New law opens door to formal banking in Somaliland

By Barkhad Dahir in Hargeisa

October 22, 2012

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No financial institution has operated regularly in Somalia since the collapse of the central government in 1991, but a new law passed in Somaliland earlier this month established the framework from which privately owned institutions can open and operate banks in the region.

  • A money-changer talks on phone on next to piles of banknotes in Hargeisa. New banking rules allow citizens to hold their money in personal accounts, rather than at home or in other insecure places. [Simon Maina/AFP]

    A money-changer talks on phone on next to piles of banknotes in Hargeisa. New banking rules allow citizens to hold their money in personal accounts, rather than at home or in other insecure places. [Simon Maina/AFP]

Somaliland President Ahmed Mohamed Silanyo signed the Islamic Banking Bill on October 4th after it was approved by regional parliament in September. The law had been in the works since 2007.

Three privately owned banks have been operating on a limited basis within Somaliland in the past few years, including Djibouti-based Salaam African Bank, Dahabshil Bank and Yemen-based Co-operative and Agriculture Credit Bank.

Abdiqani Harir, deputy operations manager of Salaam African Bank's Hargeisa branch, said the new law would facilitate the opening of commercial banks that operate under Islamic principles and are licensed by the Bank of Somaliland, the regional administration's central bank.

Since 2010, Salaam African Bank has had branches in several Somali cities but all financial transactions were processed through Djibouti, Harir told Sabahi.

"We have been delayed by the passing of this law and we welcome its implementation," he said.

Easing financial operations

Since the passage of the new law, Harir said his bank is working on opening deposit accounts and money transfer services using Telex Transfers.

The bank has working relationships with a number of international banks such as Commerzbank of Germany, Barclays of London, Bank Asya of Turkey and Noor Islamic Bank based in Dubai, Harir said.

Customers who wire money through the bank will be able to easily access their funds by mobile phone using Telesom's Zaad service, he said. "In addition, every customer can view account transactions over the internet while at home, work or the office."

The bank also recently introduced a debit card that allows customers to purchase goods over the internet, he said.

Harir said most citizens keep their money in their houses and other insecure or unsuitable places, but banks will educate people on safer money management.

Opening privately owned commercial banks will also allow entrepreneurs to easily purchase goods from abroad.

"Before, I was forced to physically carry my money and send it [to vendors from banks] in Djibouti or Dubai, which was not safe," Faisal Ismail, a clothing importer in Hargeisa, told Sabahi.

Attracting foreign investors and growing the economy

Opening banks that operate on Islamic principles will help the region's economy grow and achieve stability while prohibiting usury and anything religiously unlawful, said Abdirahman Osman Aden of the Hargeisa-based Beder Centre for Future Studies and Consultancy.

Now that the law has been established, Aden said his centre is preparing banking guidelines rooted in Islamic principles.

"We also want to educate youth on Islamic banks so they can find employment in them," he told Sabahi, adding that the centre has graduated 250 students in the past two years who studied business practices based on Islamic finance.

Since the Somaliland shilling is not a recognised currency on the international market, banks must use established international currencies, Aden said. "Even the Somali shilling, which is sometimes illegally printed, is not recognised, so banks have to base their transactions on US dollars," he said.

The law will encourage international investment companies to venture into Somaliland, Aden said, and allow citizens to borrow sharia-compliant money for investment. "That will result in improving the economic status of the Somali public," he said.

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Reader's Comments

  • Patitou
    August 26, 2013 @ 09:48:59PM

    Back to prehistoric times, since you are not living in 1472 yet, when the first bank was founded. Chaos is the fruit of war. Next time preach dialogue not war.

  • Yasin
    October 25, 2012 @ 03:30:44AM

    Since the new law to ease economic activities was enacted, Harir said that his bank has embarked on opening saving accounts and provision of remittance services using telex transfers.

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