Yemen's Saba Islamic Bank and Djibouti-based Dahabshil Bank are both planning to start operations in Somalia next year

Speaking on the sidelines of the Islamic Banking Summit Africa in Djibouti, Basel Haj-Issa, who took over as CEO of Saba Islamic Bank five months ago, explained that client demand is driving the bank's expansion into Somalia.

"Djibouti does a lot of trade with Somalia, and many of our clients need our Islamic services in the country, Haj-Issa told Islamic Business & Finance. "They [our clients] have been coming to us and asking why we do not have a presence in Somalia."

Dahabshil Bank, which is a subsidiary of Dahabshil Remittance Service, was established in 2010 to be the main bank for all Somalis after the collapse of the country's central government left Somalia without an official banking institution.

"We started in Somalia, and now there has been a period of intense reconstruction it is time to go back," Suleiman Walhad told Islamic Business & Finance. "The potential there is huge. Most people are Muslim and, given all that has happened there, they are not likely to trust anything other than an Islamic bank."

Haj-Issa also commented on Somalia's potential. "At first when the bank told me its plans I was surprised – but then I looked into it and most of the troubles are in concentrated areas – and these are the places that everyone hears about. North Somalia is actually very peaceful."

Dahabshil Bank will concentrate on trade finance, while Saba Bank plans to focus on commercial banking as there is little demand for retail services in Somalia. "Cash is king," said Walhad. "There is a culture of trade and cash, and consumers do not like to go through banks, so there is only commercial banking."

According to the CIA and the Central Bank of Somalia, despite experiencing civil unrest, Somalia has maintained a healthy informal economy, based mainly on livestock, remittance/money transfer companies and telecommunications. Due to a dearth of formal government statistics and the recent civil war, it is difficult to gauge the size or growth of the economy.

Although Somalia has had no central monetary authority for more than 15 years between the outbreak of the civil war in 1991 and the subsequent re-establishment of the Central Bank of Somalia in 2009, the nation's payment system is fairly advanced primarily due to the widespread existence of private money transfer operators (MTO) that have acted as informal banking networks.

As the reconstituted Central Bank of Somalia fully assumes its monetary policy responsibilities, some of the existing money transfer companies are expected in the near future to seek licenses so as to develop into full-fledged commercial banks.