Yes, mobile money has taken root in Somalia, but not without some risk

Thursday October 25 2018

Dr. Tim Kelly World Bank ICT specialist. PHOTO | COURTESY


A report shows that Somalia has one of the most active mobile money markets, outpacing most other countries in Africa. The Conversation’s Victor Owuor spoke to the report’s author Tim Kelly.


Why is mobile money so successful in Somalia?

Mobile money initially started as a simple exchange of airtime credit between users.

Over 10 years ago, mobile network operators formalised this by offering mobile money services. It was quickly perceived as a convenient and safe way of making transactions and storing money.

Unlike Kenya’s M-Pesa, Somalia’s transfers are available in dollars.


Though the companies offering mobile money services are mobile network operators, as in Kenya, they are increasingly forming part of large conglomerates that also offer banking and money transfer services.

In Somalia, mobile money transactions are worth about $2.7 billion a month.

Several factors have encouraged the impressive uptake of mobile money considering that nine out of 10 Somalis, above the age of 16 own a mobile phone.

Second, nearly 60 percent of the population move around a great deal to find adequate pasture and water for their livestock. So mobile money suits their lifestyle and is also used to facilitate trade.

Third, concerns over the high prevalence of fake money, the absence of monetary regulation, capacity and limited access to traditional banking services also make mobile money an effective substitute for cash.

Today, mobile money also facilitates vast remittance flows which are critical to most Somali households due to a lack of opportunities in the Somali labour market.

Taking advantage of this trend, remittance companies are increasingly partnering with mobile telephony operators to transfer funds directly to recipients’ mobile money accounts.

How many people are using it and what is it mostly used for?

Our household survey data suggests that about 73 percent of Somalis above the age of 16 use mobile money services at least once a month, and that high income earners use it a lot more. Together, some 155 million mobile money transactions take place every month.

It is used for a wide range of things. The most common is to pay bills, for purchases between $2 and $300.

Mobile money is thus far more widely used than cash. Two-thirds of those surveyed use it to pay for items like water, electricity and charcoal.

The other one-third claims to use it to buy groceries, durable goods and livestock.

Close to 40 percent use mobile money to pay their children’s school fees. It is also frequently used to send money to friends and family.

We also found that it is being used a a savings mechanism. Currently, transactions are mainly person-to-person payments, but there is growing uptake among businesses.

We have seen that receiving salaries through mobile money has, for example, been an important factor encouraging further uptake.

What have the benefits and the risks of this growth been?

Somalia lacks a strong formal banking system. Only about 15 percent of the population has a bank account, but now, mobile money has helped to expand financial inclusion.

For vulnerable groups, it is a convenient and fast way to access money. And because it is faster and safer than cash handouts, many aid agencies use it to reach remote villages.

Also, as most shops accept mobile money, it now offers beneficiaries more flexibility and avoids a requirement to travel long distances with cash and thereby minimises the risk of security incidents.

These notwithstanding, there are considerable risks in the mobile money system.

The biggest is a lack of regulation which renders the system fragile and fragmented. It is also vulnerable to money laundering and terrorism financing.

This is because there is a weak “know-your-customer” compliance, in line with global banking standards, meaning that few SIM cards and mobile money accounts are registered using a valid form of identification. Ultimately, this results in limited accountability and tractability.

Another risk is that there is no assurance that the funds will always be available, as they would be in a normal bank account.

That is because there is no guaranteed parity between the mobile money balances held by mobile operators and those held in individual and business accounts.

Transfers in Somalia are predominantly available in dollars, which is not healthy for the country’s economy. This is changing, however.

For example, Somaliland obliges that sums below $100 be made in Somali shillings.

The industry also remains largely untaxed, meaning it fails to help raise revenue that is critical for government.

How is mobile money in Somalia different from other African countries?

Banking, telecommunications and money transfers are so closely intertwined that it has resulted in the emergence of two large conglomerates, with partnerships between a mobile network operator, a bank and money transfer organisation. This is not typically the case elsewhere in Africa.

Also, operators have adopted a different business model, based on indirect revenue generated from other services — like the sale of airtime.

They are, therefore, able to offer mobile money between users as a “free” service (without transaction charges or taxes).

This is not the case in many other countries in the region.

Another difference is the virtual absence of regulatory framework despite the fact that mobile network operators control vast sums of money that is in circulation.

Operators also rely on their own distribution network, rather than on external agents (as they do in Kenya). This means that coverage is more limited.