Regulation and supervision in a vacuum: the story of the Somali remittance sector

Abstract

This paper addresses the challenges that the Somali remittance sector is facing post September 11, 2001. In the absence of a central government and a banking system, the Somali remittance sector provides basic financial services, including the remittance of funds from the Somali diaspora. The lack of a central authority and a central bank poses challenges, such as absence of fiscal policies, lack of financial planning and investment guidelines, in addition to currency mismanagement and erratic fluctuation and pervasive insecurity, to remittance companies both in Somalia and abroad. In order to meet these challenges the remittance companies need to increase their current operating standards and commit to compliance with all host country rules and regulations. Under these circumstances the most effective option is self-regulation until such time that a formal banking sector is established in Somalia. In the mean time host country regulators along with the Somali remittance sector must collaborate to achieve compliance.