Use unofficial or illegal means
The Somali authorities said last year that about $2bn (£1.2m) in remittances – a significant percentage of GDP – is channelled to the country through hawala, or small money-transfer businesses.
According to Oxfam (pdf), an estimated $162m is sent to Somalia annually by the UK's Somali diaspora. There are fears this flow of money could go underground through unlicensed agents.
Barclays says it took the decision to close the accounts of some of its money service businesses (MSBs) to minimise the risk of falling foul of money-laundering regulations. But the move could lead to more money laundering. "It makes it much more likely there will be money laundering," said Dominic Thorncroft, chairman of the UK Money Transmitters Association.
The head of the African Development Bank, Donald Kaberuka, has made the same point. In a letter to Barclays, he asked the bank to reconsider its decision. "While the other affected countries have alternatives, Somalia and the greater Horn do not," he wrote. "As a result those transfers would probably be driven to high-risk, high-cost informal channels."
Use other companies
Barclays' decision particularly affects Dahabshiil, the region's biggest remittance company. It has 286 locations across Somalia and 400 payout sites across the Horn of Africa. Western Union has opened an office in Somalia, and other Somali remittance companies, such as Amal, Iftin, Kaah and Amaana, operate in the country. But they do not have the reach of Dahabshiil, which is also used by 95% of international agencies and charities in Somalia.
Ismail Ahmed, chief executive of World Remit, believes these companies have sufficient presence is southern Somalia, but is concerned that any negative impact on Dahabshiil could have serious consequences for the breakaway state of Somaliland, where the company has 90% of the market.
What are the options for remittance companies?
They can try to open accounts with other banks, which is easier said than done. Barclays tightened its eligibility criteria for MSBs after HSBC was fined a record $1.9bn in the US for a "blatant failure" to implement anti-money laundering controls.
It is far from certain that other UK banks will want to deal with a small sector that generates little profit yet poses a major regulatory headache. Other unpalatable options include transforming themselves into agents for bigger, more established players such as Western Union, so the money in effect goes through Western Union's systems. Or the remitters could pool their resources to set up more rigorous compliance mechanisms to track where the money comes from and where it goes.
What action is being taken?
Barclays' decision has triggered a flurry of official activity. There have been discussions between the British Banking Association (BBA), the Treasury, the Department for International Development (DfID) and remittance companies.
The BBA has called for a review of the registration and licensing requirements for MSBs, and wants better regulation of the industry. DfID is reviewing the remittances sector before talks next month.
Manuel Orozco, a senior associate at the Inter-American Dialogue and author of a report on remittances in Somalia, points to the entrepreneurial spirit of Somalis, insisting they will find ways of dealing with the problem. But he warns the damage created by Barclays far outweighs any risks it faces by doing business with remittance firms. He suggests other banks step in.
Nadifa Mohamed, the Somali-born author, has asked why Barclays continues to work with MoneyGram, which admitted to money-laundering and wire-fraud violations in the US, while shutting Somali money-transfer companies that have never faced any charges.
How does Barclays' decision affect other communities?
According to the World Bank, officially recorded remittances from the UK came to $3.2bn in 2011. The money went not just to Somalia, but also Bangladesh, Pakistan and India. Those communities have protested that, since other banks are refusing to offer new accounts, Barclays' decision will lead to thousands of people losing jobs in remittance companies in the UK, while those sending money abroad will be forced to use a handful of big US money-transfer providers