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Will the ultimatum for the mobile banking industry in Somaliland hold?

Nimco Ahmed Ismail 

The Somaliland shilling has experienced a serious inflation rising from 6000 shillings/dollar to 10,000 shillings/dollar in less than two years. Somaliland’s ex-president, Mohamed Mahamoud Silanyo, has dedicated his last year in office to fighting the Somaliland currency inflation. In January of 2017, the president issued a decree with a list of points meant to tackle the Somaliland shilling inflation. One of the points was the creation of a joint national committee headed by the Finance Minister Ms. Zamzam Abdi Adan. Other members of the committee include the Central Bank Governor, Auditor- General, and the Director General of the Central Bank.

In the issued decree, the President also addressed the role that e-banking plays in the inflation of the Somaliland shilling. Thus, the government banned mobile money transfers less than $100 and gave the telecommunication companies that offer this service, Telesom and Somtel, a 48-hour deadline to comply.

Telesom, created in 2002,  is the largest telecommunication company in Somaliland and their mobile banking system, ZAAD, was created in 2009 (a system which was praised by Bill Gates during his speech at the Sibos closing plenary in Boston on October 3, 2014). Telesom initially refused to comply with the presidential decree. On January 25, 2017, in a press conference held by the vice chairman of Telesom, Mohamoud Haji Adan, Telesom denied and rejected the theory that their mobile banking system was the reason for Somaliland’s inflation.


ZAAD’s mobile money service is not responsible for the surging inflation rate. In fact, ZAAD had done a lot for Somaliland’s economy. We have tried our best to do our part during the inflation crisis, we even provided advice to the Government and to the central bank, on how best to deal with the decreasing value of the Somaliland shilling.

A week later, a delegation from Telesom Led by the CEO, Abdikarim Mohamed Iid, met with senior members of the government. In this meeting, Telesom consented to the measures listed in the decree but asked for an extension due to Telesom’s inability to make the changes requested in their system in a short amount of time. The Silanyo government accepted the request but didn’t give a specific date on when the new deadline is.

The blame for inflation on mobile banking isn’t unique to Somaliland. The Kenyan M-Pesa was connected to the high Kenyan inflation.  In 2011, a report made by the African Development Bank associated the inflation with the increased velocity of money movement that was made possible by the M-Pesa. The ADP claimed,

Evidence shows that the transactions velocity of M-PESA may be three to four times higher than the transactions velocity of other components of money. The increase in the velocity of money induced by these activities may have in turn propagated self-fulfilling inflation expectations and complicate monetary policy implementation.

Similarly to the Kenyan government in relation to the Kenyan M-Pesa, the Somaliland government argued that ZAAD undermines the government’s banking system and show innate flow in a government-created system. The mobile banking systems in both countries were able to attract a big audience that the government’s banking system wasn’t able to. Somalilanders and Kenyans alike found an easier way to save and transfer money. Even though the providers of the two banking system argue that this is good for the people and the country, the government believes that it jeopardized and decreases the purchasing power of money. On top of that, for Somaliland, ZAAD had for a long time only dealt with dollars. In the middle of 2015, Telesom created mobile banking for the Somaliland shilling in which people dial 220 instead of the 880 for the dollars. Even though the system exists for the Somaliland shilling, the majority of the users only use the ZAAD for dollars.

A year and a new president later, Musa Bixi has taken the same route to fighting inflation as his predecessor. Even before his election, President Musa Bixi claimed that he will focus on building the central bank’s capacity and improve its relationship with the ministry of finance. On January 4th, 2018, Bixi, like Silanyo, created a joint committee, which consisted of five minters and the chairman of the Central Bank, to monitor the inflation and deflation of the Somaliland shilling. The joint committee held a press conference on January 28th in which they revealed the decisions they reached. Those included creating a single treasury account for the government and increasing taxes for materials that have health-related side effects like Qat. The joint committee also announced that they are upholding the previous joint committee’s decision related to the mobile banking industries. Unlike the Silanyo appointed joint committee, the current committee gave Telesom and Dahabshiil a forty-five-day ultimatum starting from January 28th and ending on March 13th for the two companies to prepare their system and for the users to get accustomed.

As March 13th gets closer, the question that is on everybody’s mind is, will President Bixi hold the ultimatum that was set by the joint committee he appointed? March 13th can either mark Musa Bixi’s government as one that holds its ground or one that cracks under pressure. With the eyes of the entire Somaliland population, which path will the new regime take? And more importantly, will this help with the dilemma of inflation?


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