Islamic Banking Can Sustain Somaliland’s Development



Recent Knowledge, Attitude & Practice (KAP) survey commissioned by UNICEF indicates Somalia is off-track in achieving Millennium Development Goals (MDGs) for Water, Hygiene and Sanitation (WASH), a challenge facing Somaliland as well.  Somaliland is seeking to meet and exceed the Sustainable Development Goals (SDGs) for its citizens particularly the vulnerable group like women and children.  According to the latest KAP survey, women and adolescence girls carry the burden of water fetching in Somaliland. They spend more than thirty minutes per trip in collecting water.

In that regard, Somaliland ought to implement sound financial systems, which can speed up the much anticipated & needed developmental projects. The country lacks financial regulatory and over sight, which is necessary for Sustainable Development projects. The Central Bank is very weak in terms of spearheading the fiscal and monetary policies. Case in point is the recent much debated inflation rates.

Unfortunately, due to the legal and sovereignty of the country, there are no conventional banks, but Dahabshil International Bank is at the forefront of introducing Islamic Banking and Finance. Salama Bank is another competitor in the financial sector currently operating in Somaliland. Both banks offer basic banking services, but are not aggressive enough to take the risk of financing mega projects for developmental purposes. Both banks are conservative in their lending schemes. There is no credit rating agencies for the consumers as well as the institutions. Islamic Banking can provide some of the financial & investment solutions and has been growing globally at a constant rate.  Islamic Banking has been growing at a rate of 10-12 per cent per year in the last decade.

Unlike the high interest rates of Structural Adjustment Programs (SAPs) of the 1980s, Islamic Banking can enhance the development dilemmas of the country. Islamic Banking prohibits interest and advocates for profit-and-loss sharing. Sharia compliant banking can link developments with real economy. For example, Dubai World Ports have signed an agreement in modernizing the port of Berbera. Such developmental projects would require sound financial systems. If Somaliland government were to opt Islamic Banking, then the government would need to adopt important and necessary financial reforms. To begin with, the country needs stronger legal institutions that protect property & intellectual rights.

International Development Agencies note that if the government of Somaliland is to have full confidence in Islamic Banking, then it needs to standardise and diversify the economy, which may attract more investment from multi-lateral agencies, such as the World Bank, Islamic Development Bank and the United Nations. For instance, World Bank is eager to assist fragile states and countries hit hard by instability with concessional financing. World Bank and its Multilateral Investment Guarantee Agency (MIGA), has injected $427 million Sharia compliant investment guarantee for an infrastructure project in neighbouring Djibouti.  New technologies, such as, mobile banking through ZAAD and E-Dahab can enhance the hard to reach areas and potential customers. Technology can play pivotal role in providing level playing field. Dahabshil & Salama both invest heavily on the latest technology for improving the economy.

Sustainable Development Goals (SDGs)

Islamic Banking can help the much needed Sustainable Development Goals of Somaliland and offset the developmental challenges the county is currently facing. Islamic Banking can scale up the developmental project that is much needed is Somaliland. The mega project that soon will be under way in the port of Berbera can trickle down and spark swift sustainable development.

Finally, Somaliland’s long term development plan 2030 vision of Somaliland should be aligned with the growing trend of Islamic Banking thus opening new employment opportunities for the youth and the recent graduates. Islamic Banking can facilitate and collect the payments of zakat to the needy, thus fulfilling the humanitarian aspect of Islamic Sharia. Most important of all, just like conventional banks, the Islamic Banking needs enabling environment to grow and prosper. Expectations are that utilizing Islamic Banking modalities will lead to win-win situation for the investors as well as the recipients.



Faisal Hashi

Consultant at Large

Hargeisa, Somaliland







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