Islamic Microfinance In Somalia: Challenges, Opportunities,  And Practices

Abdirahman Abdillahi Farah Adam; Abdulmajid Obaid Hasan Saleh; Ashurov  Sharofiddin

Authors

Abdirahman Abdillahi Farah Adam PhD Candidate
Abdulmajid Obaid Hasan Saleh Associate Professor
Ashurov Sharofiddin Associate Professor

Keywords:

Islamic Microfinance, Financial Inclusion, Somalia, Regulatory Framework, Poverty Reduction

Abstract

Somalia's pervasive financial exclusion (16% with formal accounts) caused by regulatory gaps, limited access, and low financial literacy compels investigation into Islamic microfinance as a potential solution. This research, employing an analytical descriptive approach to existing literature, aims to identify and analyze the challenges, opportunities, and practices of implementing Islamic microfinance in this politically unstable environment. While success stories like remittance companies converting to Islamic banks suggest promise for poverty reduction and income growth, the broader impact of Islamic microfinance necessitates a comprehensive approach. This study argues that a well-coordinated strategy with favourable legal frameworks, improved access to finance, and enhanced awareness among target communities is crucial. Furthermore, specialized financial products and educational programs are vital to empower Somalis and unlock the transformative potential of Islamic microfinance for poverty alleviation and economic development in Somalia.

Downloads

Download data is not yet available.

Author Biographies

Abdirahman Abdillahi Farah Adam, PhD Candidate

Institute of Islamic Banking and Finance Malaysia, International Islamic University Malaysia (IIUM).

Abdulmajid Obaid Hasan Saleh, Associate Professor

Institute of Islamic Banking and Finance Malaysia, International Islamic University Malaysia.

Ashurov Sharofiddin , Associate Professor

Institute of Islamic Banking and Finance Malaysia, International Islamic University Malaysia.

References

Book

Farah, A. A., & Saleh, A. O. H. (2023). Financial Inclusion in Somalia Between Reality and Expectations Islamic Sustainable Finance, Law and Innovation. Contributions to Management Science. Springer, Cham. 145–156.

Iqbal, Z., & Mirakhor, A. (2011). An Introduction to Islamic Finance. Wiley.

Robinson, M. S. (2001a). The Microfinance Revolution. The World Bank.

Document

Basu, A., Blavy, R., Yulek, M., Detragiache, E., Erickson, L., Hadjimichael, M., Hauner, D., Josz, C., Kpodar, E., Maciejewski, E., Shields, J., Vazquez, F., & York, R. (2004). Microfinance in Africa: Experience and Lessons from Selected African Countries. IMF Working Papers. No. 2004/174. WPIEA1742004 ISSN:9781451858723/1018-5941.

Islamic Development Bank (IsDB). (2020). SOMALIA Country Platform G20-International Financial Architecture Working Group (IFA-WG).

Kammer, A., Norat, M., Piñón, M., Prasad, A., Towe, C., Zeidane, Z., Aljabrin, S., Sulaiman AlSaeed, K., Arda, A., Awad, R., Barajas, A., Chartouni, C., Chung, K., El Hamiani Khatat, M., El Khoury, C., Galand, J., Harutyunyan, A., Hurcan, Y., Jansen, B., … Kargbo-Sical, D. (2015). Islamic Finance: Opportunities, Challenges, and Policy Options. International Monetary Fund.

Mohamoud-Yonis, & Abdiqadir. (2012). Islamic Microfinance System and Poverty Alleviation in Somaliland. MPRA Paper 68104, University Library of Munich, Germany.

Suganuma, H. (2020). Technical Assistance on Bank Supervision and Regulation: Somalia. IMF Staff Country Reports. Country Report No. 2021/068. ISSN:9781513575834/1934-7685

World Bank. (2014). Global Findex Database 2014: Measuring Financial Inclusion around the World. World Bank.

Journal

Ahmed, H. (2002). Financing Microenterprises: An Analytical Study Of Islamic Microfinance Institutions. Islamic Economic Studies, 9(2), 12.

Buckley, G. (1997). Microfinance in Africa: Is it Either the Problem or the Solution? World Development, 25(7), 1081-1093

Farah, A. A., & Levasseur, R. E. (2022). Somali Remittance Companies’ Transformation into Islamic Banks. Open Journal of Business and Management, 10(06), 3474–3484.

Garane, I. A., Rahman, A., Ramez, M., & Jounaidi, A. (2020). The Impact of Islamic Microfinance Institutions on Poverty Alleviation in Mogadishu-Somalia. International Journal of Research and Scientific Innovation, VII, 77.

Mohamed, M. A., & Mukhongo, A. L. (2016). Effects Of Microfinance Services On The Financial Performance Of Small And Medium Enterprises In Mogadishu, Somalia. IJRDO - Journal of Business Management, 2(9), 152-173.

Musse, A. M., Ab Rashid, R., & Zainol, Z. (2019). The Emergence of Islamic Banks in Somalia in the Post-Conflict Era. Prospects and Challenges. Indian-Pacific Journal of Accounting and Finance 3(1), 41-49

Ozili, P. K. (2021). Measuring financial inclusion and financial exclusion. New Challenges for Future Sustainability and Wellbeing (Emerald Studies in Finance, Insurance, and Risk Management). Emerald Publishing Limited, Leeds, 411-427.

Rahman, R. A., & Dean, F. (2013). Challenges and solutions in Islamic microfinance. Humanomics, 29(4), 293–306.

Riwajanti, N. I. (2015). Islamic Microfinance: Challenges and Development. Jurnal Riset dan Aplikasi Akuntansi dan Manajemen, 1(1), 42.

Safıyo, A. S., & Azrak, T. (2022). The Impact of Covid-19 on Microfinance Institutions in Somalia. Journal of Islamic Economics, 3(1), 69-84.

Smolo, E., & Ismail, A. G. (2011). A theory and contractual framework of Islamic micro-financial institutions operations. Journal of Financial Services Marketing, 15(4), 287–295.

Van Rooyen, C., Stewart, R., & de Wet, T. (2012). The Impact of Microfinance in Sub-Saharan Africa: A Systematic Review of the Evidence. World Development, 40(11), 2249–2262.

Warsame, H. J., & Suleiman, F. A. (2022). Regulatory Compliance and Supervisory System of Islamic Banks in Mogadishu Somalia. International Journal of Early Childhood Special Education, 14, 576-582.

Warsame, M. (2016). Can Islamic Banks Flourish in Somalia after 25 Years of the Collapse of the Country’s Entire Financial System? European Journal of Business and Management, 8(15), 5-10.

Warsame, M. H., Abdalla, Y. A., & Lasyoud, A. A. (2021). Can Islamic banking revive Somalia’s ailing economy? Accounting, 7(7), 1709–1716.

Xalane, M. A. E., & Mohd Salleh, M. C. (2019). The Role of Islamic Microfinance for Poverty Alleviation in Mogadishu, Somalia: An Exploratory Study. International Journal of Management and Applied Research, 6(4), 355–365.

Website

Abdi, O. Y. (2014). Islamic Banking in Somalia: Challenges and Opportunities. Islamic Markets. https://islamicmarkets.com/publications/islamic-banking-in-somalia-challenges-and-opportunities (accessed on 20 November 2023).

Central Bank of Somalia. (2021). Quarterly Economic Review. www.centralbank.gov.so (accessed on 20 November 2023).

Scholarworks, S., & Farah, A. A. (2021). Somali Remittance Companies’ Transition to Islamic Banks. Ph.D. Walden University. https://scholarworks.waldenu.edu/dissertations (accessed on 20 November 2023).