World toilet day passed quietly in Somaliland on November 19 last year, which is a pity as any visit to the countryside means joining the estimated 1 billion people globally that still have to finalise the digestion process in the open.


While sanitation is one of the developing world’s greatest issues, it is perhaps not surprising for a country that has no formal recognition from other sovereign nations, a tax base that struggles to provide essential services, and a disparate financial industry with no formal banking infrastructure.

Yet this breakaway nation of 4 million people, with a World Bank estimated GDP of just $US1.4 billion in 2012, has a mobile banking system that puts most western nations to shame.

Struggling nation elicits mobile envy

Payments can be made for everything from electricity bills to buying a new smartphone, purchasing a camel in a remote desert region, or paying for a meal in a shack by a river.

With 7 national carriers vying for customers, the self-proclaimed nation on the southern coast of the Gulf of Aden has some of the cheapest telephony services in Africa. 

Most of its economic activity takes place without regulation from the Central Bank. Although the bank is working hand in hand with the government to get better control of the local economy, it is the two primary methods of money transfer in Somaliland that are the real backbone of the economy.

Sidelined central bank wants inner circle access

The first, transacted in the local Somaliland Shilling, is through a network of money transfer agents utilising the centuries old Hawala system. While previously it relied on trust networks, family ties and paper, today most transactions happen on a mobile phone, although trust is still integral to the system’s cohesion.

Then there is Zaad. Introduced by local mobile operator Telesom in 2009, it rapidly achieved penetration with more than 10 per cent of the population subscribed in the first few years of operation, and is today reportedly as high as 20 per cent. In a nation where only about 22 per cent of people have a job, that penetration is an economy changer.

Unlike Hawala, the Kenya M-Pesa inspired Zaad system operates in US currency. Accounts, or even a friend’s account, can be topped up with a 4 digit pin and a mobile. Businesses can be paid via a customer number or mobile number, and the status of all transactions can be checked on a mobile. The Zaad website is optimised for mobiles, but not for PC’s.

Inflation a political kicking ball

Not everyone is happy with Zaad, and some blame it for the nation’s high inflation, including the governor of the Central Bank.

The Guardian quoted Governor Adbi Dirir as saying Zaad “causes inflation and offends the dignity of our legal tender.” To give context, his comment related to Zaad’s use of US currency for transactions.

However, the Somaliland shilling was introduced as the nation’s currency in 1994 following self-declaration of independence from Somalia three years earlier. But its depreciation against the US dollar from 4500 shillings at the start of 2000 to current levels of about 7500 sillings to $US1.00, is more a case of the government’s penchant for printing too much local currency, without sufficient US dollar reserves to back the enlarged currency base.

There are no studies on Zaad’s impact on inflation, but whatever the truth, a good mobile banking system is not a replacement for an integrated financial system, and the lack of the latter is the prime constraint on private sector activity, according to the World Bank.

Somaliland recognised regional innovator

Zaad, Hawala and a new mobile money service, E-Dahab, established last year by Dahabshiil Bank shortly after it become the nation’s first commercial bank, do provide avenues for entrepreneurship, and the safe transfer of capital across the agriculture reliant country.

While surrounding nations like Ethiopia and Kenya enjoy higher levels of education, essential services and business opportunity, Somaliland has carved itself out a reputation for innovation, which can only improve as its level of banking infrastructure increases.

The Central Bank is currently processing applications for the establishment of more commercial banks, in both western style format, and sharia-compliant Islamic design.

As the owners of the mobile networks dominating Somaliland’s payment systems are also applying for various banking licences, the ability of those networks to expand is likely to increase substantially in the next few years.

Eventually the mobile systems will have to be brought under the umbrella of the Central Bank, as having those systems outside the Central Bank framework makes tax collection a major issue.

The World Bank estimated tax revenue as a percentage of GDP at just 7% in 2012, or less than half the sub-Saharan African average.

The lack of regulation also makes foreign investment problematic, as does the lack of the nation’s formal recognition by other countries.

Nevertheless, Somaliland enjoys a degree of peace unusual for the region, and as long as people can transact, business can still flourish and provide opportunity for Somalilanders.
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
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