For nearly 25 years, Somalia’s economy has been virtually cut off from the rest of the world. A civil war caused its financial system to collapse and concerns about fraud have stood in the way of rebuilding it. But Council Lead Partner MasterCard is helping the African nation take a leap forward.
MasterCard has become the first international payments network to serve the country since its 1991 financial collapse. Making the announcement at the World Economic Forum in Africa, MasterCard says this effort will help promote growth in Somalia, which has long been isolated from the world economy.
Bringing stability to the country
Through a partnership with Premier Bank, 5,000 MasterCard debit cards will be issued in Somalia this year. Pre-paid cards and point-of-sale machines are on the way too. The hope is to reduce the country’s reliance on cash, but Somalis will be able to use the cards to withdraw cash at bank ATMs.
This initiative helps bring stability to Somalia as the informal banking systems people have relied on for decades are now collapsing themselves under increasing pressure. About half of the country’s annual income comes from overseas payments from family, friends and aid groups. Those payments, about $1.3 billion annually, are not only critical as investments in the economy, but also helped many survive devastating periods of floods and droughts.
Due to terrorism concerns, it’s become much more difficult to send money to Somalia. Informal banks have folded abruptly due to international concern that the payments are really going to al-Qaeda-linked Al-Shabaab insurgents.
Over the past few months, the U.S. and European governments have moved to cut off money transfers to Somalia because of rampant money laundering. Merchants Bank of California, which handled as much as 80% of the payments from the U.S. to Somalia, closed earlier this year.
MasterCard’s banking partner in Somalia is the only financial institution in the country that uses swift codes, which allow for payments to be tracked. That alleviates terrorism concerns from the U.S. and U.K., clearing the way for people, governments and aid agencies to safely and reliably send money to the country.
Solidifying fragile progress
U.S. Rep. Keith Ellison from Minnesota says his state has a sizable population of people who have emigrated from Somalia and that the ability to send money back to people still living there is critical to the stability of the country.
He said one of his constituents works as a medical professional to support her mother, stepmother, six siblings and a blind uncle in Somalia. In an editorial he wrote for the New York Times, he said the woman’s payments go toward food, water, doctor visits, housing and tuition. If they stopped, she worried her 14-year-old brother would have to drop out of school, running a risk that he would be recruited by the extremists the international community is trying to block.
Ellison wrote “stability and safety of the Horn of Africa is at stake.” As legitimate banking finally returns to Somalia, there’s new hope its fragile progress is on firmer ground.