HARGEISA, Somaliland—Hyperinflation and economic isolation have
pushed this poor, breakaway republic closer to a virtual milestone than
most other countries in the world: a cashless economy.
Mobile-money
services have taken off over the past decade in Africa; 1 in 10 adults
across the continent—about 100 million people—use them. In Kenya,
Vodacom Group
Ltd.’s
VOD -2.12%
groundbreaking service M-Pesa, broadly considered the first major
and most successful mobile-money technology platform, counts 26 million
users, roughly half the population. More than half of the world’s 282
mobile-money platforms are in sub-Saharan Africa, research by McKinsey
& Co. shows.
The continent, home to many of the world’s frontier economies,
has come closest to skipping, or “leapfrogging” as it’s often called,
traditional brick-and-mortar banks and going straight to heavily using
phones as wallets.
And nowhere are the benefits of mobile money more apparent than in
Somaliland, where the extreme economic and financial conditions have
allowed Zaad, a service from the main local telecom, Telesom, to
catalyze commerce in one of the most isolated parts of the world.
“I
have my salary paid on Zaad, so I only use cash when I can’t use Zaad,”
said Qassim Ali, a supermarket salesman here in the country’s capital.
“I prefer it. I have less cash on me, so I am less vulnerable if I am
robbed.”
Somaliland, a self-declared republic of 3.5 million that broke away from
Somalia in 1991, isn’t recognized by any foreign nations and, despite
being considered more peaceful than Somalia, it is largely cut off from
international banking because terror-finance concerns restrict
transactions.
The country prints its own currency, the Somaliland shilling, but the
exchange rate is around 10,000 or more to the dollar, money traders
say. This leads to wide use of the greenback, which arrives through
remittances and major aid agencies that operate here and mainly pay in
the U.S. currency.
Since its launch in 2009, Zaad, which means “to grow” in
Somali, has swelled to 850,000 users—roughly one-quarter of the nation’s
population. Locals use the platform on battered old cellphones and,
less frequently, on smartphones and a designated app.
Without
mobile money, cash has a hard time flowing through the country. No
commercial banks really operate here, and hauling physical cash over
rough roads is time-consuming. Companies use Zaad for their monthly
payrolls, instead of handing wads of cash to their employees.
Today, each user on average makes 35 Zaad transactions a month, and
Somalilanders say they try to use Zaad for most transactions. A
rudimentary texting system makes it easy even for the many Somalilanders
who are illiterate.
Apart from phone-to-phone transactions, users can top up their mobile
wallets by handing cash—shillings or dollars—over to an official agent,
who is often a single person in a shack on the side of the road.
“This service has been a driving force for the smooth operation of our economy,” said Abdikarim Dil, Telesom’s chief executive.
Since
mobile-money services aren’t regulated by the central bank, they aren’t
subject to the restrictions that traditional banks face, including
requirements meant to block terror financing.
The reasons for
mobile money’s success in Somaliland are on full display on Hargeisa’s
busy, bumpy streets, where rows of money changers lounge in front of
3-foot-tall towers of cash, some held together by nets, others in sacks.
To get the shillings to a customer’s car, most money exchanges employ
assistants armed with wheelbarrows to lug the heavy bags.
Once a
week, Abdulahi Abdirahman hauls two bulky, heavy sacks of shillings from
his gas station across Hargeisa to the money-exchange area downtown
and, several hours later, returns with just a few dollar notes in his
back pocket and his Zaad wallet loaded up.
Clients pay Mr. Abdirahman in Somaliland shillings. He needs to pay
suppliers in dollars. Using Zaad, he gets half the payments in mobile
money, meaning the cumbersome ritual has become more manageable in these
times of high inflation.
Stories like these have driven an average 10% growth in Zaad over the
last year alone. Other services have also sprung up, creating more
competition. Dahabshiil, a Somali-owned money-transfer service that
operates in 126 countries and is popular across the Muslim world, is
another player in mobile services in Somaliland.
Dahabshiil has
paired with Somtel, another telecom company here, to launch e-Dahab. The
platform has become popular with Somalilanders abroad, who use it to
remit money home over mobile—one major source of dollars here.
“The idea of a cashless economy has attracted growth as a result of
the lack of conventional banks and also due to security concerns that
continue to be an issue,” Dahabshiil CEO Abdirashid Duale said.
Zaad
and the newer mobile-money platforms are so critical to the running of
Somaliland’s economy, and the spirit of patriotism here is so strong,
that these executives have been offering the services free. Similar
services elsewhere in Africa tend to be expensive, with charges as high
as 10% for transactions as small as $1.
But Mr. Dil, the Telesom
boss, says the free lunch may be over here, too. He is considering
introducing ultralow charges for Zaad transactions later this year.
He thinks Somalilanders and the economy are ready.
“People
don’t like to pay and it will be tough,” he said, “but we have
to…persuade them it’s to their benefit and to our benefit to pay a
little for something so important.”
By Matina Stevis-Gridneff
Original
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