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A Letter to his Excellency the President of Somaliland: We need government development banks- not commercial banks.

You’re Excellency; first and foremost, I am diehard supporter of your initiatives aimed at curbing the inflation and the overvalued US dollar. In particular, I applaud your Excellency on the implementation of the Somaliland Shilling Mobile-Money Program. This step will illuminate 50% of the challenges we face in this front.


Secondly, I intend to draw your kind attention to the role played by the small SL Foreign Exchangers. These guys are the secret of Somaliland. Their model provides the fundamentals of free trading, and open/floated exchange market and should be supported and nurtured at all times.  Your Excellency, please don’t listen to the propagators of the “Foreign Exchange Restrictions Model” which is a recipe for failure and the cause of all the disasters of the Third World.


Thirdly, your government has recently announced that the State will open its own commercial banks. In this front, I have the feeling that we are copying the model adopted by some of neighboring failure-borne countries. It is true that our foreign exchange challenges are similar to those faced by most of the African countries.  However, it is not true that the corrective measures and the remedies we need should be copied from these unsuccessful states.


I strongly believe the Government should not open commercial banks, which should continue to be private sector institutions on the following grounds:
⦁ A commercial bank requires business model operations and unusually efficient management. History shows that governments have, over the years, failed in the operation of profitable commercial banks – we are no exception.
⦁ Besides, there are no obvious benefits the State or the citizens in having Gov’t commercial banks – may be some bureaucrats could reap some benefits. The supporters of government commercial banks should explain to us the benefits of these institutions for the Nation. Will they be Islamic or conventional banks??.
⦁ Secondly, the concept of opening of Government-owned commercial banks is in controversy with our Constitution which stipulates that the Government should not undertake any commercial business. For instance, the Central bank is engaged in the supervision of the commercial banks. If the government owns its commercial bank, the authorities of the CB will be soft on their affiliate. This will create conflict of interest, which in turn will seriously jeopardize the interests of the privately owned commercial banks. It is just like opening government owned telephone providers.
⦁ Thirdly, we are not going to reinvent the wheel. We should start from where successful players have ended – we should not mimic the losers or talk about Siyad Barre banks. In the free enterprising world, governments normally have only state-owned development banks, while commercial banks are private enterprises. For instance, in the United States, which is the world’s largest economy, there is only one state-owned commercial bank (The Bank of Dakota) which was opened in 1919 on populism agenda of those days. In the Gulf, Saudi Arabia has more than 20 private commercial banks, but nil government-owned commercial banks. Instead, they have scores of non-profit government development banks that are involved in financing major infrastructure projects. These banks also own major shares in the Saudi Arabia’s giant Companies that employ thousands of young men and women. On top of that, the government development banks also extending interest-free loans to the citizens to finance housing, SMEs, agriculture etc.
⦁ Given our current circumstance, the Government of Somaliland lacks to resources to finance the envisaged development projects. Opening government owned commercial banks will not help us finance these long term projects. Furthermore, there is no point in government involvement in trade finance, short term lending, and day to day banking services, which is the role of private commercial banks. However, there is one route that could help us circumvent the obstacles we face, provided we have the guts to insist on our agenda – no matter what!!!!
Your Excellency, in this context, I am fully aware you have the resolve and the determination to pursue any nationally beneficial agenda and urge you to seriously consider the following Model:
⦁ The government should establish SL Development Bank which will be entrusted with financing the country’s development projects.  For instance, the government intends to acquire 50% share in Hargeisa Electricity Project (under PPP basis).  The Development Bank will finance the Gov’t share of this project by issuing SLS 50Bn (USD 5m). The Gov’t Bonds to be purchased by the Commercial banks, the local business community, the Diaspora, ordinary citizens, and international donors.
⦁ The Development bank bond would yield profit say 10% per year. However, in order to avoid the question of Reba, the bank will distribute the profit to the bondholders in the form of food tickets etc. be given the needy (Sadaqa). Alternately, the Bonds will in the form of Sharia Complaint SUKUK.
⦁ Similarly, government bonds could be issued to finance various project like farm tractors leased to farmers, fishing boats etc.
⦁ Finally, in addition to providing the cash needed to finance the national development projects, the issuance of Somaliland Shilling denominated Bonds will have another side benefit for the overall wellbeing of the economy: The government will be able reduce the volumes of the Shillings in circulation and thereby contribute to the strengthening of the local currency against the USD.






Hassan Abdi Yousuf
Head of Horn Economic Research Center
Hargeisa, Somaliland