SOMALILAND: Regulatory Gaps in Mobile Banking Platforms

Somaliland is one of the leading markets of mobile banking platforms in Africa. It has been acknowledged by renowned individuals, such as Bill Gates of Microsoft, and international finance and development institutions, for its innovation and customer reach. It has made easy payment systems for goods and services. It is also free, unlike in most other countries.

Currently, the service encompasses money transfer services, the purchase and sale of goods and services, payroll payments and currency storage facilities. Zaad Telesom, a dominant mobile banking platform in Somaliland, was utilised by 10pc of the population, estimated at 3.8 million, according to the Guardian newspaper in 2013.

By assuming an annual growth of 10pc, at present 30pc of Somaliland’s population uses this service, out of which 1.14 million are Zaad mobile banking subscribers. Such subscribers are divided into individual subscribers and Merchant subscribers. By assuming that the number of merchant subscribers is 200,000, holding an average of 2,000 dollars in Zaad, and 940,000 individual subscribers, holding an average of 50 dollars, this means that the total merchant subscriber money in Zaad is 400 million dollars and the total individual subscriber money is 47 million dollars. Overall, this means that the total money kept in Zaad is 447 million dollars – 40pc of Somaliland’s Gross Domestic Product (GDP).

Presently, Zaad customer’s savings do not grow, as it is not invested on their behalf and interest is not provided on savings. This is a gap that can be explored in the future, in order to find the best ways to utilise this fund for investment purpose for the benefit of the company‘s customers and the nation as a whole.

Similarly, in addition to its irrefutable benefits to its customers and the society at large, there are regulatory issues surrounding the operation of mobile banking platforms, such as Zaad, in Somaliland. Recurring concerns include; the financial stability of mobile banking service providers, protection of service consumers, compatibility of company service to the national needs, the integrity of the system and its traceability, which bank to keep this money, protection of customer’s money from other creditors of the company, existence of safeguards on the separation of the customer fund and the company’s working capital and other investment ventures.

The onus of protecting Somaliland’s mobile banking service consumers is on Somaliland authorities, especially the Central Bank. They must make sure that the companies that provide the service do so in a prudent, legal and responsible manner. It also has the responsibility of ensuring financial inclusiveness for all and determining whether their operations are filling the existing gaps in Somaliland’s economic landscape. Consumer money in mobile platforms should be protected in case the service provider collapses. Similarly, in the case of company insolvency, it should be ensured that creditors of the company do not claim and take the customers’ deposits. This can be achieved by not keeping the customers’ deposits in the name of the company, but a different one. In Kenya, customer deposits in M-Pesa are kept in the name of a third party, pre-agreed with the Central Bank of Kenya.

Moreover, regulatory authorities are required to make sure that mobile banking service providers maintain liquid assets equivalent to the total value of the customer funds collected. The Central Bank of Kenya insisted that M-Pesa’s provider Safaricom keep fund liquidity by placing collected cash in a prudentially regulated bank. To diversify risk, in Afghanistan regulatory authorities require that funds be kept in different banks in case one goes bankrupt.

Here in Somaliland, Zaad is part of the Telesom group of companies who also own Darasalaam Bank.

The Central Bank of Somaliland have not come close to what I have mentioned, as it is highly dysfunctional and far from acting as a regulatory authority. Rather, it is simply a government currency storage and withdrawal facility. This allows mobile banking providers, such as Zaad, to actively invest customer deposits in illiquid assets, such as real estate, which may force them to print numbers as currency in case they run out of liquid cash. Furthermore, customer funds are supposed to be separate and not to co-mingle with the working capital of the service provider – something clearly evident here in Somaliland.

The worst case can happen if there is either a dispute among the shareholders of Telesom or collusion, where lending and enriching among themselves takes place. This cannot be detected easily, since corporate governance standards are very weak here in Somaliland, with no company submitting audited annual accounts, or a list of its shareholders and board of directors to the company registrar as stipulated by Somaliland company law.

By: Mohammed Dahir Ahmed


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