The recurring claim in contemporary development finance is that payments technology can outrun politics. A country may be institutionally fragile, the story goes, but a sufficiently modern financial stack—mobile wallets, agent networks, instant payments, digital ID—can “leapfrog” the slow work of state-building. South Sudan is a useful stress test of that assumption, not because it is uniquely dysfunctional, but because it is unusually explicit about the binding constraint.
Banking is not primarily a set of products. It is a social technology for making promises credible across time, distance and disagreement. Deposits, loans, settlement finality, prudential rules, and anti-financial-crime controls are all forms of enforced commitment. Where enforceable authority is partial, contested, or commercially captured, formal banking does not disappear—but it becomes narrow, defensive and often performative. It tends to migrate towards foreign exchange intermediation, cash distribution, and transactional rents, while the deeper functions of finance—mobilising savings, transforming maturities, allocating credit, pricing risk—either shrink or move elsewhere.
South Sudan’s experience does not imply that financial reform is futile. It implies that sequencing is not optional. In high-fragility environments, the financial system cannot be designed as though authority is already present and merely needs “capacity-building”. The relevant question is what the minimum viable authority is for banking to become real, rather than ceremonial.
Authority is the hidden infrastructure of formal banking
In stable jurisdictions, the state supplies a series of background conditions that financial actors rarely notice until they weaken. Contracts are enforceable; collateral can be registered and realised; courts can compel performance; supervisors can require corrective action; criminal penalties can be applied; and state agencies can maintain nationwide administrative reach. These are not decorative features. They are the load-bearing beams of the formal system.
A bank deposit is not simply money placed in safekeeping. It is an unsecured claim on an institution whose balance sheet can only be trusted if accounting, governance, and supervision are credible. A loan is not simply money advanced. It is a claim whose value depends on enforceable collateral rights, predictable dispute resolution, and a credible threat of recovery. Even payments—often treated as “pure technology”—depend on finality rules, enforceable participant obligations, operational resilience, and the ability to sanction misconduct.
When authority is weak, each of these becomes costly to sustain. Banks respond rationally. They shorten tenors, reduce unsecured exposures, increase fees, demand hard currency, and concentrate on activities where settlement risk is minimal and revenue is immediate. That pattern is visible in the structure of South Sudan’s banking sector, and in the way policy tools behave when cash dominates and trust is thin.
South Sudan’s macroeconomy punishes long-term financial promises
South Sudan’s economy is unusually concentrated and unusually exposed to shocks that are neither small nor easily hedged. Oil is central, and disruption to oil export logistics rapidly becomes disruption to fiscal space, foreign exchange inflows, and therefore monetary stability. In 2024, damage to the pipeline carrying oil through Sudan materially reduced exports and foreign exchange availability, worsening exchange rate depreciation pressures [IMF Country Report No. 24/327].
The World Bank’s most recent South Sudan Economic Monitor describes a sequence familiar to fragile, commodity-dependent states: an external shock reduces foreign exchange, the currency depreciates sharply, and prices rise quickly because imports dominate the consumption basket. Consumer price inflation reached 139% in August 2024, with food inflation at 121.8%—a level that makes any local-currency financial contract a rapidly melting asset [World Bank South Sudan Economic Monitor Issue 7, 2025]. Fuel prices also rose steeply across 2024, amplifying transport costs and inflation pass-through [World Bank South Sudan Economic Monitor Issue 7, 2025].
For banking, the point is not simply that high inflation is unpleasant. It is that price instability destroys duration. Depositors avoid local-currency balances when real value cannot be preserved. Banks struggle to price long-tenor credit when the unit of account itself is unstable. Supervisors can publish prudential ratios, but the economic substrate those ratios assume—predictable cashflows, stable collateral values, reliable valuation—does not hold. The system does not become “underdeveloped” in an abstract sense; it becomes rationally short-term.
This helps explain why policy tools behave strangely. The IMF notes that large cash holdings outside of banks have limited monetary policy efficiency in taming inflation, and that the introduction of daily cash withdrawal limits in September 2024 created adverse effects on bank functioning and discouraged deposits [IMF Country Report No. 24/327]. These are not technical errors so much as symptoms: monetary control is difficult when much of the monetary base is literally outside the regulated system.
