Banking in Somalia

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Somalia’s financial sector is ready for a rumble, and the opportunities are endless, says investor
Banking in Somalia Somalia’s financial sector is ready for a rumble, and the opportunities are endless, says investor

August 21st 2013, Hassan Yusuf flew into Somalia from abroad after years of study and a successful career in the finance sector with some of the leading

I would advise any investor to consider health, real estate and agriculture as the sectors with untapped opportunitiesfinancial institutions in the world. Anyone watching him then would have thought he was just one of the many people returning to Somalia.Yes, he was one of the many, but more to the point, he had come to study the financial sector in Mogadishu, with the aim of setting up a bank. One year and two months later, on October 11th 2014 to be precise, International Bank of Somalia (IBS) opened its doors to the first customers in Mogadishu.

The PhD candidate in finance and former risk manager at Al-rayan Bank in Qatar offers not only an insightful review of banking in Somalia, but also peers into the future. His verdict: The Somalia financial sector is ready for a rumble and the opportunities are endless. The Somalia Investor spoke to him…
How is banking in Somalia currently? There are two aspects of banking in Somalia at the moment: Informal banking and formal banking.

Informal banking involves entities that operate using models that try to emulate banking systems, but which lack proper structures. Such entities have limited capacity to finance capital intensive projects. They do not have connections and dealings with other banking institutions around the world. Formal banks, on the other hand, have not been present in Somalia since the collapse of the government in 1991. In the past two years, however, banks have come up, including IBS, where I am the CEO.

“I would advise any investor to consider health, real estate and agriculture as the sectors with untapped opportunities “

As IBS, who do you bank for? Our target is everyone, though mainly categorised into three groups; the private clients, microfinance and SME’s.
There should be adequate competition from the other banking institutions in Mogadishu, right? About competition, what we aim to do is to offer new products; for instance, offer capital intensive financing, whose repayment period run over long durations. We are also looking at investing in infrastructure.
What has changed since 2013? Anyone who was in this city three years ago may probably not recognise Mogadishu when they see it today. The most easily recognisable change is the silence. Peace and security has improved a great deal. Most of this has been facilitated by the awareness level of the public towards matters of security.

The other openly visible change is on the economy. Look around Mogadishu: the roads, the shops,

the port activity, the real estate sector and how property developers are meeting the housing needs of the city through housing. The economy is expanding. People are coming back from abroad to be the head- starters. The flights are full nearly all year round. A curious fact about the movements is that the numbers of people who are coming in to stay for business or to settle in Somalia are actually higher than those who come in and then leave after a few days or weeks.

And who or what would you say is responsible for these changes?
In my view, the drive for change here comes from within. There is a resilient group here that withered the conflict. These people have become forward looking. The other aspect that drives this change is the mental change on the part of the international community, especially regarding their perceptions of Somalia and the business opportunities that lie here.

One of the challenges that the investors who venture into Somalia are confronted with is the inadequacies when it comes to infrastructure. Be it roads, electricity, water or sewerage services, the lack is yawning. Is there a possibility of infrastructural financing?
True. This is a huge and untapped area in Somalia. And of course financial industry leaders are aware that such an area, especially in a resurging business environment like this one, will need some financial banking from financial institutions. IBS deals with private companies and international organisations like IMF.

If an investor were to walk into your office today, of course with the knowledge of what sector they would want to invest in but still need your expert opinion, which three sectors would you advise them to have their eyes on? And why the three?
The first sector I would encourage any investor to have a keen look at is agricultural. The reason for this is pretty straightforward; Somalia has untapped land resources. And there is need for food, in and out of the country. Who said that Somalia can’t be one of the world’s food baskets?

The next would be the health sector. This is an already booming sector in this country. The facilities are few, yet the demand is high. There is medical tourism, involving the Hajj pilgrimage makers, who make the journey with the twin aims of prayer and seeking better health care facilities abroad. It is possible to offer medical services here that can be of similar standards abroad. And the third sector in my list would be real estate. There is demand and in Somalia, people have not adopted the apartment culture. They still want to have their own compounds.

We have not found any study on the ease of doing business in Somalia. In your capacity though, how can you rate the ease of doing business in this country?
Medium level. The market may be ready but there are some enabling factors that are not yet in favour of a complete take off: Infrastructure weaknesses and skills gap, for instance. Most of these limitations lead to a high cost of operation in Mogadishu.The cultural ties within the Somali communities is known the world over. How do you as a financier handle community financing?

In this environment, that is an inescapable fact. People here like to do business as a group; working together. In cases where they have decided to work on a major project like road construction or building a clinic, we do offer them financing. In fact, we take the leading role in financing.
In your view, where does the future lie for the financial institutions in Somalia? Growth. New products. New banks. A bankers association. Regulations and syndication financing. People are, and will continue turning to banks in Somalia.

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