MOGADISHU, Somalia (Caasimada Online) – In a historic move, the Central Bank of Somalia (CBS) has effectively integrated International Bank Account Numbers (IBAN) into the National Payment System (NPS) for all transactions.  

This groundbreaking development marks the first time that Somalia has embraced IBAN. As of March 27, 2023, every bank in the country has adapted IBAN.

The adaptation is projected to streamline payment processing, mitigate operational risks, and reduce delays in international transfers involving Somalia and countries compliant with IBAN.

Abdirahman Abdullahi, CBS Governor, shared his excitement for the initiative, declaring the NPS introduction as a “significant breakthrough for the nation’s financial sector that had long been cut off from international financial markets.”

Easing remittance flows  

The innovative payment system is expected to simplify remittances from overseas citizens, particularly the Somali diaspora, who have played a vital role in the nation’s economic resurgence.  

Prior to IBAN initiation, remittances were obstructed by strict anti-money laundering and counter-terrorism financing (AML/CFT) regulations. 

The CBS has implemented targeted measures to address AML/CFT concerns within the new payment system, which should alleviate apprehensions of foreign banks and regulators about payments destined for Somalia.  

In 2022, SWIFT, the international consortium, assigned International Bank Account Numbers to both the central bank of Somalia and all its commercial banks, empowering them to conduct cross-border transactions. 

Rising from the ashes of civil war 

In 1991, the civil war led to the near-complete collapse of Somalia’s financial sector, rendering the central bank and the nation’s banking sector non-operational for over 20 years.  

Transactions were carried out using cash, foreign currencies, or bartering. Rebuilding efforts for the Somali state commenced in the early 2000s, backed by the Somali diaspora and international aid organizations such as the World Bank and the International Monetary Fund. 

The successful implementation of the NPS and IBAN is predicted to accelerate economic growth, generate jobs, and enhance the overall quality of life in Somalia.  

A promising outlook for Somalia  

Moreover, Somalia’s reintegration into the global financial market may yield positive effects for neighboring East African nations, bolstering regional trade and collaboration. 

Lacking an interbank payment system, Somali banks had previously relied on transporting banknotes in secure vehicles for transfers.  

The development of a payment system emerged as a critical objective for CBS, which collaborated with the World Bank on a project that delivered expert guidance and funding for technology.  

The central bank initiated the system’s ‘soft launch’ in July 2021, with nine banks participating in the official launch in August. The final four banks joined in 2022. 

The incorporation of IBAN and the new payment system symbolizes Somalia’s return to the international financial arena.  

Two foreign commercial banks, Turkey’s Ziraat Katılım and Egypt’s Banque Misr have announced plans to establish branches in Somalia.

This development is anticipated to considerably boost investment in the country and facilitate the issuance of letters of credit for trade financing.