Somaliland goes for two-tier system

A few weeks ago The Islamic Globe wrote about how Somaliland was planning to change its financial regulations. We can now confirm the government is putting its final touches to the proposed banking act. At present the constitution of Somaliland requires all financial transactions to be Shari'ah compliant, but according to the Central Bank of Somaliland's governor, Abdi Dirir Abdi - speaking to The Islamic Globe - new proposals will now allow conventional banking in order to open the economy up to international trade.

"We expect that within the next three to six months, the law that will allow setting up of private commercial banks will be passed by parliament," said Abdi.

Somaliland is a self-declared sovereign state and one of three breakaway regions in troubled Somalia, a country that has been at war with itself since 1991. Somaliland is seeking international recognition as a sovereign state.

The other breakaways are Puntland, home of many of Somalia's notorious pirates, and most recently the Juba Valley. Somalia is a predominantly Muslim country as is Somaliland and Islamic banking is expected to become a popular industry.

Abdi said that going down an exclusively Islamic finance route, much like Sudan, will deny citizens a choice of what form of financial system they would want to use and also dissuade potential non-Shari'ah compliant foreign investors.

Currently there are only two banks in Somaliland and both are state controlled; the Bank of Somaliland and the Commercial Bank of Somaliland - the former currently has the role of central bank while the latter acts as state treasury.

Abdi claimed that the Banque pour le Commerce et l'Industrie, based in neighboring Djibouti and other two commercial banks he declined to name have applied for licenses. Analysts have speculated that Islamic banks from the Middle East are bidding for banking licenses in the country.

He also said the central bank has just completed replacing the Somali currency with Somaliland shilling last month that is now being used across the country.

By Steve Mbogo

© The Islamic Globe 2011 .