Inside Somalia's financial services sector

Somalia's financial services sector is experiencing significant growth and development despite facing numerous challenges. The CEO of IBS Bank Somalia, Mahat Mohamed Ahmed, recently spoke with CNBC Africa about the progress within the country's economy. With peace building efforts beginning to show results in the Horn of Africa, Somalia is emerging as a key financial hub after years of conflict. Ahmed highlighted the resilience of Somalia's business community, emphasizing the role of the private sector in driving economic growth. Over the past eight years, significant growth and restructuring have been witnessed in the financial sector, with 13 commercial banks currently operating in the market. Notably, two foreign banks, including the largest banks in Turkey and Egypt, have recently established operations in Somalia, underscoring the growing opportunities in the sector. The regulatory environment in Somalia is also improving, with input and capacity building from international partners such as the World Bank and the IMF. Efforts are underway to enhance financial literacy and inclusion, with the goal of expanding access to banking services across the population. Despite ongoing challenges related to security and recent droughts, the overall economic indicators for Somalia are positive, signaling a promising path forward. One of the key opportunities in the banking sector lies in increasing financial penetration in a largely unbanked population. Only about 15% of the Somali population currently uses banking services, excluding remittances, which are significant due to the country's large diaspora. The entry of new players, especially foreign banks, indicates the untapped potential in the market. Beyond banking, sectors such as fisheries, fresh produce, energy, aviation, livestock, insurance, and marine industries are also showing promise in Somalia. With one of the longest coastlines in Africa, Somalia's fisheries sector remains underdeveloped but holds immense potential. Efforts are being made to address challenges such as high energy costs to facilitate the growth of various sectors. While the capital markets in Somalia have been relatively quiet, steps are being taken to stimulate activity and attract new investors. Policy development and collaboration with international partners are crucial in setting the stage for a thriving capital market that can support infrastructure projects and government initiatives. Addressing concerns around political instability, Ahmed emphasized the commitment of the new government to ensure a stable and conducive environment for investments. With recent peaceful elections and a focus on strengthening economic policies, Somalia aims to build investor confidence and drive sustainable growth in the coming years. In combating illicit trade, the government is taking a proactive approach by implementing stringent laws and measures to minimize illegal activities. Initiatives to curb illicit trade, such as the crackdown on illegal charcoal trafficking, demonstrate Somalia's resolve to tackle illicit practices and promote a transparent and law-abiding business environment. Overall, Somalia's economic journey is marked by resilience, growth, and a vision for sustainable development. Despite the challenges that lie ahead, the country is making significant strides towards becoming a competitive player in the regional and global financial landscape.