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CBS Brings Order to Mobile Money Sector

As the country comes to terms with the effects of Covid-19 on its economy, Mobile Money Service is poised to play a major role in rebuilding. The Central Bank of Somalia is keen on regulation and sanity in the sector.

Well into the second year of the Covid-19 pandemic, the economies of various countries report, as expected, slowed growth and bumps occasioned by the disruption in business and lockdown protocols that threatened to grind everything to a halt.

Sectors of the global economy and local economies have suffered massive losses and the effects of the pandemic so far, even as most countries re-open, continue to drag recovery, stability, and growth efforts. Somalia is not any different. The impact of the virus on specific industries and sectors of the economy has been undeniable; much like the effect of the pandemic on the overall national economy.

A recent report by the Central Bank of Somalia (CBS) that looks at the economy, paying special attention to the financial sector presents an intimate look at how Mobile Money Networks and mobile money transfer service providers have responded to the pandemic and how the sector will be essential as the country begins to recover.

Writing in the Quarterly Economic Review, the Governor of the Central Bank of Somalia, Mr. Abdirahman Mohamed Abdullahi said that financial sector reform that has been undertaken in the country has created a stable environment for micro and macroeconomic growth.

“Evidence indicates that the various macroeconomic and financial sector reforms are undertaken by the core economic agencies of the Federal Government of Somalia have enabled the economy to weather the storm. However, significant challenges remain.  During this quarter, the Central Bank of Somalia issued the first ever mobile money license. This great milestone is expected to play a pivotal role in the Central Bank’s financial stability objective,” he wrote in the first quarter economic analysis that was published about a month ago.

Regulating the financial sector

The report reveals that as of March 2021, the financial sector in Somalia was composed of 13 commercial banks, 10 Money Transfer Businesses (MTBs), and 1 Mobile Money Operator

(MMO). Since 2014, the Central Bank has issued nine (9) prudential regulations, including the recently issued regulations on AML/CFT for the financial sector (2019), and Mobile Money Regulation (2020), four (4) guidelines for the banking sector, including the two recent guidelines, one for Shariah Governance Framework and the other one for Islamic Financial

Reporting & accounting (2020), while the non-banking sector has seven (7) effective prudential regulations.

“The Central Bank of Somalia had in December 2019 issued a moratorium on licensing new banks; the suspension is deemed to fast-track financial sector reforms and to issue additional regulations and guidelines to support existing prudential regulations and policies. The CBS is working on the revised Financial Institution Law, the Payment System Bill, and the Insurance Bill to regulate the industry more broadly. The draft bills are in the consultation stage and soon will be submitted to the cabinet and the parliament for enactment,”

Quarterly Economic Review, by CBS.

The significance of these regulatory efforts in rebuilding the economy as the country gets its Covid-19 situation under control can be seen in how lack of regulation adversely affected Mobile Money Transfer services in the past decade.

Mobile money services, offered by non-banking entities such as telecommunication firms that own and offer mobile telephone services, emerged 10 years ago but operated without regulation despite the fact that these companies handled billions of dollars yearly. This lack of regulation was a potential minefield seeing as the services of these firms touched the lives of millions of Somalis both at home and abroad.

The new regulation formalizes digital transactions as the primary payment method within the country and will enable further integration of the Somalia financial system with the international financial system.

The importance of mobile money networks

The Quarterly Economic Review explains just how integral mobile money services are to the economy of Somalia: “There has been a great need to regulate the mobile money sector, which handles an estimated 155 million transactions, worth US$2.7 billion (40 percent of GDP) a month. Mobile money services are used by 73 percent of the population over the age of 16 in both rural and urban regions. More than half of Somalis who get a monthly salary, payment, or allowance have their earnings or allowances directly sent to their mobile money account. Similarly, the majority of people utilize mobile money to make payments such as utility and merchant payments. Furthermore, 63 percent of Somalis prefer to save money with mobile money rather than cash. As a result, Somalis commend Mobile Network Operators for providing vital services throughout the country.”

Surprising as it may sound, this massive cash traffic via mobile and digital networks in and out of Somalia was first licenced in 2020 when the CBS Board of Directors approved the first ever Mobile Money Operator License on their December 2020 meeting, bringing regulation to the widely used digital payment process for the first time.

This operator was granted a license after having met the necessary requirements including providing a valid National Communication Agency (NCA) license. For the first time, it was possible to supervise the mobile money transfer company; an act that is very critical for financial sector development as well as the stability of the economy. To mark this achievement, on February 2021, CBS held a license granting award ceremony to commemorate this new dawn for the financial sector.

According to the Quarterly Economic review report, CBS is working closely with the NCA in the regulation of Mobile Network Operators involving mobile money services to stay safe and follow sound financial stability to facilitate payment system.

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