Mogadishu (PP Business Desk) — Nearly two years ago, the Federal Government of Somalia granted banking licenses to Banque Misr and Ziraat Katilim, yet neither bank has begun retail banking operations in Somalia. Advocates for opening the banking sector to foreign banks argued that local banks would be compelled to enhance their standards to compete locally. “The pro-competition camp proposed the introduction of savings guarantees, suggesting that if a foreign bank were to implement such guarantees, other Somali banks would follow suit” said an official at the Central Bank of Somalia.
Achieving this pro-consumer goal faces numerous hurdles, particularly in the absence of property and consumer rights. The Somali Central Bank received praise for refraining from attempting to rein in the lightly regulated market in Somalia, where the dollar is the most trusted legal tender compared to the Somali shilling.
In addition to institutional risks, savers in Somalia also contend with technological glitches that occasionally leave them unable to withdraw substantial amounts of dollars in cash. Some banks attempt to persuade savers to transfer their funds to another current account rather than providing hard currency in cash. “Somali banks worry about bank runs occurring when there are technological issues or when customers withdraw their savings.,” remarked a banking consultant in Mogadishu.
Burgeoning regulations about money laundering and illicit financial transfers to or from proscribed organisations affect how banks provide services. Banks in Somalia have diversified their business models, previously reliant on remittances, leading to intense competition for a limited pool of savers.
The reasons for the prolonged delay in the opening of branches by foreign banks in Somalia remain unclear. Lobbying efforts by local banks to postpone the entry of the Somali banking sector may have influenced decisions by the Central Bank of Somalia, which lacks adequate data on the retail banking sector. The Somali Central Bank’s inability to print money restricts its policy-making capacity. Ironically, the recent investment conference held in Mogadishu paid little attention to the risks that savers in Somalia face when banking with local banks.
© Puntland Post, 2024
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