Sector Context: Since early 2014, the bank accounts of the majority of Somali (commercial) remittance providers in the UK, US and Australia (and to a lesser extent in Scandinavia) have been closed. This is part of the broader global “de-risking” discussion. The particular context of Somalia – with a lack of a formalized financial sector and a quantifiable terrorist threat – intensifies the risk situation and affects the decisions taken by financial institutions.
Given the critical importance of remittances to Somalia, the Somali government, remittance providers and civil society have called for a public sector-led response. Remittance flows continue to reach Somalia, with limited impact to date on the magnitude and cost of remittances, as private sector players have been resourceful in finding alternatives. The overall situation however remains fragile.
Financials Appraised Value: US$ 2.2 m
The World Bank will contribute to medium-term regulatory and supervisory capacity building efforts in Somalia. The activities will support the Federal Government of Somalia to establish a plan to support the flow of remittances to Somalia.
This project will be closely coordinated with the longer-term World Bank project, the Somali Core Economic Institutions and Opportunities Program (SCORE), already endorsed by the SDRF Steering Committee. These activities will also be complementary to the actions being undertaken by other donors.
Component 1: Drafting of Money Transfer Business (MTB) Regulations
In order to facilitate the immediate strengthening of the regulatory framework for the MTB sector, the World Bank will work with the CBS to draft and enact MTO Operating Regulations that are based on the draft AML/CFT Bill, to which the World Bank has already provided technical assistance. The regulations are to include provisions for customer due diligence, recordkeeping, ongoing monitoring, reporting, internal controls, consumer protection, and risk management. They will apply to all registered and licensed MTBs operating in Somalia.
The WB will also work with the CBS to draft and enact MTB Customer Registration Regulations, which will apply to customers of all MTBs to ensure a level playing field.
Component 2: Placement of Trusted Agent
As longer-term capacity building initiatives are put in place through the Bank’s SCORE program, the SRFS Project will initiate efforts in the short term by embedding an external firm to work alongside the CBS to begin on-site and off-site supervision: the “Trusted Agent”. The Trusted Agent will also build capacity at the CBS to ultimately transfer this responsibility back to the authorities.
The Trusted Agent will administer on behalf of (and in coordination with) the CBS on-site and off-site supervision to ensure that the MTOs and their agents comply with the regulations mentioned above and meet the requirements on an on-going basis. The Trusted Agent will carry out ongoing training of CBS staff. The World Bank will undertake the procurement of the Trusted Agent.
Beneficiaries Central Bank of Somalia and remittances recipients throughout Somalia
Government Counterparts Central Bank of Somalia, Ministry of Finance in Mogadishu
Implementation Arrangements These activities are executed by the World Bank on behalf of the Government, and once hired, the ‘Trusted Agent’ on behalf of the Government
Geographic Coverage The project will benefit remittance recipients throughout Somalia. The initial phase of the project will focus on the CBS in Mogadishu. The implementation of the Money Transfer Business (MTB) regulations and the scope and implementation of the Trusted Agent’s (TA) supervisory activities will ultimately extend throughout Somalia.