By Abdulkadir Hussein
Although the banks in the country are limited to serving domestic banking, in the last decade, local banks were continuing to burgeon operationally. A handful of Somali-owned commercial banks prevail in the country today, which all of them are home grown and obtain operating license from the federal authority to render banking service to the people and businesses bustling in the urban cities of the country. The increase in number is driven by multiple conditions, among them the biggest is the sustained inflow of fiscal asset through the windows of aid, bilateral support, remittance, and the growing trade volume in the country.
Basically, the outreach of their service presence in the country is within the confines of major cities of Somalia, this is due to the size of the target customers available in the cities and risk prevention factors sparking from the security situation in the country. Even though through extraordinary efforts undertaken, a very few of these local banks weathered to reach a so-called essential banking service in the capitals of specific countries where Somalia population residential and trade presence enlarged visibly, such as Kenya, Turkey, UAE and Uganda. With options limited to withdrawing and depositing ability in capped amounts of cash, transactions at the branches in the foreign capitals happen under the watchful and stark monitoring arrangement from the host country to ensure compliance.
Culminating from the state collapse in 1991 and ensued United Nations Security Council embargo on Somali which is in effect even today, the local banks in the country have no financial liaison with international banks outside of Somalia. This, with a cost, held Somalis deprived of connecting to the world financially. According to the study- Mobile money transactions, mobile money services alone, which are interlinked to the bank accounts and allow the user to withdraw and deposit digitally, perform 155 million transactions monthly in Somalia. It heralds promisingly the expanding market of the financial sector in the country, albeit in the face of an expanding economic inequality too. The expansion in capital deposits and advanced technological strength of their systems captivated the banks to upgrade into financing and giving away loans to the locals.
The local banks, they are the only commercial source of financing and credit facilities in the country currently, but with exploitative conditions. Somalia is among the countries with the highest lending rates. Most of the borrowing charges, applied over the loans taken in the local banks, are two-digit figure rates. Provided that there are a host of other barriers excluding many people from accessing credit service at the banks, the lending rate is a major expeller which also disenchants many to dare to cut deals of borrowing with these lending institutions. Nevertheless, for the little sections of the society and the entrepreneurial activities whom their income prediction informs they are capable of borrowing, deficiency of kinship relations to guarantee their credibility to meet the terms borrowing is the most excluding factor.
Kinship relations is referred in this context as relating to trustworthy and identifiable people who are known in the circles of the banks’ management. Likewise, trusted persons involved financially in other meaningful life, and who are linked to traceable recoveries as collateral still qualify for guarantor requirement. However, increasingly stretching social inequality in the country to opportunities makes for many hardly unlikely to identify someone to guarantee in borrowing as they cannot afford collateral, despite forging ideas that would help them transform financially if it is financed. On the contrary, others who might have just joined the hustling life find themselves more accessible to grasp financing opportunity for their ideas, owing to their privilege to quickly link to kinship relations favorable at the banks.
The majority of the well performing private sector, and vibrant business entities robustly bustling in Mogadishu are owned by a business class elite. Employees’ composition in these businesses, particularly the decent positions, are disproportionately resourced through blood affiliate consideration as opposed to diversity consideration. It is relatively this predominately populated private sector opportunities in Mogadishu which makes for many to find kinship lines easily, who are known at bigger businesses, and who can be available to become guarantor of their blood affiliates at the banks when taking loan.
As the capital city of the country, Mogadishu is growing into the rank of metropolitan city. It is part of the rapidly spreading urbanization in many places of the country which is driven by the impact of the climate change and the prolonged reality of hybrid authorities controlling the country. Beneficiaries of the banks in Mogadishu are therefore the residents of the city and many other visitors of business or private missions from the regions of the country who use the banking services. Potential bright minded innovators as well as users of the banks in the city, but on marginal earnings which cannot enable them to qualify for accessing loans, find it impossible to secure guarantor. The two important conditions attached to the bank financing are proof of good earning and guarantor in the form of asset, collateral, or reliable person selective to the bank. If your income size is not predictable to sustain in the period of the loan, either ownership of property equivalent to the loan value or presentation of a strong guarantor is the only option that can meet you to the loan eligibility. The latter is the frequently preferred option making kinships to matter more than the other options.
According to estimates by the World Bank, 76% of the local job opportunities are generated by entrepreneurial functions developed by the people. Financing and mesmerizing investment consideration for your entrepreneurial intellectual property is as important as lifesaving opportunity in today’s Somalia socio-economic situation where unemployment is high. The economic opportunities existing in the country are too disproportionate against the largely growing population at working age. Entrenched conflict and fragility aggravated by corruption and poor governance system in the country stretches further the social inequality gap between the population.
There are indigenous groups of the society in Mogadishu who are referred to as urban poor. Owning housing property and land ownership in general is woefully challenging in the township settings of the country. Believing that opportunity moves in the urban settings, demographic shift into cities is high in Somalia, and as consequence, renting cost rises without decline, and to buy a property is extremely expensive. This is holding the urban poor to remain poor over generations in Mogadishu with less likelihood to change in the short term predictable. As the condition dictates, these urban poor families, who are also generations age Mogadishu residents, sell the properties they inherited from their ancestors. Their inability to access loans to invest in developing inherited property is one of the factors keeping them being urban poor condition, eventually they are pushed out of the city to farther outskirts after they are left without other options but to sell their properties.
In this context, we can relate these unequitable chances of financing opportunity with the local banks is unknowingly helping to expand the social inequality gap within the community. Somalia is a nascent state now heavily overwhelmed in rebuilding its people economically and structurally, this matter is a crucial area of social change relevance which must have better policy consideration when national institutions are designing social policies. A nation can transform stably when a remarkable percentage of its people have better earnings. And such can be attained through equal ground for all.
Experiences of other nations in the world as to what drove them into reviewing their model of governance is because they realized decimating weaknesses in their systems as well as the social contract between them. Kenya’s recent past of adopting devolution of power model in the country in order service delivery to reach bottom parts of the society was mainly encouraged by greater levels social inequality – even though a condition still prevalent and often deliberated at local mainstream platforms of that country to find a way out of it.
As evidenced in China, nations can transform at a significant extent in a period of a generation should the barriers standing in the way for innovation and mechanization are seriously addressed by competent public authority. Equitable process of securing financing is one of the primary conditions necessary to be ensured for the people. Abysmally, long time process of state building, Somalia did not yet succeed to revive the role of its central bank fully, nor did it ever restore its foreign investment relations since statehood loss. The crowded financing facility in reach now is the local commercial banks.
There is a great work and growth that must take place in the financial sector of Somalia, to be able to support domestic transformation. Central Bank has got great deal of work to build important regulations for the sector’s growth. Effective central Bank intervention to regulate and outline equitably fairer procedure in the financing facilities of the country would reduce the gap of the unequal access to bank financing. The period of time Somalia is taking to restructure back is proving too lengthy. Several successive administrations, each utilizing four years term without getting the country’s constitution approved in referendum and in place, this is not boding well and puts the hope of the people further murkier.
Abdulkadir Hussein
Email: [email protected]
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