The world’s first cashless country
[Dave Birch] I happened to see that the annual Forum Oxford Mobile will be on 23rd November this year so I've pencilled it in to my calendar and started looking forward to it. Doing so reminded how much I enjoyed last year's event. Monty Munford was talking about his travels in East Africa and he mentioned in passing that Somaliland might well become the world's first cashless country. Not Iceland or the Netherlands, Korea or Kenya, but Somaliland. I wanted to know why, so I began to delve and I thought you might be interested in what I found.
A little background. Somaliland gained independence from Britain in 1960 with Somalia (it became part of the British Empire back in 1888). With a population of some 3.5m, mainly Muslim, inhabitants it sits on the Horn of Africa.
Somaliland announced its secession from Somalia in 1991 and has operated as a more or less independent country ever since. It has its own president, parliament and constitution. It even boasts a central bank that prints its own currency, the Somaliland shilling.[From Aid and Somaliland: Mo money mo problems | The Economist]
Like many other poor countries in Africa, it has a vigorous mobile sector. And within that vigorous mobile sector, mobile money transfer is a thriving value-adding service.
Zaad is a mobile money-transfer service offered by Telesom, the self-declared country’s largest network operator. Telesom has 500,000 subscribers, and it estimates that 40 percent of the territory’s population has a mobile phone. About 306,000 Somalilanders use Zaad, which was first launched in May 2009.
So far, so M-PESA. I think I'm right in saying that the highest value banknote in Somaliland (the 5,000 shilling note) is worth less than a dollar, so mobile phone payments make life considerably easier. As Monty points out here, any alternative to cash is most welcome in a place where the lack of a convenient means of exchange is a drag on development.
There are also moves to establish the country’s first central bank, which will enable foreign commercial banks to enter Somaliland by 2013. There are no ATMs in the country and credit cards are regarded as ridiculous by local people – almost as ridiculous as its unrecognised currency.[From Somaliland’s mobile payments boom – Monty Munford – The Kernel]
As a testament to its success, it appears that Zaad has been adopted not only in the usual retail and inter-personal transactions but in a key demographic that has to be won over to make the cashless economy a reality: freelance pharmaceutical operatives who specialise in self-medication support.
The power of Zaad can be seen on the streets of Somaliland’s capital, Hargeisa. Shops, market stalls, restaurants and hotels all use Zaad. Sellers of the drug qat accept payment through Zaad. Telesom, the mobile telephone network used by Zaad, pays its employees through the service.[From Somaliland Telecoms: Cashless doesn’t mean broke | SomalilandPress.com - Somali News in English]
If that's not an endorsement of the mobile phone as the device that will end cash, I don't know what is.
The service limits standard users to transfers of $500, while merchants are allowed to transfer up to $2,000 at a time. ‘Special arrangements’ are made for its wealthier users, depending on the amount in their bank accounts.[From Somaliland Telecoms: Cashless doesn’t mean broke | SomalilandPress.com - Somali News in English]
So through "special arrangements", the mobile phone is not only replacing cash in retail transactions but in wholesale transactions as well. Fascinating. But the government hasn't been entirely happy with this boost to the nations commercial infrastructure.
Somaliland’s finance minister Mohamed Hashi says that the service evades taxation. “Zaad makes things easier, it really helps. But we haven’t been able to control the Zaad and the telecommunications systems because we have neither the equipment nor the expertise,” says Hashi.[From Somaliland Telecoms: Cashless doesn’t mean broke | SomalilandPress.com - Somali News in English]
I suspect, although I've never been to Somaliland, that one of the reasons that Zaad and the telecommunications systems are so successful is precisely because the government hasn't been able to control them. Monty thinks that the vigour and inventiveness and dynamism that accompany the private sector approach to providing the market with an appropriate means of exchange (shades of George Selgin's Birmingham Button Makers here) may have a surprising outcome.
there remains the tantalising possibility that one day Somaliland will dispense with cash altogether[From Somaliland’s mobile payments boom – Monty Munford – The Kernel]
This may be some way off, since not everyone in Somaliland has a mobile phone yet, but some combination of mobile phones and next-generation cards might just do the trick. I'm planning of having a session about cashlessness at next year's annual Forum, so let's explore the possibilities more then.
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