Can Islamic Banks Flourish in Somalia after 25 Years of the Collapse of the Country’s Entire Financial System?

Abstract

The purpose of this study was to establish if Islamic banking can flourish in Somalia and role it can play to tackle financial exclusion in the country. Similarly, determining the best way of enhancing the chances of Islamic banks succeeding in Somalia and identifying the most suitable marketing tools for achieving these objectives were investigated. Our findings reveal that the introduction of Islamic banking is long overdue in Somalia given the country’s strong Islamic identity and the fact the only functioning institutions currently operating in the country are Hawala companies which only provide money remittance services. The results also reveal that the business community is in dire need for a well-functioning banking sector. However, majority of respondents were of the view there are severe institutional shortcomings including the absence of the rule of law that could severely impede the process unless properly addressed. Furthermore, results showed that Joint venture with International banks is the best banking model in this country due to lack of local expertise .Finally, the results revealed that online marketing tools and mobile systems can play a greater role in marketing Islamic banking products and services in Somalia.

Keywords: Central Bank of Somalia, Hawala, Islamic banks in Somalia, Sharia compliant finance