About a year ago, Muqtar Ali's brother was shot dead by gunmen in the busy Bakara market of Somalia's capital Mogadishu, and his $200 in cash was stolen.

Ali says that if a new mobile money transfer service unveiled by Somalia's biggest mobile telecoms firm last month had been in place then, his brother would still be alive.

Telecoms firm Safaricom pioneered mobile money transfers in neighboring Kenya and now has 8 million users. Besides transferring cash to friends and relatives, people pay power bills and even receive dividends from some companies.

Hormuud Telecom, the biggest network in Somalia with more than a million subscribers, says it designed the software for its SAAD money transfer service, but was helped by Safaricom workshops and consultants.

The new service is expected to cut security risks posed by carrying huge wads of the Somali currency around various open markets in the battle-scarred south and central regions of the country.

Once clients have registered for the service, they can deposit cash with the mobile phone company and credits are loaded onto their phone. They can then send to other people signed up for the service at the press of a button.

I was very sad when I heard my worst news, that of the death of my brother. He was transferring some cash to my shop when the robbers shot him, Ali said.

I believe the life of my brother would have been saved if this service existed then.

LIFELINE

Despite 19 years of anarchy in the Horn of Africa nation, some businesses have thrived and the country's mobile phone firms provide a crucial, cheap lifeline for Somalis to stay in touch during the frequent bouts of heavy fighting.

Money transfer firms are another backbone of the economy as remittances from the large Somali diaspora, estimated at around $1 billion a year, keep many Somali families alive.

This is the lifeline of the whole economy ... and they are the future banks of Somalia, Central Bank Governor Bashir Issa Ali told Reuters.

Ali said the introduction of Hormuud's mobile money transfer services alongside the remittance companies would only improve cash distribution throughout the country, where 1.5 million people rely on food aid to survive.

Somalia has been saved by the money transfer companies and the telephone companies, he said. This is a great thing for the payments system.

Hormuud's money transfer system works with U.S. dollars, rather than the Somali shilling, and users can transfer up to $3,000 a day throughout southern and central Somalia.

Businesses prefer transactions based on the dollar and other regional currencies such as the Kenyan shilling, UAE dirham and the Saudi riyal, to avoid the problems associated with an extremely weak Somali shilling.

They can send and receive cash through this system locally, Hormuud's spokesman Abdirashid Ali Aynaanshe told Reuters by phone from Mogadishu.

The system is safe, and the probability this cash can be in danger is less than carrying cash or checks in the pockets or bags while traveling in the country, he said.

Halima Mohamed, based in the southern port of Kismayu which is held by al Qaeda-linked rebels, says she now uses her phone as a bank account and sends money to business associates as far as Baidoa in central Somalia.

Nowadays, I am able to send up to $3,000 from my phone to people in other regions without the person next to me knowing, the store owner said. It is good for our safety since we live in very violent times and can lose all our money to militias.

(Additional reporting by Abdiaziz Hassan and David Clarke in Nairobi; Editing by Giles Elgood)

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