Cash dominance is not cultural; it is institutional
It is tempting to treat cash preference as habit or mistrust. In South Sudan, it is more precise to treat it as an equilibrium outcome. When enforcement is weak, the safest asset is often the one that requires no counterparty performance: physical cash, and especially hard currency.
Formal financial inclusion is exceptionally low. UNDP reports that in 2021—two years after the introduction of mobile money—less than 6% of the adult population held an account, and mobile money account penetration was less than 1% [UNDP Digital Mobile Wallet Usage South Sudan, 2025]. Even where digital mechanisms exist, the population-scale rails that make deposits and electronic payments normal are not yet present.
Cash dominance then feeds parallel systems. Where bank branches are sparse, where agent liquidity is inconsistent, and where the exchange rate regime produces a persistent parallel premium, the economy develops its own settlement logic. Trade routes accumulate informal tolls; cash moves with people; and pricing often shifts to foreign currency reference points even if domestic currency remains the legal tender. The World Bank documents the prevalence of unauthorised checkpoints along major trade routes—at one point describing an approximate density of one checkpoint per 16 km on key corridors, with repeated cycles of official closure orders followed by re-emergence [World Bank South Sudan Economic Monitor Issue 7, 2025].
This matters for banking because the enforceability of payments and the safety of value transfer are not only functions of bank compliance. They are functions of the state’s ability to keep roads, corridors and commercial space governable. If a truck moving goods can be stopped repeatedly by actors who are not credibly sanctioned, it is unsurprising that value transfer instruments evolve to minimise visibility and contestability.
The banking sector exists, but its economics reveal its constraints
South Sudan does have banks. The Bank of South Sudan’s statistical bulletin shows that the number of commercial banks increased from 8 in July 2011 to 30 in March 2024 [Bank of South Sudan Statistical Bulletin, March 2024].
Yet the question is not whether institutions are licensed. It is whether they intermediate. On that score, the IMF’s description is direct. Commercial banks “dominate the country’s financial sector” but face “multi-faceted challenges”, with several domestic banks undercapitalised and an average capital adequacy ratio of 10.1% at end-June 2024 [IMF Country Report No. 24/327]. More revealing is the income structure: with limited intermediation taking place, around 70% of bank income is non-interest income, mainly foreign exchange transactions [IMF Country Report No. 24/327].
In a conventional banking system, foreign exchange dealing is ancillary; the core is balance sheet intermediation. In South Sudan’s case, foreign exchange is closer to the core. That is a rational adaptation to a high-inflation, import-dependent economy where hard currency is scarce, where the exchange rate regime generates spreads, and where credit risk is difficult to price and enforce. But it has structural consequences:
- banks become dependent on foreign exchange inflows (including those linked to oil), making their earnings pro-cyclical and shock-sensitive;
- credit to the private sector remains limited, constraining formal investment and productivity growth; and
- the banking system’s relationship to households remains thin, reinforcing cash dominance and low deposit mobilisation.
The liability structure reinforces this fragility. The IMF notes that over 70% of commercial bank liabilities are denominated in foreign currency, exposing banks to exchange rate risk where assets do not match liabilities [IMF Country Report No. 24/327]. In a stable jurisdiction, supervisors would treat this as a material prudential concern requiring close monitoring, stress testing, and credible resolution tools. In a fragile one, it becomes a hard constraint on what the system can safely do at all.
Why formal banking struggles when authority cannot reach the transaction
At the technical level, formal banking depends on four state-provided capabilities that are often discussed separately but operate as a bundle.
First, enforceable property rights. Banks lend against collateral only when collateral can be registered, verified, and realised. If land tenure is contested, if registries are incomplete, or if seizure is politically or physically infeasible, credit either becomes prohibitively expensive or disappears. Banks then retreat to short-term, relationship-based exposures or to lending against cashflow that can be captured quickly.
Second, credible dispute resolution. Credit risk is not only default risk; it is also resolution risk. If disputes cannot be resolved predictably, even solvent borrowers become risky because the bank cannot confidently recover in adverse scenarios. This shortens the economic time horizon of lending.
Third, supervisory reach and sanction capacity. Prudential regulation is meaningful when supervisors can inspect, require remediation, and, where needed, close or restructure institutions. Where enforcement is partial or politicised, the system drifts towards a regime of compliance theatre—policies exist on paper, ratios are reported, but corrective action is uncertain.
