Money without state

How Mobile Money (MM) led to financial exclusion in Somalia?

Somalia’s Mobile Money (MM) Paradox: From Financial Exclusion to Missed Digital Futures

Week 41 of MI’s 5 Minutes of Fame revisits my long-standing research interest in mobile money (MM) and its paradoxical role in Somalia’s financial system. My research has examined the influence of MM on financial inclusion for Somalia’s unbanked population. While this work - soon to be published alongside my co-authored volume with economist Ahmed Nur on the Somali banking and monetary system, and a forthcoming chapter in the Research Handbook on Fintech - has celebrated MM’s initial transformative potential, it also exposes its structural failures. Chief among them is that Somalia’s MM platforms have deepened financial exclusion rather than resolved it, stifling competition, innovation, and the development of an inclusive financial architecture.

With the help of remittance enterprises and cross-border payment innovations, MM once appeared to midwife a digital economy and, in some sense, a national currency. Yet, as the recent IMF - World Bank panel on cross-border payments underscores, the global financial system is now entering a new phase of digital currency integration - one that Somalia risks missing entirely.

Introduction

In recent years, Somalia has often been cited as a success story of MM adoption in a fragile-state context. Telecommunications operators introduced MM platforms (e.g. Hormuud’s EVC+, Telesom’s Zaad) that quickly became ubiquitous, facilitating remittances, domestic transfers, and basic commerce in a country with weak banking infrastructure and limited physical currency circulation. Yet this apparent success masks deeper structural dysfunctions: telecom monopolies have appropriated the country’s financial infrastructure, entrenching exclusion, undermining monetary sovereignty, and- critically - foreclosing Somalia’s ability to participate fully in the next wave of digital finance, including cross-border crypto payments.

While the ongoing IMF / World Bank discourse on cross-border payments emphasizes interoperability, regulatory frameworks, digital currencies, and messaging standards as indispensable to financial inclusion and integration, Somalia’s MM system is ill prepared to engage such transformation on equitable terms.

Crypto assets, it seems, have once again become the pet obsession of global policymakers. Every season brings another “high-level” panel to assess their “macro-financial impact” and “strategic policy responses.” The mantra is invoked: Faster, Cheaper, Better—or its catchier cousin, Faster, Cheaper, Quicker (FCQ, rhyming neatly, if not innocently, with KFC). One half expects the World Bank President to trademark it as the new recipe for financial modernization: deep-fried efficiency with a side of deregulation.

But beneath this glossy rhetoric lies an uncomfortable irony. The very institutions now preaching the gospel of FCQ are those that once warned against volatility, unregulated innovation, and monetary fragmentation. The obsession with speed and cost reduction has become an end in itself—a technocratic catechism where “better” means faster transactions, not fairer systems; where “cheaper” means lower fees, not reduced inequality.

Meanwhile, in the Global South, where mobile money and digital currencies have long been laboratories of necessity, this FCQ fixation reads less like progress and more like parody. Nations still struggling to establish credible financial infrastructure are now lectured on the virtues of “faster” payments—without addressing who controls the rails, who bears the risk, or who truly benefits from the velocity. In this age of faster, cheaper, better, the world may indeed get a more efficient monetary system—just not necessarily a more just one. Efficiency, after all, is the easiest promise to make when one never asks for accountability.

See also article below which outlines three principal arguments: (1) Somalia’s MM regime has induced a form of financial exclusion - and not inclusion - through private monopoly control; (2) this regime has generated significant opportunity costs by foreclosing innovation and competition; (3) as global finance shifts toward crypto-enabled cross-border payments, Somalia is at risk of being marginalized in the very systems it once championed. https://documents1.worldbank.org/curated/en/099122223114525255/pdf/P1787031652e720041b10c1e6520fe2f8d0.pdf?

1. Mobile Money and the Illusion of Inclusion

Somalia’s telecom operators have become de facto financial incumbents, occupying roles traditionally held by banks or state institutions. In fragile or stateless contexts, MM emerged to fill a vacuum: the scarcity of physical currency, weak monetary institutions, and limited formal banking drove adoption of digital payments. See this article for more - https://academic.oup.com/ia/article/101/1/117/7942194?

Yet several empirical and qualitative studies challenge the dominant narrative of MM as inherently inclusive. The article “Mobile money, (dis)empowerment and state reconstruction in Somalia” argues that telecom firms have assumed “state-like functions” by intermediating economic life - what the authors term forms of virtual sovereignty in which private telecoms capture key functions of governance (identity, payments, record-keeping) outside state oversight. See this article for more: https://academic.oup.com/ia/article/101/1/117/7942194?

In practice, control of MM by telecom oligopolies means that inclusion is heavily filtered: those economically or socially privileged can navigate the system, but the poorest or most remote may still be excluded due to costs, interoperability limits, or network constraints. The illusion of inclusion arises when MM is lauded for extending access—but only within the bounds set by telecom control, not as a genuinely open financial architecture.

Furthermore, the high penetration of MM transactions (often denominated in USD or foreign currency) has weakened the role of the Somali shilling in daily exchanges. One study of the EVC+ system found that up to 80 % of daily transactions bypass the Somali shilling altogether, undermining monetary policy and state capacity to influence economic flows. See article below: https://www.theseus.fi/bitstream/handle/10024/509186/Thesis%20-Mobile%20money%20service%20in%20Somalia%20.pdf?

Thus, while many citizens use mobile money, the deeper systems of trust, regulation, and institutional accountability do not follow. Power is extracted rather than distributed.

