Islamic or Conventional Banking Which Model is for Development?  




Recent Knowledge, Attitude & Practice (KAP) survey commissioned by UNICEF released on August 2015 indicates Somaliland is off-track in achieving Millennium Development Goals (MDGs) for Water, Hygiene and Sanitation (WASH), which is one of the indicators of development.   Somaliland is preparing 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.

Furthermore; recent research shows, the population of Somaliland is growing fast, where the youth is estimated to make up the fast growing segment of the general population. Estimates indicate 62% of the general population are below 29 years old, according to PES in 2013 survey. 66% of the population live below the poverty line, whereby urban dwellers make up 29% and 37% are rural residents. Nearly 28% of working age are fully employed, according to PES 2014. Sadly, the unemployment & under employment is very high among the youth population.

In that respect, Somaliland policy planners ought to implement sound financial systems, which can speed up the much anticipated & needed developmental projects. As of now, the country lacks financial regulatory and over sight, which is necessary for trickle down & sustainable development projects. The Central Bank of Somaliland is very weak in terms of spearheading the fiscal and monetary policies. Case in point is the recent much debated inflation rates. The President of Somaliland Honourable Mr. Siilaanyo has intervened the crisis of exchange rate. Thus, the exchange rate is unstable and fluctuating. The Somaliland Parliament is currently debating which modality to adopt in terms of the financial sector. The obvious answer is the Islamic financing model is gaining ground globally.

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. Dara Salaam Bank is another competitor in the financial sector currently operating in Somaliland. Premium Bank, which is head quartered in Mogadishu has just opened retail branches in Somaliland. These banks offer just basic banking services, such as, current accounts, currency exchange, money transfer and they issue Visa, MasterCard and Debit cards. However, they do not offer any type of insurance, safety deposit box or collateral. There is no credit rating agencies for the consumers as well as the institutions.


The above mentioned banks, are not aggressive enough to take the risk of financing mega projects for developmental purposes. These banks are conservative in their lending schemes. 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 fragile 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 (DP World) have signed an agreement in modernizing the port of Berbera, which is very strategic move. 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 can 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 & African Development Banks and the United Nations. For instance, World Bank is eager to assist and jump start 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.  Equally, DP World is expected to invest over $440 million in the next few years in modernizing Berbera corridor. Berbera port will serve the land locked countries in the region, such as, Ethiopia and South Sudan.


Recently, African Development Bank (AfDB) has invested in Somaliland over $25 million in support of the water development sector. This is the first time AfDB has identified investment priorities & opportunities in Somaliland due to its stability and economic growth.  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 & Dara Salaam both invest heavily on the latest technology for improving the economy.

Sustainable Development Goals (SDGs) and Somaliland Vision 2030

Islamic Banking can spearhead 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 is under way at the port of Berbera can trickle down and spark swift sustainable development.

Finally, Somaliland’s long term development plan vision 2030 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.


This piece has been presented on recent held Islamic Finance Conference at Hilton Hotel in Dubai, UAE on October 10th, 2016 where the writer has been invited to present the article. You may view full citation on


Faisal Hashi, MBA, is an independent consultant who writes on issues around development, Water, Hygiene & Sanitation (WASH) and is the founder and managing director of Adam Financial Consulting Services and is currently based in Hargeisa, Somaliland. He has worked for National City Bank, Bank One, J.P, Morgan Chase & City of Toronto as financial analyst in the US & Canada.

Hargeisa, Somaliland

He can be reached at:










Please enter your comment!
Please enter your name here