Islamic banks in somalia: Issues, practical solutions and opporunities

Islamic Banking is a system in which finance is contributed in the form of money in return for equity or rights to a portion of future firm earnings, or in the form of products and services offered in exchange for a pledge to repay their value at a later date. Unlike conventional finance, Islamic finance is based on five fundamental pillars: the prohibition of interest, the prohibition of uncertainty, the prohibition of gambling, profit and loss sharing, and the requirement that all financial transactions are underlying physical assets. The study's objective is to analyze the challenges and opportunities confronting the Somali Islamic banking industry. The study also intends to focus on a number of the main issues impeding the expansion of Islamic banking within the country and suggest several potential solutions. Primary data are collected by the survey conducted in the study and analyzed with the Stata program. Our study's target population comprised Islamic Bank employees in Somalia in order to develop a broad understanding of the causes and patterns of issues and opportunities of Islamic banks in Somalia. Moreover, research papers, textbooks, websites, and unpublished thesis were used to get additional information related to the topic. According to the survey findings, it came out that Somalia's Islamic banks have not yet reached their full potential. Among the issues raised by the employees was the lack of cohesive SSB that deals with all banking issues such as Fatwas and other necessary laws, a shortage of professional employees with a better understanding of technology, and other project management. Other significant issues were lack of awareness among the society, regulative issues, high pricing finance, lack of Islamic insurance, low rate of return, lack of R&D, competition from mobile companies, shortage of market information, and lack of connection with global banks. Finally, the most significant risk issues raised by the employees were credit risk, liquidity risk, rate of return risk, collateral risk, and foreign exchange risk. On the contrary, findings indicate that Islamic banking has a significant opportunity in Somalia because the Somali community's acceptance of Islamic banking is higher than conventional banks.