2. Opportunity Costs, Monopoly Power, and Regulatory Capture

The dominance of telecom-based MM has imposed significant opportunity costs on Somalia’s financial trajectory - in terms of lost competition, stifled fintech innovation, and exclusion from broader payment networks.

a. Monopoly Rent-Seeking and Market Barriers

Telecom providers enjoy a dual advantage: they control the connectivity infrastructure and the payment rails. This vertical integration allows them to impose entry barriers on competing fintech firms (e.g. digital wallets, third-party payment aggregators). In effect, new entrants must either rent access from telecoms or be blocked altogether. These dynamic stifles entrepreneurial innovation and segmentation of services (loans, microcredit, algorithmic risk-scoring) that might otherwise emerge in a more open system. The result is telecom oligopoly control over nearly all transactions, real estate dealings, and informal banking flows across the economy.

b. Regulatory Capture and Weak Oversight

In conditions of weak state capacity, telecom firms often outmatch regulatory institutions, negotiating terms, licensing, and oversight in opaque processes. They influence central bank and communications regulatory policy, setting terms of interoperability, fees, and transaction limits. Over time, they accrue power without accountability: capable of extracting fees or margins, directing liquidity, and controlling the levers of digital finance without effective checks or transparency.

Because telecom firms control data and transaction records, they also enjoy an information asymmetry advantage. They can segment, exclude, or prioritize clients, shaping credit, default, or access in ways that remain invisible to public scrutiny.

c. Lost Innovation and Disruption Pathways

One of the most profound opportunity costs is that Somalia has forfeited a more open fintech path - including digital banks, peer-to-peer lending, modular payment systems, crypto integration, and cross-border rails. Globally, fintech disruption thrives in competitive fringes; in Somalia, the fringe is constrained by telecom control. The system is closed and controlled rather than layered and modular. The absence of competitive pressure means lower incentives for service quality, transparency, cost reduction, or security upgrades. This leads to inefficiencies, transaction friction, and system brittleness.

3. The Crypto Cross-Border Revolution and Somalia’s Strategic Disadvantage

The future of global payments is shifting. The IMF’s 2025 working paper on global cross-border payments estimates the total cross-border payments market (traditional + crypto) at nearly US$1 quadrillion, with crypto and stablecoin flows growing at ~13 % annually between 2021 and 2024 (though still a small share) See article below: https://www.imf.org/en/Publications/WP/Issues/2025/06/13/global-cross-border-payments-a-1-quadrillion-evolving-market-567604?. Meanwhile, an IMF study on cross-border crypto flows emphasizes that crypto offers new channels for low-cost, frictionless remittances - especially relevant for low-income, remittance-dependent economies - but their adoption is hampered by regulatory, measurement, and technological barriers. See article below: https://www.imf.org/en/Publications/WP/Issues/2024/12/20/On-Cross-Border-Crypto-Flows-Measurement-Drivers-and-Policy-Implications-559166?

a. Interoperability as a Barrier

The IMF–World Bank’s roadmap for cross-border payments elevates interoperability, regulatory harmonization, data standards, and messaging systems (e.g. ISO 20022) as core structural prerequisites. See article below: https://documents1.worldbank.org/curated/en/099122223114525255/pdf/P1787031652e720041b10c1e6520fe2f8d0.pdf?

Somalia’s MM system, by contrast, is isolated, proprietary, and lacking integration with global banking or digital rails. Without open APIs, messaging standards, or regulatory alignment, Somali wallets cannot plug into broader crypto flows or stablecoin networks.

b. Inability to Leapfrog

Because Somali telecoms already monopolize domestic payments, there is no space to pivot into crypto rails or tokenized assets. They cannot easily integrate blockchain nodes, smart contracts, or custody services when the infrastructure is closed and proprietary. Thus, Somalia is structurally disadvantaged in leapfrogging to the next generation of digital finance.

c. Risk of Marginalization in Global Flows

Even as crypto cross-border flows remain modest relative to traditional channels, they are becoming a frontier for innovation, cost reduction, and financial integration in low-income countries. Somalia risks being left behind—stuck in a legacy regime that cannot connect with emerging rails. Without institutional redesign, Somalia will not just miss the crypto wave - it may be structurally excluded from it.

Conclusion & Policy Imperatives: Somalia’s experience with mobile money is instructive, not heroic. What began as an adaptive response to institutional voids has ossified into a regime of private monopoly that undermines broader economic sovereignty, financial competition, and future-readiness in digital finance. The financial exclusion is not just normative (who is left out) but structural (how entire classes of innovation are blocked). The lost economic opportunities are real: missing fintech startups, stunted credit markets, disincentivized institutional trust, and absence from evolving global payment systems.

Addressing this requires more than tweaking telecom regulation. A strategic recalibration is needed:

1. Regulatory reform: impose open-access, interoperability, and non-discrimination rules on telecom-mobile money operators; enforce oversight by central banks or independent regulatory bodies.

2. Modularization of payment rails: separate the connectivity infrastructure from the payment rails, enabling third-party wallets, fintech entrants, and crypto rails to connect on equal terms.

3. Institutional capacity building: strengthen central bank and regulatory institutions so they can engage in crypto standards, digital currency policy, cross-border remittance frameworks, and more.

4. Pilot integration with crypto / token rails: introduce experiments with stablecoins, CBDC-linked wallets, or blockchain settlement in select corridors (e.g. diaspora remittances) to build norms and technical capacity.

5. Transparency, accountability, and competition oversight: impose transparency obligations (e.g. open data on transactions, fees, liquidity), auditability, and competitive reviews of telecom-MM firm behaviors.

If Somalia fails to evolve, it may remain financially “connected” in name only, while effectively excluded from the digital future. The phone that ate the state will also eat Somalia’s place in next-generation finance.

Comments and feedback as always welcome. Standby for week 42 of MI’s 5 Minutes of Fame exploring how Gen Z is transforming corrupt governments… my close encounter in Nepal and Madagascar.