Introduction
The Somali financial system has slowly moved from an informal to a more formalized regulatory environment since the Central Bank of Somalia (CBS) was reformed in 2009. Meanwhile, the central bank granted a license to thirteenth (13) local banks. Currently, the financial institutions comprises Central banks, commercial banks, microfinance institutions (MFIs), money transfer businesses (MTBs), and mobile network operators (MNOs) providing mobile money services.
It’s been over a year since there was a discussion regarding how banks may integrate, specifically how account-to-account transfers can be done. In contrast, there are several local economic and financial issues that could hinder the integration process. But on the 7th of August 2021, the Central bank of Somalia launched a new system for national payment which connects the local banks. Thirteen banks can now become inter-operatable, connected to the clearing system of the central bank. This system allows a customer to send money from their account to another customer with another bank account. The central bank will have the role of facilitating and managing these transactions, and also it will be the settlement place where banks can transfer accounts daily through a clearinghouse. Through the discussion, the researcher noted that this system has two basic features.
- Real-time transfer: This allows the customer to send money to another customer with another bank account, but the transfer will go to the sender’s bank. Bank will ask the customer details, for example, the account number of the recipient, name and the bank which he/she has the account. Then, easily the sender’s bank will facilitate the transaction by sending money to that customer.
- Account to account transfer: This gives customers opportunities to transfer money through using their bank accounts, or they can write a cheque to a customer with another different bank account.
As far as the researcher’s best knowledge, banks are supposed to start using the first option, real-time transfer. A source from the central bank shows that CBS is thinking of the next one in the near future.
In this piece of paper the researcher focused two perspectives: First, how customers will benefit from these integrations. Second, will address the role of governing bodies to implement these integrations.
How can customers take advantage of these integrations?
Currently, local banks do not have any integration; for example, if you want to withdraw money from one bank’s current account and deposit it in another, you must physically remove the cash and deposit it in the other bank, which carries its own risk. Therefore, this new system of real-time money seems to resolve this issue if it works as intended. In this piece of paper, the researcher is briefing the advantages of this new system to customers and corporations. Apparently, this system will allow depositors to transfer their money from account to account via the real-time payment system.
Mr. Abdirahman Mohamed, the governor of the Somali Central Bank (CBS), said that the new approach would improve bank customer service and reduce the time customers spend going to the bank to receive cash and depositing it in another bank, which will put customer property at risk. Meanwhile, the governor stated that this will make purchasing, selling, sending, and receiving monies easier. And, it will help to broaden financial inclusion.
The executive director of Somalia’s Central Bank emphasizes that the new system will allow local banks to interact with corporates and intersect with one another. And, the central bank will be in charge of supervising and setting policy. Indeed, this will create an environment in which businesses and other organizations can transfer funds from one account to another.
On the other hand, the researcher approached private banks to address the new system and its benefits to customers and banks. Hence, I interviewed Mr.Abdirahman Keyse, Operation Manager Tria pion Branch of Dahabshil International Bank . During the interview, Mr. Keyse said, “obviously, this will make it easier for customers to transfer money to their different bank accounts instead of having to withdraw cash and bring it to another bank with the possibility of trouble for security issues. Therefore, if the banks are ready to apply this system and the central bank supervises, this system will be useful to the society (customers)”.
How Central bank will regulate this system
Typically, while establishing a financial system, a law protecting banks and customers should be in place. Aside from that, such a national payment system requires a highly effective clearinghouse or arbitration to assure the system’s seamless operation. Even if some conflict arises, commercial laws or even a commercial court system should be available. Hypothetically, effective harmonization of essential regulatory standards for this national payment system will necessitate extra policy and arbitration processes.
During the observation, the researcher found Central Bank of Somalia takes the responsibility of reconciliation and overseeing the system. Daily, the central bank will adjust the accounts of banks in the central bank through debiting or crediting the balance of sender and receiving banks.
Therefore, the central bank established a link between lenders and a clearing and settlements house, handling real-time money transfers. It also incorporates debit and credit card interoperability and mobile network operators, and automated cash machines. In that case, if a bank needs to send money to another bank account and there is no money in it, it cannot transfer that money. But, so far, there are no presented rules and regulations that will govern this payment system’s transaction.
Conclusion
In general, establishing such a system will facilitate the follow of currencies and the national economy as a whole. A notion says, “a transparent financial system is the cornerstone of national economic growth.” Because of this, it increases basic investment and people’s trust in giving or lending their money to those who have productive investment opportunities.
Therefore, when it comes to a country like Somalia, which is recovering from many years of lack of trust and other problematic issues, it is not easy to implement such a system quickly, but it will contribute to ongoing development that will eventually allow for greater openness
Hussein Abdi Mohamud, Operations & Distributions Manager at SBR
