Somalia has established a national payments system as part of a plan to develop the financial industry in one of the world’s most fragile states, after decades of political and economic instability.
Somalia’s Central Bank Governor Abdirahman M. Abdullahi said in an interview, 13 lenders in the Horn of Africa nation can now be “connected to the central bank’s clearing and settlement system and able to transact with each other.” . The system will “facilitate transactions between vendors and their customers more efficiently.”
Somalia is struggling to rebuild after a 20-year civil war and is still battling an insurgency by al-Qaeda affiliate Al Shabaab.
The government secured a debt-relief deal with the World Bank and the International Monetary Fund last year as it sought to return to the global financial system. Officials are now in talks with lenders who are not part of the Paris Club, an informal group of mostly wealthy Western government creditors, to potentially reduce the country’s liabilities by $4.5 billion in June .
Under the system, the central bank connects lenders to a clearing and settlement platform so that they can process money transfers in real time. It also includes interoperability capabilities for debit and credit cards, mobile network operators and automated cash machines.
A centralized payment system bodes well for the country’s financial sector following recent developments, including the launch of the Visa card by the International Bank of Somalia in July. The central bank also issued the first mobile-phone-based financial-services license to Hormud Telecom, and is looking to print the new Somali shilling notes.
Currently, Somalia mostly uses US dollars due to the widespread counterfeiting of the local currency, while some of the genuine notes in circulation are old and dirty. Everything from big-ticket projects to buying a cup of tea is traded in dollars in cash, via bank or mobile money, for the government yet to print new bills.
“The payment system will enable greater financial inclusion in a safe and secure manner,” Abdullahi said. “The impact on the economy will be unprecedented. It will boost trade and business.”
According to Abdullahi, Somalia’s economy is expected to expand by 2.9% this year, in line with the IMF’s forecast. He said the sale of livestock, telecommunications and remittances from Somalis working outside the country would drive economic growth.