Fourth, a credible unit of account. If the currency’s value is persistently unstable, the bank’s balance sheet becomes difficult to manage because even “performing” assets may be impaired in real terms. Households rationally avoid deposits, pushing the system further towards cash and foreign currency.
South Sudan illustrates the compound effect. The combination of high inflation [World Bank South Sudan Economic Monitor Issue 7, 2025], heavy cash circulation outside banks [IMF Country Report No. 24/327], and the fragmentation of transaction space illustrated by pervasive unauthorised checkpoints [World Bank South Sudan Economic Monitor Issue 7, 2025] produces a financial environment in which banks are structurally prevented from performing the full role policy rhetoric assigns to them.
Currency instability creates parallel systems, not merely parallel prices
Parallel foreign exchange markets are often described as a pricing problem. In fragile settings, they are also an authority problem. If the state cannot enforce a single exchange rate across the economy—either because it lacks credibility, or because it lacks reach—economic actors will adopt the rate that clears transactions in the space where they actually operate.
The IMF notes the thinness of the foreign exchange market and the policy intention to gradually reduce the parallel foreign exchange premium, including via exchange rate management flexibility and auction rule design [IMF Country Report No. 24/327]. But the key constraint is not design elegance; it is whether the state can sustain a regime that economic actors believe will last longer than the next shock.
UNDP’s observation that South Sudan’s currency depreciated by 97% between September 2019 and October 2022 captures the lived experience behind that credibility gap [UNDP Digital Mobile Wallet Usage South Sudan, 2025]. In such conditions, households and firms treat local currency as a transactional medium, not a store of value. Financial contracts then migrate towards dollarisation, whether formally (foreign currency deposits and balances) or informally (pricing and settlement practices).
The most revealing detail is that mobile money providers adapt the same way. UNDP notes that one provider offers USD mobile money accounts to customers as a response to currency volatility [UNDP Digital Mobile Wallet Usage South Sudan, 2025]. That is not a fintech curiosity; it is an institutional signal. Even the digital layer, which is often framed as a route out of cash and volatility, is forced to anchor itself in hard currency when the domestic unit of account is unreliable.
The limits of digital finance in high-fragility environments
Digital finance is frequently discussed as though it is primarily software. In practice, it is logistics: identity, connectivity, cash-in/cash-out, agent liquidity, consumer protection, fraud control, and dispute resolution. Each of those is harder when the state’s administrative footprint is shallow.
UNDP’s data is instructive precisely because it is operational rather than aspirational. Mobile money can reduce the cost and risk of moving physical cash in high-risk areas; in South Sudan, UNDP notes that securing large cash transfers has at times cost up to 30% of the transfer value, making digital disbursement materially more efficient where it works [UNDP Digital Mobile Wallet Usage South Sudan, 2025]. Yet the same report details why scale remains elusive: patchy network coverage, limited electricity access, low phone penetration, and thin agent networks—particularly outside cities [UNDP Digital Mobile Wallet Usage South Sudan, 2025].
Three constraints matter most for policy design.
1) Identity is the choke point for KYC and consumer onboarding. In 2019, only 41% of the population had the required identification documents to access mobile money subscriptions, according to UNDP [UNDP Digital Mobile Wallet Usage South Sudan, 2025]. Where identity coverage is partial, digital finance cannot become universal without either excluding large populations or diluting KYC standards in ways that later trigger correspondent banking and financial integrity consequences.
2) Agent distance is not a nuisance; it is the system. If digital value must be cashed out to be usable, the agent network is the effective perimeter of the digital economy. UNDP reports that in 2019 around 83% of rural inhabitants had to walk at least 30 minutes to reach an agent (versus 40% of urban dwellers) [UNDP Digital Mobile Wallet Usage South Sudan, 2025]. This is why “mobile money exists” is not the same as “mobile money functions as infrastructure”.
3) Connectivity figures must be interpreted operationally. UNDP notes that in January 2021, mobile connections were equivalent to 23.1% of the total population [UNDP Digital Mobile Wallet Usage South Sudan, 2025]. Even if that number rises, connectivity does not automatically produce financial depth. It produces a channel. The financial system still requires enforceable rules about how balances are safeguarded, how agents are supervised, how disputes are resolved, and how fraud is policed.
A further limitation is behavioural and political: where the state is not reliably present, people rationally prefer instruments that are portable, private, and instantly final. Digital rails can provide speed, but they do not inherently provide finality in the social sense if users believe balances can be frozen, reversed, or extorted without remedy. Trust is not built by user interfaces. It is built by enforceable outcomes.
