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  • Writer's pictureAbdi Ali

Somalia's National Payment and Settlement System Initiative

A new Insights Paper, which Zuleikha Salim Said and I co-author, assesses the risks and opportunities of Somalia's National Payment and Settlement System - a nationally important initiative. Drawing on our industry expertise, we summarise the important lessons from past initiatives and the seven key success factors to consider for the programme's implementation.

NPSS: Critical to Somalia's economic and financial services infrastructure development

A National Payment and Settlement System (NPSS) is critical to a country’s economic and financial services infrastructure development. NPSS is similar to a country’s transport network: a country’s well-developed road and rail links allow goods and services to flow freely, reducing friction such as transaction costs and delays and thus help unleash economic progress. Similarly, the NPSS does exactly the same thing by allowing people and businesses to make and receive payments and settle transactions, and this in turn enhances and supports wider economic and financial inclusion as well as financial security.

Whilst the economic benefits of a well-designed NPSS are generally acknowledged, the risks to its implementation are underappreciated. As is the case in Somalia, national governments in least developed countries rely on the expertise of international institutions (such as the World Bank) to help with the design and delivery of a suitable NPSS model. In that context, the greater emphasis centres invariably on helping these countries to import “best solutions” at the risk of overlooking some of the material nuances: interoperability, regulatory coherence, maintenance costs, expertise in managing the system (to name just a few), which can make a material difference on whether the NPSS initiative succeeds or fails.

" As the NPSS programme is in its planning stages, most of the risks outlined in this paper can be mitigated through careful planning and proper programme execution. This means the CBS now has a great opportunity to get this timely initiative right."

Timely intervention is therefore paramount. The CBS has made laudable progress and there is every reason for cautious optimism given the new CBS leadership: NPSS IT tendering process (whose selection panel involved cross-section of would-be users, including private Financial Institutions- “FIs”), initiation of the Somali National Risk Assessment with the World Bank; as well as the new National Payment System law and updated FI law to include mobile money (both currently being drafted with the help of international experts including the World Bank). At the macro level, Somalia’s successful completion of successive rounds of the IMF’s Staff Monitored Programme – “SMP” - (now in its fourth round) and accession to Middle East and North Africa Financial Action Task Force (MENA FATF) membership show good progress momentum. However, a comprehensive consultation with stakeholders still remains an important outstanding challenge.

This insights paper is intended to raise awareness of this important initiative in Somalia and help prompt debate and discussion. Whilst our views are informed by our experiences, working at leading global financial institutions for decades, our purpose here is not to argue for the merits of one NPSS over another, or indeed detail the technical elements of NPSS. We also see a clear opportunity for Somalia to leverage the body of knowledge gained from the experience of peers, developed and developing countries that are continually engaged in the development and reform of their payments systems.

Our views are also echoed by well-respected international agencies, including the Bank for International Settlements Committee on Payments and Market Infrastructures (CPMI) and the Financial Action Task Force (FATF), which have issued clear guidelines on national payments systems development and effective risk management respectively.

The paper’s aim is to emphasise how the importance of clarity over delivery objectives, robust governance framework and appropriate assurances will be key to the successful delivery of this initiative. We conclude the paper by summarising the seven critical factors for a successful NPSS implementation.


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