Somalia's digital payments system has achieved significant success, lowering transaction costs and widening access to commerce in areas with limited conventional banking infrastructure. However, this success has created a public-policy challenge, as the interruption of services can now have a national financial stability impact. To mitigate this risk, Somalia must strengthen its Central Bank and reduce dependence on any single payment platform. The Central Bank of Somalia (CBS) has made progress, licensing and supervising financial institutions, introducing mobile-money regulation, and launching the National Payment System.
Despite progress, the CBS still faces significant challenges, including underdeveloped functions, a highly dollarized economy, and limited monetary-policy instruments. The national currency has not regained its normal role as a reliable unit of account, store of value, and medium of exchange. The CBS must develop its supervisory capacity and establish a fully credible, funded, and operational framework for emergency liquidity assistance and financial-institution resolution. This will enable the CBS to effectively regulate and supervise the growing digital payments sector.
EVC Plus, Somalia's leading mobile-money platform, has become an integral part of the country's economic infrastructure, with households using it for daily transactions, receiving salaries and remittances, and settling business transactions. While EVC Plus deserves recognition for building and sustaining a valuable service, its systemic importance must be acknowledged, and the CBS should publish concentration indicators, including market shares and the Herfindahl-Hirschman Index. This data gap is a supervisory concern, and the CBS should take steps to address it.
The dominance of EVC Plus creates several interconnected risks, including prolonged technology failure, cyberattack, sabotage, and loss of public confidence, which could prevent households and businesses from accessing their funds. Concentration can also combine telecommunications, wallet services, merchant acceptance, and affiliated financial services within a single commercial ecosystem, making failure harder to isolate and orderly resolution more difficult. The CBS should take steps to mitigate these risks and ensure that the digital payments sector is stable and secure.
A mobile wallet balance is only as sound as the legal and financial arrangements supporting it, and customers need certainty that every unit of electronic value is backed by safe, liquid assets. The CBS should verify safeguarding daily, receive automated supervisory data, require independent external assurance, and disclose aggregate compliance results. Customer funds should be diversified across sound settlement banks under legally enforceable trust or safeguarding arrangements to prevent concentration risk.
Somalia's position is unusually difficult due to its largely dollarized system, and the CBS cannot create United States dollars. The absence of a lender of last resort matters, as a solvent bank facing a temporary liquidity shock may not be able to obtain emergency liquidity from the CBS. This highlights the need for the CBS to develop its monetary-policy instruments and establish a fully credible framework for emergency liquidity assistance and financial-institution resolution.
Strengthening the CBS and securing digital payments are crucial for Somalia's economic stability and growth. The CBS must take steps to complete its transformation into an effective monetary authority, capable of regulating market entry, supervising systemic risk, safeguarding settlement, managing crises, and maintaining public confidence. By addressing these challenges, Somalia can ensure that its digital payments sector is stable, secure, and beneficial to the economy and society.
Key points
- Somalia must strengthen its Central Bank to reduce dependence on single payment platforms and mitigate risks in the digital payments sector.
- The Central Bank of Somalia must develop its supervisory capacity and establish a fully credible framework for emergency liquidity assistance and financial-institution resolution.
- The CBS should publish concentration indicators and verify safeguarding of customer funds to ensure stability and security in the digital payments sector.