AML, KYC, and supervision become fictional without state reach
Anti-money laundering (AML), counter-terrorist financing (CFT), and KYC rules are sometimes treated as compliance architecture that can be “rolled out” through templates, training, and reporting forms. In fragile environments, they are closer to a claim about the state’s ability to know, monitor, and sanction.
Effective AML/CFT requires at least six real capabilities:
- a widely usable identity system;
- a legal framework that criminalises relevant conduct and enables asset restraint;
- competent financial intelligence functions that can receive and analyse reports;
- supervisory capacity to test compliance and impose sanctions;
- law enforcement that can investigate beyond the capital; and
- courts that can adjudicate and uphold penalties.
If these are weak, AML/CFT can persist as policy language, but its practical meaning degrades. Banks may “perform” KYC, but customer identity cannot be reliably verified at scale. Suspicious transaction reports may be filed, but investigation capacity is limited. Supervisors can issue circulars, but cannot consistently inspect or enforce.
This interacts directly with correspondent banking. International standards bodies have repeatedly emphasised that correspondent banking requires robust due diligence and risk management, and that de-risking trends can push payment flows into less transparent channels [FSB Action Plan on Correspondent Banking, 2016]; [BIS/BCBS Revised Annex on Correspondent Banking, 2017]; [IMF Recent Trends in Correspondent Banking Relationships, 2017].
In a setting where domestic supervision is not fully credible, the private cost of global compliance rises sharply. Correspondent banks respond by limiting exposure, raising compliance requirements, or exiting relationships altogether. The impact is not confined to “the banking sector”; it affects remittances, trade finance, humanitarian cash programming, and the state’s ability to receive external support without leakage. The FSB explicitly notes the risk that reductions in correspondent relationships may affect international payments and drive some flows underground [FSB Action Plan on Correspondent Banking, 2016].
South Sudan’s own policy trajectory reflects the tension. The IMF describes steps to strengthen the supervisory framework via amendments to the 2012 Banking Act approved in November 2023, including consolidation of supervision of bank and non-bank institutions under the central bank [IMF Country Report No. 24/327]. It also notes progress towards bringing the AML/CFT framework in line with international standards [IMF Country Report No. 24/327]. The direction is sensible. The question is whether the state can extend enforcement beyond formal institutions in Juba into the actual transactional geography of the economy. Without that, “alignment with standards” risks being primarily documentary.
What sequencing looks like when fragility is the operating condition
If banking cannot precede authority, the practical question becomes: what is the smallest set of authority functions that allow a financial system to become real? In South Sudan—and in comparable environments—the answer is less grand than conventional state-building rhetoric, but more concrete than fintech optimism.
First, stabilise the fiscal-monetary loop. Monetary financing is often justified as emergency necessity, but it erodes the unit of account that the financial system needs. The IMF notes that resumption of monetary financing added to inflation and exchange rate depreciation pressures, amplified by large cash circulation [IMF Country Report No. 24/327]. A credible commitment to avoid routine monetary financing, alongside transparent liquidity management tools, is not a technocratic preference; it is the base layer of deposit credibility.
Second, treat trade corridors as financial infrastructure. The World Bank’s documentation of dense unauthorised checkpoints along key routes is not merely a transport issue; it is a governance tax on the movement of goods and money [World Bank South Sudan Economic Monitor Issue 7, 2025]. If the state cannot control checkpoints, it is unlikely to control cash handling, agent liquidity, or the enforcement of financial sanctions. Corridor governability is therefore a prerequisite for scaling formal payments beyond enclaves.
Third, build identity coverage before complex digital ambition. The UNDP figure—41% ID coverage for mobile money subscription requirements in 2019—suggests that a substantial portion of the population is structurally excluded from standard KYC processes [UNDP Digital Mobile Wallet Usage South Sudan, 2025]. Tiered KYC can help at the margin, but without an expanding identity footprint it eventually collides with AML expectations and correspondent constraints.
Fourth, focus on enforceable, narrow use-cases. In fragile settings, the most effective digital finance deployments are often those where the payer can enforce performance and where the transaction purpose is clear: government salary payments, humanitarian cash transfers, and specific merchant corridors. UNDP’s evidence that mobile money can materially reduce the cost of moving cash in high-risk environments supports this focus [UNDP Digital Mobile Wallet Usage South Sudan, 2025]. The objective is not to announce “cashless transformation”, but to lock in a set of payment obligations that are consistently honoured.
