Digital finance and poverty in fragile states: Evidence from Somalia’s mobile money diffusion

Abstract

Financial inclusion is increasingly recognized as a catalyst for achieving the Sustainable Development Goals (SDGs), particularly in reducing poverty (SDG 1), ensuring food security (SDG 2), and promoting reduced inequalities (SDG 10). In fragile states such as Somalia, where decades of conflict and institutional weakness constrain formal financial systems, digital financial services have emerged as a critical alternative. This study investigates the determinants of household wealth in Somalia using nationally representative data from the Somali Demographic and Health Survey (SDHS), comprising 26,180 households after cleaning. Wealth is measured via the standardized Wealth Index, with explanatory variables capturing demographic, socioeconomic, and infrastructural conditions-including household size, education, property ownership, electricity access, and mobile money use. Ordered logit and probit models are employed to assess these relationships. The results demonstrate that access to mobile money significantly enhances household wealth, alongside educational attainment, electricity supply, and secure home ownership. Spatial disparities are observed, with northern and eastern regions outperforming the conflict-affected south, while rural and nomadic households remain structurally disadvantaged. These findings highlight the transformative role of mobile money in advancing financial inclusion, while also emphasizing the need for complementary investments in infrastructure and education to ensure equitable development. Policy efforts should prioritize expanding digital financial services, bridging urban-rural divides, and addressing geographic inequalities to accelerate progress toward SDG 1, SDG 2, and SDG 10 in Somalia.