THE closure of informal money transfer companies, commonly known as Hawala earlier in the year, locked out an estimated $ 5.4 million (Sh562.8 million) daily inflows into Somalia, a minister said on Friday.
Kenya was among the countries that shut the money transfer systems in a bid to stop alleged terrorist financing.
In April, the government closed down 13 money transfer firms in the wake of a terrorist attack on Garissa university college on April 1.
Finance minister in the Federal government of Somalia Mohamed Ibrahim said the move hit-hard the economy.
“When the Hawalas were closed, there was significant economic and social impact on many people in Somalia. Our currency has since lost about 25 per cent in exchange rates with black market activities increasing,” Ibrahim told the Star in Nairobi.
The daily estimates given by the minister for the informal cash transfer system translates to about Sh16.9 billion a month.
Ibrahim said the shut-down also led to an increase in money laundering and prices of goods and services, raising the cost of living.
“Transaction costs of the Hawalas have gone up since then. The low cash flow also weakened the Somali shilling against foreign currencies”, he said.
The impact is still being felt, Ibrahim said, adding that 80 per cent of the Somali population receives money through the system.
Many of the citizens rely on the Hawala system for remittances because of their lower charges compared to traditional global money transfer firms like Western Union.
It is the most preferred transaction mode by the Somali expatriate community, mainly in Europe and the US. Most of the funds are channeled through Kenya.
The blanket suspension by Kenya was lifted on June 8 by President Uhuru Kenyatta on condition that the remittance firms comply with Central Bank of Kenya regulations.
“We are very thankful to the Kenyan government for being responsible and for making the decision to revise the move and continued support for Somalia.
Hawalas support almost half the national GDP,” Ibrahim said.
He after the signing of a $ 24 million (Sh2.5 billion) World Bank funding, to support the second phase of the Somalia Recurrent Cost and Reform Financing.
Hawala companies have since picked up business after a three month low.
“We are trying to get back our footing slowly,” said Kendy Money Transfer director Caroline Cherotich, one of the companies which were affected.