By Ali Haji Warsame
Historically, money was used to be defined in different contexts with different periods of time. It is commonly used as a store of value. By having money, we get the things we need and desire. The task of defining what money is, where it comes from and what it’s worth belongs to those who dedicate themselves to the discipline of economics. Here, we look at the multifaceted characteristics of money. Economists agree that the main functions are; money is being medium of exchange, whereby people used to have barter system in the past to obtain the goods and the services they needed. In addition, money is also used as a unit of measurement which lets us put prices on different things and as Legal Tender to accept as repayment of debts.
Having clear picture of what money does, it is easy to understand the Mobile Money termed as MM. Mobile money is a form of electronic money that allows you to conduct financial transactions by using your mobile phone. You can’t provide MM unless you are a telecom company. It allows financial services to be extended to unbanked people at a significantly lower cost because physical infrastructure isn’t needed.
In Somali context, Mobile phone penetration was recent and unique and it still carries different perspectives from different people; from full support to suspicion as being something “thin on the air”, but it has gained rising trend in recent years.
Mohamed Dalmar, a former banker and Consultant of Amal Express, states “that a survey conducted by Gates Foundation, World Bank and Gallup found that Somalia was one of the most active mobile money markets: 26% of the population are reported using mobiles to pay bills, which is the highest in the world, and 32% to send or receive money”. It is worth noting that in Somalia, banking, telecommunications and money transfers are so closely intertwined and can’t not be reviewed separately.
Mobile Money (MM) and Mobile Money Transfer (MMT) were initially created for the sole purpose of increasing the financial inclusion of the people who were before financially excluded, as recently stated by Kenya Government in defiance of international banks, stating that they will only limit access of MPesa when these banks start to operate in every community across the country. MM is simply a movement of electronic value that is made from one mobile wallet to another, from personal account to personal or Merchant account. Thus MM is referred to as “Poor Man’s Bank”.
Wearing out of Somali Shillings and MM as an alternative
Somalia has been without effective central government for the past two decades and, during that period, the value of local currency eroded exponentially, counterfeit money was extensively printed and people lost confidence in Somali Shillings, leading to dollarization of Somalia economy. Concerns over the high prevalence of fake money, absence of monetary regulation, capacity and limited access to traditional banking services also make mobile money an effective substitute for cash. Thus, the use of mobile money was omen in disguise. Today, mobile money facilitates vast remittance flows which are critical to most Somali households. People tend to pay through MM almost everything with ease.
Advantages & Disadvantages of MM
Mobile money is convenient, easy to use and enables quicker, cheaper and more reliable money transfers over greater distances. It also charges least in terms of transaction costs. In turn, this has allowed mobile money users to diversify their informal risk-sharing networks, top-up their airtime, buy competitive data bundles and draw on a wider network of social support.
When MM was first introduced in Puntland in particular and Somalia in general, it created a network of agents that were geographically dispersed, which meant that more people in rural and sparsely populated areas were within reach of each other. This resulted in a significant and widespread adoption of this system. I do remember travelling inland in Puntland and paying all my dues in Sahal Service (local MM), even to the nomads who were enjoying it as a system of payment, even if it’s small fraction of a Dollar. As Somalia lacks a strong formal banking system, mobile money has helped to expand financial inclusion. Statistically, only about 15% has a bank account, mainly upgraded Hawala-houses to local community banks.
The recent findings also indicate that, in areas that have experienced large increases in access to mobile money, people were more likely to be working or engaging in business or sales and even some of them become agents for Telecom providers, which in turn secured for them an additional or secondary occupancy. It was also having positive impact on economic outcomes for women particularly as they were able to manage their financial affairs in full independence or operate their small businesses, having the ability to pay and receive money directly without any intermediary.
Having said that, the biggest risk associated with MM is a lack of regulation which makes it fragile and fragmented, even susceptible to illicit business activities and money laundering. Although most of the telecom companies, which provide MM, developed some sort of compliance and strong know-how customer care, they are not still in line with global and international standards. Another risk could be lack of proven assurance that the funds will always be available when demanded.
MM as real money with underlying asset
Mobile Money skeptics cite that money deposited with MM operators are actually not in safe whereby they can’t ensure to give it back when depositors do need it. That perception sometimes creates complications and unsubstantiated claim that customers of MM are not at all protected. This issue is a matter of paramount importance both for regulators and for providers of mobile money services.
As someone who has been privy with operators of MMT, I can at least confirm, based on my experience, that the proceeds of MM is mainly available in cash and these companies own huge resources, especially reasonable assets to cover any deficiency in that regards. I should exercise word of caution here as I can’t speak on behalf of all MM providers. However, I am aware that some of these telecom companies allocate sufficient funds set aside in safe and also maintain liquid investments to meet customers’ demand for cash back, if and when raised. However, I urge the regulator, Central Bank of Somalia, in our case to ensure that MM customers’ deposits are protected as they did to the Hawala Houses and local banks.
It also important to efficiently regulate that market, ensure the effective application of rigid policy based on “Know Your Customer” basis and full application of “anti-money laundering policies”, to avoid any illicit business transactions. There is always a risk for insufficient assets to repay customers in the event of issuer’s insolvency and that should be always mitigated with proper regulation, internal sound policies, external scrutiny and open policy to build public confidence to the providers.
Finally, if there is one thing that Somalia showed to the world beyond a shadow of doubt is it’s done right, mobile money can be a real catalyst of a developing Somalia economy ensuring financial inclusion of those at the bottom of the pyramid in a true sense.
The way forward: regulating the market
1. At least in Somalia case, MM & hard money in the form of Somali Shilling can’t replace each other but complement, and due to that, MM has a significant role to play in our economy now and then.
2. MM providers should be clever enough to create a conductive environment to be trusted for safeguarding public funds and provide assurance for both their depositors and the regulator by applying principles of “Know Your Customer” and application of MLP at all levels. They should also have strong internal controls & external scrutiny to allow their depositors to be informed about the whereabouts of their money.
3. CBS should have an oversight on MM providers in the form of introducing relevant laws and policies, and ensuring security of public deposits.
Ali Haji Warsame MBA, CPA, CGMA
Former Presidential Candidate & PL Minister of Education
Former CEO, Golis Telecom Somalia
Email : [email protected]
–MOBILE MONEY: THE CASE FOR SOMALIA By Mohamed Dalmar
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