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Somalia’s strong mobile-money market faces new competition from Visa

By Mohamed Sheikh Nor
Posted on Friday, 9 July 2021 20:05

Staff from the Somalian bank IBS at the launch of Visa card services in Mogadishu on 7nJuly 2021. Photo: Mohamed Sheikh Nor.

The International Bank of Somalia (IBS) introduced on 7 July a first into Somalia’s financial services: a Visa card. The international card will not only offer Somalis a quick and convenient access to money, but it is proof that despite prolonged conflict, the country’s financial sector has remained resilient.

The Somali financial sector has grown rapidly in recent years thanks to a vibrant mobile-money market. According to a 2018 World Bank report, while 70% of the adult population used mobile-money services, just 15% had a bank account. Today, Somalia has 13 banking institutions under the supervision of the central bank.

The previous collapse of the formal banking systems paved the way for mobile-money services. In a country plagued with insecurity, mobile money has proven to be both safe and secure.

Mobile money and visa card services

On 27 February, Somalia awarded Hormuud Telecom the country’s first mobile-money licence. The company is the largest telecommunications provider in Somalia.

This is a step forward and indication that Somalia’s banking system is finally taking root.

This move allowed for the formalisation of digital payment systems and their integration with global financial markets. With a customer base of 3.6 million subscribers, Hormuud Telecom delivers mobile-money services to nearly three million people through its EVC Plus platform.

The regulation of Somalia’s mobile-money market has in turn fostered more confidence in the financial sector. According to the World Bank report, mobile-money penetration in urban areas is more than 80% and 55% in rural communities.

Somalia serves as a good example on how mobile money can support financial inclusivity for the most vulnerable, namely internally displaced people. Aid agencies have been able to provide them with monthly stipends through mobile money.

Banking improvements

IBS’s introduction of the Visa card services further supports the road towards a cashless society. During the launch, the bank’s deputy CEO, Abdirizak Ali Warsame expressed confidence on the future of Somalia’s banking sector. IBS began operations on 2014 and was the first bank to use a Somali SWIFT code.

On the introduction of Visa card services, Warsame said: “This is a step forward and indication that Somalia’s banking system is finally taking root. This service will enable us to underpin electronic money transfer as it is reliable and convenient.”

Warsame also spoke about the need for a political environment that is more conducive to supporting growth in the financial sector. “In order for the banking industry to become vibrant, our country needs to maintain political stability.”

“Rising from the ashes of civil war”

Somalia’s central bank has achieved progressive milestones in regulation and the governor, Abdiraham Mohamed, views these developments as an indication that Somalia is on a good path.

“The central bank will encourage all Somali banks to issue similar services. The Visa card will facilitate interbanking services across all the 13 banks operating in Somalia. It is a positive step for the country and shows Somalia is rising from the ashes of civil war. We are now part of the global financial markets. We encourage all Somalis to use banks as a way of strengthening the country’s economy.”

A recent political crisis had the potential to steer Somalia down the path to civil war. Following a vote in April by parliament to extend President Mohamed ‘Farmaajo’ Abdullahi Mohamed’s term by two years, chaos hit the streets.

But a rescinding of that vote and a promise to hold delayed elections has left the country relatively stable.

Visa’s arrival = disruption to mobile money market

“Issuance of Visa cards in Mogadishu is a long-awaited service in Somalia. For Mogadishu, in particular, this launch takes the mobile-money industry to the next level because mobile money cannot be transacted outside Somalia. [But] it is likely to have [a] negative impact on local mobile-money [services] such as EVC Plus and E-Dahab as people might choose to use Visa cards for their daily needs,” says Ahmed Khadar, an economics and finance professor at Somalia University in Mogadishu.

According to Khadar, this new card service presents opportunities for bank customers:

  • They will have unlimited access to their accounts;
  • They can buy goods and services outside of Somalia;
  • And they can dealing with international banks with no branches in the country.

“The discerning feature of the Visa card is that you can buy something while using your phone, even when you are outside the country. You can also shop online, unlike any other time in the past, so the service is transformative” he tells The Africa Report. But since most people do not have bank accounts, mobile money is set to continue its dominance.

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