Fifth, supervise the perimeter where money becomes cash. Agent networks are not an inclusion accessory; they are the reality of the cash economy. The operational data on rural distance to agents suggests that expansion is as much about working capital, security, and liquidity logistics as it is about software [UNDP Digital Mobile Wallet Usage South Sudan, 2025]. Where regulators lack reach, supervision strategies should prioritise the nodes where digital value is created, converted, and distributed.
This is the point at which “banking work” becomes more than policy rhetoric. Building a functional system in a fragile environment is not an exercise in replicating the regulatory architecture of advanced markets. It is the discipline of designing incentives and controls that still operate when authority is incomplete.
Lessons for other fragile states experimenting with fintech
South Sudan is not the only jurisdiction where fintech ambitions collide with institutional reality. Its value lies in how clearly it demonstrates general lessons that are often obscured in less extreme settings.
Fintech does not replace authority; it shifts where authority must be exercised. A digital payment is still a claim on someone’s balance sheet. If the state cannot enforce consumer protection, agent conduct rules, or fraud penalties, trust will remain local and fragile. Adoption then plateaus, and the system reverts to cash at the first shock.
Financial integrity is not a “later phase”. In fragile contexts, the temptation is to postpone AML/CFT in the name of inclusion. In practice, exclusion from correspondent banking is itself an inclusion failure. The global trend towards de-risking, and the systemic concern that this can push flows into less transparent channels, means that jurisdictions must design inclusion mechanisms that do not poison their external financial links [FSB Action Plan on Correspondent Banking, 2016]; [IMF Recent Trends in Correspondent Banking Relationships, 2017].
Currency stability is a payments policy. Where inflation is triple-digit and depreciation is rapid, the payment system becomes a hot-potato mechanism: balances are held only briefly, and pricing migrates to foreign currency anchors. The World Bank’s inflation figures for 2024 make this point starkly [World Bank South Sudan Economic Monitor Issue 7, 2025]. Under those conditions, payment rails cannot generate deep intermediation; they can only accelerate circulation.
Bank economics will reveal whether reform is real. The IMF’s observation that 70% of bank income is non-interest FX-related, and that most liabilities are FX-denominated, is not merely descriptive [IMF Country Report No. 24/327]. It is diagnostic. Where banks cannot safely expand credit, they will expand spreads, fees, and foreign exchange intermediation. Reform success should therefore be measured by balance sheet transformation, not by the number of fintech announcements.
Sequencing is a governance choice, not a technical preference. The most persistent error in fragile-state finance is to treat the financial system as a machine that can be installed, rather than an equilibrium that must be governed. Authority is not an abstract good. It is the ability to enforce a small number of rules consistently, particularly where money moves and where disputes arise. Without that, banking may exist on paper and in the capital, but it will not become the economy’s operating system.
A pragmatic conclusion: finance can support state-building, but it cannot substitute for it
There is a respectable argument that building financial rails can help consolidate authority by formalising revenue, increasing transparency, and reducing the leakage that cash enables. South Sudan’s trajectory suggests that this is conditionally true—but only when the state can enforce the rules those rails require. Otherwise, digital tools become additional surfaces for rent extraction, while households continue to treat cash and hard currency as the only reliably final assets.
The useful policy frame is therefore not “banking in spite of fragility” but “banking as a function of enforceability”. In South Sudan, where inflation has surged [World Bank South Sudan Economic Monitor Issue 7, 2025], cash circulation remains large [IMF Country Report No. 24/327], formal account ownership is extremely low [UNDP Digital Mobile Wallet Usage South Sudan, 2025], and commercial banking economics skew towards foreign exchange intermediation [IMF Country Report No. 24/327], the limits are not conceptual. They are structural.
For advisors and banking practitioners working in frontier jurisdictions, this is not an abstract lesson. It is a design constraint. The bank strategy questions—how to build deposits, how to price risk, how to manage liquidity, how to maintain correspondent access, how to implement AML/KYC credibly—are inseparable from the governance question of whether authority can reach the transaction. That is the point at which “financial sector development” stops being an aspirational programme and becomes an operational discipline.
