Today from Hiiraan Online:  _
IBAN adoption signals Somalia's reentry into global financial system

Tuesday March 28, 2023


Mogadishu (HOL) - The Central Bank of Somalia (CBS) has successfully integrated International Bank Account Numbers (IBAN) into all transactions within the National Payment System (NPS), marking a significant step in reviving the nation's financial sector. As of March 27, 2023, all banks in Somalia have adopted IBAN, which is anticipated to enhance payment processing efficiency, reduce operational risks, and minimize delays in international transfers between Somalia and IBAN-compliant countries.

CBS Governor Abdirahman M. Abdullahi characterized the NPS launch as "a tremendous relief for the country's financial sector, which had been disconnected from the global financial markets for an extended period." The new payment system is expected to facilitate remittances from citizens abroad, especially the Somali diaspora, whose contributions have been crucial in the country's economic recovery. Previously, remittances were complicated by stringent anti-money laundering and counter-terrorism financing (AML/CFT) regulations.

To address AML/CFT concerns, the CBS has implemented specific measures to ensure compliance within the new payment system, which should alleviate concerns of foreign regulators and banks regarding payments sent to Somalia. In late 2022, the international consortium SWIFT assigned International Bank Account Numbers to Somalia's central bank and all its commercial banks, enabling them to make or receive cross-border payments.

Somalia's financial sector experienced a near-total collapse in 1991 due to civil war, rendering the central bank and the country's banking sector inoperative for over two decades. Transactions were conducted in cash, foreign currencies, or via barter. Efforts to reestablish the Somali state began in the early 2000s, supported by the Somali diaspora and foreign aid agencies such as the World Bank and the International Monetary Fund.

The successful implementation of the NPS and IBAN is expected to stimulate economic growth, create jobs, and improve the overall standard of living in Somalia. Moreover, the reintegration of Somalia into the global financial market could have positive implications for neighbouring East African countries, promoting regional trade and cooperation.

Previously, Somali banks lacked an interbank payment system and depended on transporting notes in vehicles guarded by security personnel for transfers. Developing a payment system became a strategic goal for CBS, which collaborated with the World Bank on a project that provided expert advice and technology financing. The central bank conducted a 'soft launch' of the system in July 2021, with nine banks joining the system for its official launch in August. The remaining four banks joined in 2022.

The adoption of IBAN, along with the new payment system, signals the reintegration of Somalia into the international financial market. Two foreign commercial banks, Turkey's Ziraat Katılım and Egypt's Banque Misr, are planning to open branches in Somalia, a move expected to significantly increase investment in the country and provide letters of credit for trade financing.


Click here