Guest Articles

May 22

Ahmed Muhamud Yuusuf

An Unlikely Mobile Money Success Story: How Somalia’s Civil War Laid the Foundation for a Cashless Society

Somalia has been ravaged by civil war, and though it may not make regular global headlines – especially in this time of COVID-19 – the repercussions of this conflict continue to this day. In 1991, Mohamed Siad Barre’s regime collapsed, and conditions quickly deteriorated. During the protracted war that followed, international financial institutions abandoned Somalia to its fate. The country received no foreign direct investment between 1990 and 2013, and the monetary system broke down with the collapse of the Somali Central Bank.

Yet it is out of this vortex of violence, corruption and economic turmoil that a business ecosystem like no other emerged. Thanks to mobile money, formal and informal marketplaces have flourished, as Somalis began doing business with one another. Over time, Somalia has become the world’s first truly cashless economy.


Building Stability Through Mobile Money

In urban centres, mobile money penetration is over 80%. Even in rural areas it has become the currency of choice, with a penetration rate of 55%. In fact, a World Bank report published in 2018 found that almost three-quarters of the Somali population aged 16 and older use mobile money. By comparison, in Nigeria, the continent’s largest economy, only 39.7% of adults had mobile money accounts in 2018.

It’s unfortunate that the country only saw this progress after the breakdown of the traditional financial system, the deterioration of its banking infrastructure and the loss of faith in the Somali shilling. With 98% of the Somali shilling counterfeit, money transfers are mostly in U.S. dollars. But regardless of what provoked this highly unusual revolution, it has, against all odds, brought monetary stability to one of the world’s most notoriously war-torn nations.

Unlike most countries in Africa, Somalis tend to keep their money in their mobile wallets rather than cash it out: According to our analysis at Hormuud, the cash-out rates on our mobile money platforms are less than 5%, as people transact directly and digitally with merchants. Somali telecommunications companies have designed and built a platform that people instinctively trust, and this is clear to see in the daily digital purchase of goods on the bustling streets of Mogadishu.

This customer trust lies at the heart of the unique Somali model, and explains how its telecommunications industry was able to establish widespread usage of digital payments, while mobile network operators elsewhere are still struggling to persuade their users to keep their money in their mobile wallets. Clearly, the breakdown of the country’s traditional financial infrastructure set the stage for this progress, but its telecoms companies also played a key role.


The Impact of Mobile Money in Somalia

At Hormuud, the largest Somali telecommunications firm, we worked to partner with local retailers and merchants to make the exchange of money for goods as efficient as possible. We created a mobile payments service that is free to access and free to use, subsidized by our telecoms business. And in the process, we not only helped establish a thriving mobile money market, we’ve contributed to knock-on effects for the whole country, such as job creation, a steep rise in local investment and the narrowing of the gender gap in access to financial services.

We are especially proud to see how our mobile money network and services are impacting women in communities throughout Somalia. For instance, prior to opening a mobile money wallet through our EVC Plus account, restaurant owner Barlin Hassan had operational issues and encountered difficulties in scaling up her business. This scenario is common among small businesses and merchants: They face a challenging commercial environment due to the ongoing conflict, and many are reluctant to keep cash safes on their premises for fear of being targeted by thieves and even armed robbers. Mobile money has provided them with a much-needed solution to these problems. Hassan uses her account not only to buy supplies for her restaurant, but also to pay her two employees.

Mobile money is also decreasing the distance between communities, facilitating further commercial activities in Somalia. Alongside the teachers, students and drivers who make up her regular, local customer base, Hassan can sell and deliver goods through mobile money to those who live in regions far from her shop. Thanks to technologies like mobile money, small business owners like her can scale up their enterprises and contribute significantly to Somalia’s economic development – even as the civil war’s repercussions persist.

In a country that has been plagued by war, terror, famine and sectarian violence, the importance of mobile money cannot be overstated. Domestic telecommunications firms have been one of the principal agents of Somalia’s economic recovery, its increasing security and its political stabilisation. Somalia’s GDP grew by an estimated 2.9% in 2019 and it’s predicted to grow at 3.2% and 3.5% in 2020 and 2021 respectively – strong numbers in any country, but particularly in one that’s facing such grave challenges. In 2019, the World Bank’s Vice President for Africa, Hafez Ghanem, made special mention of Somalia and its unlikely turnaround. After so much suffering, Somalis have been given an alternative to mere survival: For the first time in many years, there is opportunity.

It may sound strange to Western ears, but there is much that the West can learn from Somalia’s example. Developed countries around the world are undergoing the transition to cashless economies, and there are rising concerns that the most vulnerable – in particular the elderly and those in rural areas – might be excluded. What Somalia has shown the world is that a mobile money revolution can take place without leaving anyone behind. Here, in the aftermath of a long and brutal war, mobile banking has given autonomy and power to even the most marginalised in our society, providing them with a convenient and fast method to access their savings.


Ahmed Muhamud Yuusuf is the CEO of Hormuud Telecoms. 


Photo of Barlin Hassan Ibrahim courtesy of Hormuud Telecoms. 




Finance, Technology, Telecommunications
digital finance, digital payments, financial inclusion