Somalia is one of the very few countries in the world whose entries  in the World Bank and International Monetary Fund economic indicators datasets are blank. They have remained blank for the past two decades, after the outbreak of a civil war led to the  collapse of the country’s entire political and financial infrastructure in 1991. But recently, a new commercial bank has  opened in the Somali capital Mogadishu.

Three months after its inauguration in May 2012, First Somali Bank (FSB) had opened more than 200 accounts to individuals, small businesses and NGOs, as well as starting  managing the payroll of  two administrative companies working across Kenya and Somalia, said FSB’s founder and  chairman Liban Egal.

FSB  has a branchless structure, following the example set in 2010 by  Equity Bank, the largest bank by customers in the neighbouring Kenya, whose pretax profits  rose by 42% year-on-year in 2011. FSB’s agents carry biometric POS able to verify the identity of FBS “CAMELCASH” debit or prepaid cardholders by scanning their fingerprints.

The bank offers personal and commercial banking services, including investments and consumer loans, as well as mobile and internet banking, and operates according to Islamic banking rules.

“Initially I wanted to open a fully commercial bank. But  the feasibility study we did beforehand showed  that 60% of the interviewees would prefer Islamic banking,” says Egal. 

He adds that rather than discouraging potential foreign customers or investors, this could be an advantage  for the bank.  “In Islamic banking  immoral activities are forbidden, so we can  question people on where their money is coming from. If we were a conventional bank, customers would get offended with such a request.

“Everyone believes that in Somalia money comes either from piracy or from al-Quaeda. Islamic banking will help in improving  transparency,” he adds.


Banking  seeds in the north

FSB  claims to be the first fully functioning bank in Somalia. A few neighbouring countries’ banks have also set up units in the country, such as Salaam Somali Bank, part of the Djiboutian Salaam African Bank, but their services are limited to current and savings accounts and some microfinance projects.

On a more widespread scale, some basic banking services are also offered by the Somali traditional remittances companies hawalas. With a strong international and local presence, both in urban and the rural areas, the hawalas enable money transfers from, to and within the country. 

Recently an increasing number of hawalas has started offering services beyond remittances, such as deposit, lending, and mobile banking, especially in the northern self-declared independent region Somaliland.

With operations  in 144 countries, 24,000 outlets in the world, and 130 in Somalia, Dahabshiil is the largest  hawala network in the country, and it is leading the way in the transition from remittances to banking services. 

In 2009, Dahabshiil partnered  with  some Somali retail outlets, hotels, restaurants, and petrol stations to launch ‘Dahabshiil eCash’, Somalia’s first debit card service.  In the same year Dahabshiil also debuted as a formal banking institution after successfully applied for a banking licence in the the neighbouring Djibouti.

Mobile money has also contributed to supply to the absence of a formal banking system. Zaad, the service launched in 2009 by Telesom, Somaliland’s largest mobile operator, in partnership with  Salaam Somali Bank,  has over 300 thousand users, almost one tenth of the entire Somaliland population.

Despite not having a formal banking system, the existence of these services makes Somalia’s rate of banked individuals be higher than the sub-Saharan Africa average in the recently released World Bank Global Financial Inclusion Index. The report is based on surveys conducted in Somaliland. It highlights how 31% of adults have an account opened at a financial institution, and 34% used mobile money in 2011, compared with average rates of 24% and 16% respectively in sub-Saharan Africa.

Says Daahir, the Word Bank head of the survey team in Somaliland: “Dahabshiil, other remittance businesses and Telesom have revolutionised the banking system. Many people have in their pockets dahabshiil e-card,  passbook or check book. This is becoming common among the  working population in urban areas. The trend is fast and very huge in all the major cities.”


The beginning of a change

Technologies like mobile or branchless banking can promote  the reconstruction of a more formal banking system, according to Stefan Nalletamby, partnership coordinator of the African Development Bank project Making Finance Work for Africa.

Nalletamby describes what is happening in Somalia as the “beginning of a change”.  “Some [hawalas] may just remain  transfer agents, other will transform into local banks. They have the clients and their savings. There is  already a very good base, now they just need the structure to be put there for it to take off,” he says.

Nalletamby  also says that others may follow FSB.  “The opening of a commercial bank in southern Somalia is very encouraging. Other banks from Kenya and Ethiopia are also planning to set up operations in the country.”

However, the stabilisation of Somalia’s government and the resuming of a fully functioning central bank are essential for a new banking industry to take off. Some moves in this direction have already been taken, as the first elections in more than 40 years took place in September 2012.

The Central Bank of Somalia, reopened in 2006, has also recently entered into  SWIFT, according to Nalletamby. But these are only early steps.

Although  there may be a long way head, Nalletamby says what is happening in Somalia’s  banking landscape is worth of attention : “[Somalis]  are restarting a banking industry in a logically changed world. They will have banking practices adapted to a technology that others didn’t have. It would be interesting to see how the central bank leverage on this technology,” he says.

Egal has no doubt about Somalia’s potential: “In the long run, a lot of banks will be interested in Somalia. Rebuilding a country from ground up is always an opportunity. Once there is stability and a functioning government, there is a lot of business that can be made in Somalia.”