The money transfer market in Somalia is one of the most advanced in the world, characterised by citizens both home and abroad transferring billions of dollars in remittances every year. The money transfer market has helped the local population to be able to send and receive money easily from their relatives outside the country and remote workers working for foreign companies to receive their salaries.
According to World Bank data released in 2017, it is estimated that 73% of the population above 16 years of age use mobile money services, making Somalia one of the most dynamic money markets in Africa and worldwide. The money transfer concept in Somalia was introduced into the country 10 years ago, and despite the short Introduction, over 63% of all payments in Somalia rely on mobile money payment platforms.
The financial service keeps developing in Somalia and has positively impacted the country's economic sector in financial technology. Hormuud, Somalia's leading mobile money provider, just obtained GSMA mobile money certification in March 2022 - this is a global standard of telecoms excellence and a big win for the country.
Adoption of Mobile Money Services in Somalia
According to developers, major factors which triggered the country's intake in money transfers were due to poor operating environment, unreliable banking systems and a lack of policy implementation. These consistent deforms made financial transactions difficult in the country, as well as many other African countries.
At this time, they adopted the Hawala system but the system wasn't too convenient for them. Money transfer service platforms in Somalia have made financial transactions easier, less expensive and more reliable for the country and Africa at large. Platforms like World Remit have been used across many African countries. The Somalian fintech company has indeed been a lifesaver for many users.
Challenges faced in the Mobile Money Market
Somalia has suffered from challenging and failing financial markets over the years with no substantial effort from the government. The government couldn't be trusted because of armed conflict and some parts of the country that were under the rule of terrorism. The Citizens being affected by the system had to do something that could help their financial sector. They adopted the hawala money transfer system, a popular method in Somalia before mobile money was introduced.
The major reason why many Somalians left the hawala system for mobile money is that the hawala system was highly costly, sometimes inefficient and had some limitations on structures associated with Somalia's Legacy banking system. World Remit, one of the most popular mobile Money Transfer companies in Somalia was founded in 2009 by an entrepreneur who was discouraged by the lack of remittance options when he arrived in the UK as a refugee. According to him, he found it difficult to send money to his family back home in Somalia.
Another key reason why Somalia didn't rely on the country's financial service was the fact that the Somalia shilling was very unstable and the International Monetary Fund(IMF) says that around 98% of the local currency in circulation is fake. This led to mobile money almost replacing shilling in some parts of the country. Research shows that about 155 million financial transactions are done in a month in Somalia alone, a country of around 17 million people. Most people keep their money in a digital wallet instead of a physical bank.
Despite the optimistic values mobile money has brought to the faces of Somali, the platform also faces some challenges. One main problem is the lack of regulations for mobile money. This has sparked concerns that illegal finances are being done on the platform hence it is not securely regulated. It is also claimed that the open and free platform may be supporting the terrorist group, Al-Shabaab.
Though the FinTechs in Somalia are already working on regulating the flow of money in and out of the country using mobile money. Rage, a financial analyst, said that private companies are doing their best to deploy checks and balances. A good instance is Hormund, which received Somalia's first GSMA mobile money certification; this puts Hormund among the top mobile money providers in Africa for safety and security. They are also trying to adopt know your customer (KYC) requirements for the identification of their users.
Despite the lack of regulation, mobile money service platforms in Somalia keep evolving for the better. Rage also explains that mobile money in Somali is digital and not internet-based. Mobile Money platforms are developing to make their service providers available to both digital and internet-based users.