Somalia’s Premier Bank has struck a deal with Mastercard and will issue debit cards and install ATM machines in the capital of the war-ravaged country, the Islamic lender’s top executive said on Wednesday.
The east African nation has struggled for more than two decades with civil war and containing an insurrection by Islamist militants which has meant even basic infrastructure has been beyond most of the country’s 10 million people.
Yet with al Shabaab militants driven out of the capital Mogadishu and other major strongholds, business and consumer demand has grown for services which would be taken for granted in many other parts of the world, including banking.
“Somalia is a very under-penetrated market with less than 3 percent of its population banked,” Mahat Mohamed Ahmed, managing director of Premier Bank, which received a licence from the central bank last year, told Reuters in Dubai.
Carrying local currency in Somalia, a de facto dollarized economy, is cumbersome as $1 is worth 21,000 Somali shillings, and the only note in circulation is 1,000 shillings. For wealthier Somalis and visiting foreigners, carrying cash can be a dangerous task in cities rife with crime and awash with guns.
Ahmed said in an interview that the Islamic lender, one of a handful of banks in Somalia, will soon start distributing Mastercard-administered debit and prepaid cards to customers. It plans to have 15,000 cards issued by the end of 2015 and says its ATM machines will also accept cards issued abroad.
MasterCard’s spokeswoman for Africa said it had licensed Premier Bank to go live with their cards and machines.
However, Somali banks may struggle to convince the local population to sign up to debit cards, which might charge for withdrawals, as most Somalis use ubiquitous cheap, or free, mobile money technology to pay for goods and services.
Premier has bought five ATM machines and will install them in various locations with high security in Mogadishu, Ahmed said. With a withdrawal limit of $1,000 a day, the cards can be used online and abroad.
Salaam Somali Bank installed the sole ATM in Somalia in an upmarket hotel in Mogadishu last year. However, central bank sources and hotel visitors say it does not work.
Salaam did not respond to requests for comment.
Creating a banking system from scratch is proving problematic for Somalia. The U.S. terms al Qaeda-aligned al Shabaab a “terrorist organisation” and this has raised concerns in international banking about the risk of fines if money channelled through them ends up in the hands of the militants.
Premier has one of Somalia’s four registered SWIFT codes but Somali lenders are struggling to build networks of correspondent banks for cross-border transactions due to fears about money-laundering and terrorist financing.
“Anti-money laundering is a huge issue for dealing with international banks. They don’t want to deal with Somali banks,” Ahmed said.
Somalis have traditionally dealt with informal and unregulated money transfer firms. But these money transfer firms that send much of diaspora remittances to Somalia are also struggling as correspondent banks shut their accounts, driven by the same worries about funding militant groups.
Yet despite all the challenges, Ahmed believes the security improvements in Somalia have heralded huge business opportunities: “(It) has encouraged Somalis overseas to come back and invest in the country.” (Additional reporting by Abdi Sheikh in Mogadishu and Drazen Jorgic in Nairobi; Editing by David French, Drazen Jorgic and David Clarke)