The country’s latest bid to stamp out homegrown extremism stymied Idris Mohamed’s attempt this month to send $100 to his parents in Somalia.
“We are closed for business until further notice,” read a sign on the door at a branch of Dahabshiil, the biggest of 13 money-transfer companies in Kenya that serve largely Muslim customers.
Kenya’s government this month shut the firms, known as hawalas—“to transfer” or “to trust” in Arabic—in a bid to freeze assets suspected of flowing to al-Shabaab, the Somalia-based militant outfit that claimed responsibility for massacring 148 people at Garissa University College in central Kenya on April 2. On Tuesday, the group took responsibility for a suicide bombing at Somalia’s higher-education ministry, a strike that killed at least nine people, police said.
But some of the 2.5 million Somalis living in Kenya say the ban has also severed their only means of reaching impoverished relatives in their war-torn home country. “They need this money, they depend on it to pay for food,” Mr. Mohamed said of his parents.
Human-rights groups, meanwhile, warn that the financial chokehold on the Somali community could further fuel radicalization, and that the closure of hawalas makes it impossible for them to fund their own operations in the country.
Kenya’s government declined to comment on the impact of the closures.
Somalis abroad send home as much as $1.6 billion each year, according to international aid agencies and the Somali government, half of the gross domestic product of a country ravaged by war for a quarter century. Humanitarian agencies say cutting off the fund flows could deepen feelings of disaffection that are straining religious and cultural ties in East Africa’s top economy.
Other countries with large Somali populations have taken similar steps. Merchant Bank of California, the last U.S. bank to facilitate transfers to Somalia, suspended its services in February, following similar moves by U.K. banks in 2013.
Hawalas’ informality make them susceptible to money-laundering, regulators say. Hawala agents rely on a network of trust and reputation to balance senders in one nation against receivers in another without using formal international banking networks.
The system came under scrutiny after 9/11, when U.S. officials suspected they had been used to finance the attack. An investigation found Western banks, not hawalas, had passed money between terrorists. But regulators made it onerous for banks to keep sending money to Somalia, for fear of them becoming implicated in terrorism financing.
Researchers say banning hawalas could just push terror financing even further from sight.
“Hawala operates in a part of the world that has no other means of finance. Because they are the only available means, criminals use them, too,” said Nikos Passas, a professor at Northeastern University and a criminologist who advised U.S. authorities on regulating these networks after 9/11.
“Just as we didn’t shut down the banks that were used for the 9/11 funds, we shouldn’t shut them down,” he said, accusing the Kenyan government of “throwing the baby out with the bathwater.”
Because hawalas follow Islamic tenets to charge little interest, Kenyans living abroad also use them to remit some $1.2 billion a year, according to the Kenya Forex Bureaus Association.
Anthony Wachira, the association’s head, said hawala operators got an email around midnight on April 7, telling them they had been shut. He said a 2013 Kenyan law that limits their size and records the senders and recipients in such transactions should have made the crackdown unnecessary. “Kenya has one of the most stringent anti-money-laundering rule books,” he said.
He acknowledged terrorists or criminals could abuse hawalas, but said the suspended companies “want to be investigated and exonerated.” They are due to present their cases to the antiterrorism agency here this week, he added.
Kenya’s central bank and law-enforcement agencies declined to comment.
Humanitarian agencies that operate in Somalia warn that shutting Dahabshiil and other money-transfer companies is threatening to upend their efforts.
“Aid agencies working in Somalia also risk losing their only means of transferring money to sustain their daily humanitarian and development operations,” several groups including Oxfam said last week.
Some fear Kenya’s crackdown could push more disenchanted young men to join al-Shabaab.
“If you create animosity in those communities, you fuel radicalism and help the enemy,” Prof. Passas said.
Muslims for Human Rights, Muhuri for short, which is funded by the Ford Foundation and George Soros’s Open Society, has also had its assets frozen because of suspected links to al-Shabaab.
Muhuri’s chief, Khelef Khalifa, said he believes his group is being targeted because it accused the Kenyan police of systematic extrajudicial killings of Muslims and argued the government is further alienating Muslim youth with its roundups and crackdowns.
“We question the government and this is an area where they are very angry with us,” Mr. Khalifa said, adding that his group has no ties to al-Shabaab.
Kenyan President Uhuru Kenyatta said in a national address after the Garissa attack that his government isn’t trying to marginalize Somalis.
“Nothing could be further from the truth,” he said. “Kenyan Somalis and Muslims form a vital part of our national economic and political life. We are one.”
—Heidi Vogt contributed to this article.
