Lost in Transaction: The Challenges of Transferring Remittances to Somalia

Abstract

Somalia suffered several throughout the decades fluctuating between famines, wars, droughts and for most of the past two decades, with no government to address these humanitarian disasters or to provide any basic services for its calamity-stricken population. The financial system was in a total collapse and 98% of its currency was counterfeit. The large Somali diaspora, because of these crises, supported 40% of the Somali population with their donations, but how? This thesis posed the question, how can the Somali diaspora most efficiently send remittances to Somalia? A pragmatic stance with a case study approach and a mixed method was chosen to explore this research question. The literature review on remittances did not provide any theories for the choice of a remittance channels in a conflict/post-conflict setting and thus mainly transaction cost theory (Williamson, 1979, 1981) was applied combined with an element of trust (Granovetter, 1985b) in an analytical framework developed for this paper. This was to explore the transaction costs of any possible remittance channel, formal or informal. The research findings mapped out the different remittance channels and found that despite the barriers of political, economic and humanitarian character, mobile money organizations provided an opportunity taken, in terms of remittances for the Somali population. Mobile money organizations came out with the lowest transaction costs of all the remittance channels examined and with a wider spread and better integral capabilities for the Somali society. The theoretical implication of the findings is that theory can be complemented by a certain level of interdisciplinarity, to develop a more holistic understanding of the object of analysis. For empirical implications policy makers can be more informed about, what the preferences and plights are of a diaspora, because if legislation is too heavy-handed, the informal channels will be forced underground in cases where it could have been avoided.