Somalia's new bank seeks to spur economic growth - Sabahionline.com

Somalia's new bank seeks to spur economic growth - Sabahionline.com

Since the first branch of the International Bank of Somalia (IBS) opened in Mogadishu in October, hundreds of Somalis have stopped in to open personal and business accounts, apply for loans, and transfer funds abroad, according to IBS chief executive officer Hassan Yusuf.

An employee of the International Bank of Somalia helps a new customer set up a bank account at their central headquarters in Mogadishu on November 16, 2014. [AMISOM Photo]



Opening the bank is a huge step forward for Somalia as it is beginning to bring the country's banking system in line with the international banking system and global transfer standards, he said.
Traditional banking collapsed in Somalia with the outbreak of civil war in 1991, leaving room for non-regulated money transfer companies, known as hawalas, to emerge and fill the void.
"The need that exists in the country encouraged us to open this bank," Yusuf told Sabahi. "During the last 23 years of war, Somalia has operated under its own [financial] system, while around the world there was an international standard of operation. Therefore, we must now abandon the previous system and comply with global standards."
To that endeavour, he said, the new bank applied for and was issued a SWIFT (Society for Worldwide Interbank Financial Telecommunication) code, a unique identifier used to transmit messages and money transfers between financial institutions.
"We also have to change how the world perceives Somalia by making tangible progress, for example, by streamlining the financial sector and enabling the bank to directly deal with other global banks," Yusuf said.
To make it easier for IBS to transact with international banking institutions, the bank is strictly enforcing international recordkeeping regulations, he said.
"For example, anyone who is opening an account has to have an identification card and an address. An account will not be opened for an unknown person who does not meet those conditions."
Bank customers also will be able to apply for various loans to start businesses, he said. "A person who seeks financing can repay the money in a year, two years, ten years or however long he wants as we do not impose a time restriction," Yusuf added.

A boost to Somalia's economy

The bank is expected to make a big difference to the Somali economy, said Mohamed Abukar Abdirahman, a retired economist who used to teach at the Somali National University.
"If this bank works properly using the standards used by international banks, it can bring about economic changes that greatly benefit the country," Abdirahman told Sabahi.
The Somali currency is stagnant at the moment, as money is not in circulation and credit is difficult to obtain, he said.
"[IBS] can make the money work, resulting in credit circulation, and that circulation can make changes in the economy," he said, adding that facilitating business activity and monetary transactions would spur the creation of hundreds of jobs. "This will also prompt other business people to follow suit and open similar banks."
"The remittance system that Somalia used for a long time was dangerous because it was always stopped and was suspected of [supporting] terrorism," he said. "[Now] all of that will be history."
But Badri Ahmed Arab, who owns a pharmaceuticals import business in Mogadishu, said hawala providers offer fast money transfer services that cannot be matched by traditional banks.
"When you send money using a hawala service, the person you send it to can pick it within a minute, whereas when you send it using a bank it could take at least two or three days, and sometimes up to ten days," he told Sabahi, adding that the removal of hawala providers from the marketplace could slow down business operations for many Somalis and stifle the economy.
The two systems are also vastly different when it comes to the fees that are charged to customers for money transfers, he said.
"A hawala provider will charge $0.50 to $1 for every $100 sent, and when we send a lot of money we receive a discount on that rate. A bank on the other hand will take $20 to $60 even if you send $100," he said, noting the higher rates are not affordable to some customers.
On the other hand, Ali Sharif Mohamud, who trades in retail goods he imports from the United Arab Emirates, said he welcomes the new bank and has started to use it to transfer his money.
"The companies [we] deal with always used to ask us if we could send them the money or if they could send it to us using the SWIFT code, but unfortunately our country did not have such a bank," he told Sabahi. "Therefore, it was difficult for us to form business relationships with some companies."
"However, we now want to start using this new system so that it will be easy for us to transfer our money," he said.
Mohamud also welcomed the bank's loan offerings, saying they will provide opportunities to grow his business.

More accessible financing

IBS customers can establish deposit accounts in Somali shillings or US dollars, as well as apply for various types of loans including financing for cars, houses, farms and all kinds of businesses, said Yusuf, the bank executive.
In addition, he said, the bank is in compliance with Islamic financing regulations.
To qualify for a loan, customers must pass international criminal background checks and verify that they have collateral assets or a guarantor to repay the loans.
"Also, the person who wants funding for a business has to come up with a viable idea," he said. "For example, if he wants to build a hotel and there are 100 hotels in the city, we cannot accept that proposal."
The bank employs more than 50 people at the main branch operating in Mogadishu and there are plans to open five other branches in the city by March 2015, Yusuf said. Later in the new year, he said, the bank plans to expand to other parts of the country.