COVID-19 has transformed Somaliland’s remittance lifeline

Digital cashless money transfer is a nascent and quickly growing business model in Somaliland. Those privy to the industry report that digital cashless transfers already constitute about 20% of the money inflow and outflow in Somaliland, equivalent to $200 million. Further expansion, however, comes with institutional as well as infrastructural hurdles. In the absence of a strong regulatory framework designed to promote fair competition, telecommunication companies and other market actors can and do refuse digital money transfer operators access to the telecommunication infrastructure since they also offer financial services such as mobile money.

The field is also becoming more crowded, where Galaxy, TalkRemit, Paysii and Taaj have joined WorldRemit as major players. Taaj and TalkRemit are owned by Hormuud/Telesom and Dahabshiil/Somtel, respectively, which have dominated the Somali telecommunication and financial services for the last two decades. These companies are highly active in the financial as well as the telecom business, which underpins all digital mobile money services and grounds their positions as giant financial service providers.

The Somaliland remittance industry is transforming but the lifeline is intact

The pandemic has unearthed the vulnerabilities of traditional financial services (both old and new) in Somaliland, while presenting a business opportunity for digital transfer services. It has also impacted on the volume of remittances sent. The Central Bank of Somaliland recorded that around $1.3 billion were sent to Somaliland through remittances companies in 2020, constituting a 6.8% drop in comparison with the $1.4 billion recorded in 2018. While significant, this is a less dramatic than the 20% projected by the World Bank a year ago, and it is unclear whether this reflects an actual drop in remittances or if some transfers are simply being missed because they have changed pathways. Moreover, official remittances picked up significantly in the later months of 2020, with a 67% increase in the fourth quarter when compared to the first. This indicates that senders needed time to adjust and, possibly, that remittances were affected by lockdowns in settlement countries in the beginning of 2020. In all cases, we see that although the remittance lifeline is affected by the pandemic, it remains intact.

The authors are part of the Diaspora Humanitarianism in Complex Crises research program.

They wish to thank Abdirahman Muse Abdi, former Director of Banking and Financial Institutions Supervision Department, Central Bank of Somaliland, for his contribution to the comment.

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