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Published On: Mon, Oct 10th, 2016

Islamic Banking Can Sustain Somaliland’s Development

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Recent Knowledge, Attitude & Practice (KAP) survey commissioned by UNICEF released on August 2015 indicates that Somalia is off-track in achieving Millennium Development Goals (MDGs) for Water, Hygiene and Sanitation (WASH), a challenge facing Somaliland as well.  Somaliland is in the process of scaling up the Sustainable Development Goals (SDGs) for its citizens particularly the vulnerable groups, such as, the poor, women and children.  According to the latest KAP survey, women and adolescence girls carry the burden of water fetching in Somaliland.  Women spend more than thirty minutes per trip in collecting water for their households.

To off-set the developmental challenges, Somaliland ought to implement sound financial systems, which can speed up the anticipated & much needed developmental projects. For one, the country lacks financial regulatory framework and oversight, 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  Bank International (DBI)  is at the forefront of introducing Islamic Banking and Finance services. Dara Salaam 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 are 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.  Statistically speaking, 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, Dahabshil Bank International 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 instance, Dubai World Ports recently signed an agreement with the Government of Somaliland (GoSL) in modernizing the port of Berbera, which is strategically very important for the Greater Horn of Africa, in particular the land locked countries. Such developmental projects would require sound financial systems. If Somaliland government is to opt out of 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, deregulate and diversify the economy, which may attract more investment from multi-lateral agencies, such as the World Bank, Islamic & African Development Banks (AfDB) and the United Nations. For example, the World Bank is eager to assist fragile states and countries hit hard by instability with concessional financing. The World Bank and its Multilateral Investment Guarantee Agency (MIGA), has injected $427 million Sharia compliant investment guarantee for an infrastructure project in neighbouring Djibouti. DP World has signed bilateral agreement with the GoSL to invest $440 million in the next few years in modernizing Berbera corridor.  Recently, AfDB has invested over $10 million in Somaliland in support of the water development sector. This is the first time AfDB has identified investment priorities & opportunities in Somaliland due to its stability, potentiality and economic growth.  Technology can play a pivotal role in providing a level playing field for development.

New technologies, such as, mobile banking through ZAAD and E-Dahab can enhance the hard to reach areas and further attract potential customers. Somtel, which is a subsidiary of Dahabshil Group, is at the forefront in developing & researching new tech tools in facilitating online and mobile banking technologies for development purposes. Somtel is connecting the fragile breakaway republic to the global community in the telecommunication sector by providing affordable and fast Internet Service Provider (ISP).  DBI & Dara Salaam banks both invest heavily on the latest technology for improving the economy.




Sustainable Development Goals (SDGs)

Dahabshil Bank International can help boost the much needed SDGs of Somaliland and offset the developmental challenges the county is currently facing while DBI Islamic Banking services can scale up the developmental projects that are in the pipeline.  On the other hand, DP World’s mega project that will soon be under way in the port of Berbera will trickle down and spark swift sustainable development.

Finally, Somaliland’s long term development plan, Vision 2030, which coincides with the end of

SDGs 2030, should be aligned with the growing trend of Islamic Banking thus opening new employment opportunities for the youth and 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, Islamic Banking needs enabling environment to grow and prosper. Expectations are that utilization of Islamic Banking modalities will lead to a win-win situation for the investors as well as the recipients.


This piece has been published 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 Islamica500.com


Summary version of this article has been previously published on Somalilandpress.com on June 18th, 2016.


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: Hashi44@hotmail.com

Adam Financial Consulting Services







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