Markets & Finance

Diaspora remittances up despite ban on hawalas

CASH

A Western Union signage on Kenyatta Avenue in Nairobi on February 17. PHOTO | SALATON NJAU

Cash sent by Kenyans working abroad went up in May despite closure of hawala money transfer services.

Data from the Central Bank of Kenya (CBK) shows that diaspora remittances rose by 3.7 per cent in May to Sh12.7 billion ($129 million) from Sh12.3 billion ($124.4 million) in April.

The government in mid-April banned operations of 13 licensed money remittance providers, commonly referred as hawalas, over suspicions of links with Al-Shabaab terror group.

The amount received in May is the second largest sent from the diaspora going by the decade long money remittance data shared by CBK.

The Central Bank attributed the increase to money receipts from Europe whose contribution to the whole amount sent rose to 30.8 per cent from 26.4 per cent in April.

“The increase was largely reflected in inflows from Europe and the rest of the world. Inflows from Europe increased by 20.9 per cent to Sh3.9 billion ($39.8 million) from Sh3.2 billion ($32.9 million), while inflows from rest of the world also increased by three per cent to Sh3.1 billion ($32 million) from Sh3 billion ($31.1 million),” said CBK.

The ban on hawalas was expected to result in a plunge in the remittances which are considered crucial to supporting the shilling in the foreign currency exchange market.

The resilience of the remittances offered support to a battered shilling which has been flirting with the Sh100 psychological mark in the last two months.

The lack of change, however, creates queries on whether sums sent through hawalas are accurately captured in the official data, if the amounts are negligible or users of the remittance providers changed their remitting points to banks following the ban.

The hawala system is preferred for its flexibility, speed and low cost compared to other money transfer services.

The Treasury estimates that Kenyans in the diaspora sent Sh118 billion ($1.2 billion) through unofficial channels last year equal to the sum sent officially underscoring challenges associated with quantifying money sent into the country.

The Central Bank now requires all businesses used to remit cash into the country to be licensed to help keep track of the cash and ensure the country is not used for money laundering or financing terrorism.

Forex bureaus have also been banned from engaging in the remittance business with CBK requiring them to acquire money remittance provider licences.

President Uhuru Kenyatta lifted the suspension of the hawala business in mid-June.

In the five months to May those in the diaspora had sent home 7.6 per cent more than in a similar period last year. Cash sent from the diaspora is mainly to support household requirements of their dependants back home and investment, mainly in real estate.

However, amounts sent by Kenyans living in North America, mainly the US and Canada, has been declining in the last three months to Sh5.6 billion ($57.3 million) in May from Sh6.2 billion ($62.7 million) in March.