Interest-free banking: Challenges, opportunities and prospects in Somalia

The main objective of this study is to empirically analyze the prospects, opportunities and operational challenges of Interest-free Banking in Somalia with particular reference to the Interest-free Banking in Mogadishu city. This study employed descriptive survey design. The population of this research consisted of Somali Microfinance (SMFI) employees, commercial banks employees, government employees, entrepreneurs and others. The primary data was collected with the help of a structured questionnaire by using Stratified sampling and simple random sampling technique from a sample size was 185 and 165 were properly filled and returned. The collected data was first coded statistically and then analyzed using the Statistical Package for Social Scientists (SPSS) and results were presented in frequency tables and figures. The data was then analyzed in terms of descriptive statistics like means and percentages. The study focuses on awareness and general understanding about interest-free banking, manpower, regulatory and legal framework, capital requirements as some of the challenges while economic growth, attraction of investors, and fostering investment are the likely prospects of the banks. The study concludes that Interest-free banking service will bring additional capacity in the economy in connection with additional resources for banks, investment opportunities, reaching unbanked markets and employment opportunities in the country through creating awareness for public acceptance and training of staffs, employ good marketing techniques, governing body need to establish clear set of legal framework, and compliance with sharia issues should be adhered. Keywords: Islamic Finance, Interest-free Banking, Profit-and-Loss Sharing, Somalia.