Somali Banking Goes International

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• published: 11 Dec 2014
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For residents of Mogadishu, Somalia’s seaside capital, it must feel like a new building has been added to their cityscape every time they turn their heads. But this one is special. It’s the spanking new premises of the International Bank of Somalia (IBS), the first financial institution of its kind here, in over two decades. Just like most other institutions in Somalia, the financial sector collapsed when the government imploded in 1991. A plethora of money transfer companies - known as hawalas - sprang up to cater to the millions of Diaspora who had fled the country, but needed to regularly send funds back to the friends and families they had left behind. While they facilitated the transfer of over 1 billion US dollars annually, the hawalas were confined solely to incoming transactions after receiving the remittance deposits, due to the absence of a central governing body and fiscal legislation. Somali’s security forces assisted by African Union peacekeepers have driven off extremist group Al-Shabaab from most urban centres in the country, thereby creating an enabling environment for Somalia’s government to focus on the country’s political, social and economic revival. The central bank was reopened in 2009 and quickly set about putting in place the policies that allowed Sharia-compliant IBS to open its doors in October this year. “In IBS we are using international standards. We have risk management, compliance, we have anti-money laundering system, we have name screening, we have internal audit and external audit. We have all sorts of safeguards that make us connect to the rest of the world, that’s the reason IBS has connections (and) correspondence around the world, which makes money transfer through the banking system easier, something which was not available in the country,” said IBS CEO, Ahmed Hassan Yusuf. Ahmed Hassan is first to admit that there are considerable challenges, such as the entrenched use of US dollars over the local Somali shilling, the high cost of power and bandwidth and the scarcity of qualified local labor. “The operating costs in Somalia are very high, you have to do everything yourself and that’s a challenge. The other challenge is you need to educate people on how the banking sector really works (and) who benefits from the banking sector, because people have their own mentality of how banks work, so some of the products you're going to introduce, if you are not able to adapt to the local customs, there will be a challenge,” he continued. “Most Somali people are used to the hawala money transfer system, there was no recognised banking system. If I’m not wrong, this is the first bank that not only offers money transfer services, but international banking services as well,” added Abdi Nasir Sheik Ahmed, one of IBS’s first customers. Analysts regularly point to Somalia’s economic potential. The resource-rich Horn of Africa nation lies in a region that the World Bank says experienced 4.7 percent growth last year. Livestock, remittances and telecommunications form the backbone of a healthy informal sector. The unprecedented return of diaspora Somalis looking to invest and the bustling sea and air ports are also encouraging signs in the absence of substantive economic statistics. The recent and highly-publicised installation of the country’s first ATM at the popular Jazeera Hotel, is another symbolic - and tangible - indicator that Somalia is now open for business. “Somalia’s banking sector is going to grow. More banks are coming, there will be more regulations and actors coming into the scene. There will be good news coming, for example the stock market, an association of banks will also be in play,” said Ahmed Hassan. Somalia’s financial players like Ahmed Hassan have big plans for their country, but the true measure of their success will be how profoundly and quickly the benefits of their initiatives will be felt in the businesses and lives of their nation’s ordinary citizens.