and some send money as far and wide as South Sudan and Ivory Coast. They are proudly supporting individuals, families and facilitating trade in many fragile and developing countries. Yet, still their primary market remains Somalia as the other international markets have heavy competition with local firms and banks. The Hawala companies’ expansion into domestic Somali banking is a welcome diversification and their lending to Somali entrepreneurs, coupled with the Federal Governments successful on-going economic reform efforts in Somalia, will no doubt strengthen the economic fundamentals at home. This will go some way in ensuring that the umbilical cord of dependency on externally sent remittances from a smaller unpredictable support base is lessened over time.
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