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Screenshot of a breaking news alert e-mail from Q2 2017
For retail FX companies over the past few years, attracting business from Africa has been a relatively interesting niche over the past few years, often via introducing brokers in the financial hubs of Nigeria, Kenya and South Africa.
Despite the extreme difficulties of transferring client funds into brokerages overseas due to compliance stipulations, there have been a very small number of channels in which Nigerian and Kenyan clients were able to deposit funds into Western brokerages, many of which are now no longer available, a notable example being the now-defunct Liberty Reserve.
Since the demise of Liberty Reserve, firms wishing to do business in Africa have had little flexibility, and short of establishing branch offices in African nations with local commercial bank accounts, the options remain limited.
This week, a further barrier to conducting business with Kenyan customers has arisen, as a series of international money transfer companies have been closed down as a result of a directive from the government.
Among the the firms which were ordered to cease operations were Dahabshiil Money Transfer Company Limited, Hodan Global Money Transfer Limited, Tawakal Money Transfer and Juba Express Money Transfer Ltd, Sky Forex Limited, Kendy Money Transfer Limited and Bakaal Express Money Transfer Limited.
The companies which are listed as entities suspected by Kenyan authorities to be associated with terror group Al Shabaab were given a day to explain to the ownership structure of their companies to the government.
“In exercise of the powers conferred by Section 3 of the Prevention of Terrorism Act, the Inspector General of Police notifies the entities set out in the attached list to demonstrate within the next 24 hours why it should not be declared as specified entity” Police chief Joseph Boinnet explained to the firms.
The compliance departments within many Western firms, as well as the policy of many merchant services companies and credit card operators often do not accept direct payments from many African nations, therefore business is conducted in cash via foreign currency transfer businesses.
Added to that, a large number of citizens of Nigeria and Kenya do not possess a credit card, thus are reliant on services such as these to make payments. Firms in the FX industry have relied on money transfer systems to remunerate introducing brokers in Africa, as well as to conduct client deposit and withdrawals.
In the Middle East, government departments are increasingly aware of the necessity to facilitate a cash-based money transfer system, with a vast number of retail customers from the Indian Subcontinent and Africa now looking toward the United Arab Emirates as a hub in which to conduct business.
By total contrast to the Western world’s compliance-orientated, credit-led payments culture, jurisdictions such as Dubai operate a very liquid, cash society.
In Dubai, there is even a specific government license that companies can legitimately apply for from the UAE Central Bank, called the Hawalder License, which allows the license holder to conduct cash transfers, flying in the face of the anti-money laundering laws of the West.
As a result, Dubai is one of the easiest jurisdictions in the world from which to transfer money, and given the large ex-patriot community which operates there, largely of African and Indian origin, it is clear to see the future destination for such business.