Collapse of banking system in post-Gaddafi Libya encourages ‘parallel’ money services

By Alex Varley-Winter and Tim Wood | 23 April 2013

“The government needs to create some kind of regulation”
– Munder Shuhumi, financial analyst at the London-based Libyan Civil Society Organisation

This is how Libya distributes cash around the country. A Libyan teenager poses proudly next to currency worth more than £1 million that, he says, he was told by the interim government to distribute.

Abd El Khader sits on a sofa with two million Libyan dinars in a picture that illustrates problems posed by the collapse of the country’s banking system following the overthrow of Muammar Gaddafi’s regime.

In the second picture (right), the same youth is pictured with two machine guns. In post-conflict Libya, anyone distributing such large amounts of cash is bound to be a target for armed robbers and militia.

Exaro tracked down El Khader as part of an investigation into Libya’s missing millions. He claimed through an interpreter that his family was authorised by the government to distribute the cash to 1,500 people.

He said that he was among the “revolutionaries” that fought Gaddafi, and has since joined the Libyan air force.

El Khader was just out of high school when the picture was taken, he said, adding that he was brought up in Benghazi, the city where the opposition National Transitional Council (NTC) was based as it led the toppling of Gaddafi. The NTC went on to form Libya’s interim government, and was dissolved last August after handing power to a newly-elected assembly.

The youth said that he was part of a “group” that collected the money from a security checkpoint while the NTC was still running the country. He insisted that he “did not do anything wrong.”

Referring to Libya’s oil wealth, he said: “While Libya is rich, the people are poor.”

Last month, Exaro obtained two leaked reports that detail how Libya was unable to account for unfrozen assets of $1 billion, raising the suggestion that the funds may have gone missing.

Cash disbursements were common after Gaddafi’s downfall, when the interim government was faced with post-conflict “emergencies”. These often included paying off militias who demanded cash for having fought against Gaddafi.

The governor of the Libyan Central Bank, Sadeq Omar Elkaber, said after the war in Libya that 96 per cent of available money was held in cash outside the banks.

Munder Shuhumi, financial analyst at the London-based Libyan Civil Society Organisation, which promotes social justice in Libya, said: “We have rumours that containers were delivered to certain neighbouring countries with cash inside them. But nobody can confirm.”

He said that Libya’s banking system needs a “serious investment in infrastructure”.

This breakdown of the banking system has, said Shuhumi, bolstered Libya’s “parallel” financial markets.

As a result of this breakdown, companies offering to transfer cash between people have set up shop in Libyan banks.

Shuhumi said that the historic gold market of the capital, Tripoli, was also providing “parallel” banking services. “You can literally have people transferring hundreds of thousands to neighbouring countries, on the word of mouth.”

Libyan authorities would like to stamp out the small merchants offering such alternative banking services, but Shuhumi sees a risk that this will drive the market underground.

He said: “The government needs to create some kind of regulation for the sector that would allow these people to operate in the open.”

Last month, the International Monetary Fund advised the government to regulate Libya’s financial markets. It said: “Adequate preventive measures and reporting to an independent and operational Financial Intelligence Unit will help limit destabilization from illicit financial flows.”

But rebuilding Libya’s banking system, argues Shuhumi, would help eliminate the need for “parallel” services, as well as distributing hoards of cash around the country.

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