Central Bank of Somalia and Somali Financial Institutions work to modernize banking sector
The Central Bank of Somalia (CBS) and Somali Financial Institutions (SFIs) are taking crucial steps to modernize national payments systems. Supported by the World Bank, the CBS and private financial institutions are streamlining their efforts to strengthen the inter-bank payment, clearing and settlement systems in Somalia.
This development follows a five-day consultative forum held in Nairobi, Kenya on National Payment Systems Development. The forum focused on establishing public-private understanding and creating a common ground regarding the most efficient and effective way of setting-up national payment systems in Somalia.
An Automated Transfer System (ATS) and National Switch will complement each other, with the ATS facilitating large payments and the National Switch facilitating interoperability of retail payment systems in Somalia, and open doors to manage international payments in country from a single platform.
“National payment systems contribute to the development of modern financial markets and promotion of market-based financial service provision,” said Abdishakur Mohamud, Central Bank of Somalia. “Centralizing clearing which denotes the process of transmitting, reconciling and, in some cases, confirming transactions prior to settlement, potentially including the netting of transactions and the establishment of final positions for settlement. The process turns the promise of payment into the actual movement of money from one account to another with speed, lower cost, reliability, and convenience, and settlement will contribute to financial stability in Somalia, and evoke domestic and foreign trust in Somali financial institutions.”
The expectation is that this development will have a positive impact on economic activity, management of monetary aggregates, transaction costs, and development of new financial products which can become important sources of fee income for financial institutions.
These developments also bring Somalia one step closer to the standards and norms of international financial systems.
Among the commitments for the implementation of national payment systems is work towards industry harmonization and standardization of a tiered Know Your Customer (KYC) system for transactional accounts, including use of a shared interbank digital ID system; to enhance fraud and credit risk control; and promotion of centralized clearing and settlement that will contribute to financial stability in Somalia.
“With the Central Bank leading this process, it is clear that the financial governance capabilities of Somali authorities are increasing,” said Thilasoni Benjamin Musuku, Senior Financial Sector Specialist, World Bank.
The World Bank supports CBS in strengthening central bank supervision and regulation through the Somali Core Economic Institutions and Opportunities (SCORE) Program. The SCORE program is the first in a series of projects to develop legal, regulatory and policy framework for financial institutions supervision and regulation in Somalia.
The objectives are to improve the enabling environment for financial and private sector development, and catalyze private investment and job creation across Somalia. SCORE is funded by the Multi Partner Fund (MPF).
The Multi Partner Fund works predominantly through Somali authorities and includes institution-building, economic growth and urban development activities. MPF is supported by the United Kingdom’s Department for International Development (DfID), the European Union (EU), Germany’s KfW Development Bank, the Swedish International Development Cooperation (SIDA), the Royal Norwegian Embassy, Danish International Development Agency (DANIDA), the Swiss Agency for Development Co-operation (SDC), the Ministry of Foreign Affairs of Finland, United States Agency for International Development (USAID), Italy’s Ministry of Foreign Affairs and International Cooperation, and the World Bank’s State- and Peacebuilding Fund (SPF).