Terror-financing risks make banks scarce and drive use of mobile money
With most traditional banks too wary of terror-financing risks to offer banking services, mobile-money services in some parts of Africa have gained a strong foothold.
A Wall Street Journal feature this week explores the rise in mobile-money services where one’s cell phone doubles as a wallet in near-cashless regional economies. According to the story, nearly half of the population of Kenya uses a phone-based mobile-money service, and “more than half of the world’s 282 mobile-money platforms are in sub-Saharan Africa, research by McKinsey & Co. shows.”
The Journal details mobile-money use in Somaliland, a region of Somalia that has self-declared its independence. Because it’s not recognized by other nations as a sovereign nation and because it’s cut off from most international banking options due to terror-financing risks that banks face in Somalia, nearly a quarter of the 3.5 million residents of Somaliland rely almost exclusively on a mobile-money app provided by their local telecom company, according to the Journal report.
Somaliland prints its own paper currency, but the U.S. dollar is much preferred due to exchange rates and local economic issues. Without access to commercial banks and facing the logistical and security challenges of moving large amounts of cash, business owners in the region tend to opt for mobile-money services to distribute payroll and pay bills.
Mobile-money services are not subject to regulation by the Central Bank, and so they are not subject to the standard terror-financing regulations and other regulatory restrictions common to commercial and retail banks, according to the Journal. Money changers who employ security teams take paper notes in exchange for crediting the mobile-money accounts of depositors.
For Somaliland and for other regions in Africa, the move toward a cashless economy and a reliance on mobile-money services will likely continue, according to the Journal, due to the absence of traditional banking services and the logistical and security risks of using cash.
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