SIMAD UNIVERSITY

GRADUATE STUDIES
Cover Page
Group Members
1. Aidarus Mohamud Mohamed
2. Mukhtar Hassan Osman
3. Nasteha Omar Nur

Class: MBF04
Course: Financial Markets and Institutions
Lecturer: Dr. Amina Omar Mohamud
Assignment: A proposal regarding Implementation of Islamic
Financial Market in the Somalia

Submission Date: 26 July, 2018

 TABLE OF CONTENTS

TITLE PAGE............................................................................................................................... I

TABLE OF CONTENTS ........................................................................................................... II

Introduction ................................................................................................................................. 1

Concept of Financial Market ....................................................................................................... 2

Capital Markets ........................................................................................................................ 2

Financial Market for Stocks ..................................................................................................... 2

Financial Market for Bonds ..................................................................................................... 2

Money Market .......................................................................................................................... 3

Derivatives Market .................................................................................................................. 3

Forex Market ............................................................................................................................ 3

Importance of financial markets to the economy ........................................................................ 4

Over view of Islamic financial markets ....................................................................................... 5

The need for Islamic financial market in Somalia ....................................................................... 7

The Importance of Islamic capital markets in Somalia ............................................................... 9

How can ICM be implemented in Somalia? .......................................................................... 10

Challenges ................................................................................................................................. 10

Low domestic saving ............................................................................................................. 11

Absence of government regulations ...................................................................................... 11

Lack of adequate accounting and auditing system ................................................................ 11

Family owned companies ...................................................................................................... 11

Information asymmetry.......................................................................................................... 12

Opportunities ............................................................................................................................. 12

The increasing commercial banks .......................................................................................... 13

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 The increasing of the awareness of the financing activities in Somali Community .............. 13

The increasing number of universities offering this discipline.............................................. 13

The recovering condition of the country................................................................................ 13

Instruments could be traded in this market ................................................................................ 14

The best type of financial market (private or public)In Somalia ............................................... 14

Participants (local, international or both) .................................................................................. 15

Conclusion and Recommendations ........................................................................................... 15

REFERENCE ............................................................................................................................ 17

III
Introduction
The Somali growing economy is in need of new forms of financial intermediation to finance
investments that are either too long-term or too risky for commercial banks is one of the most
important drivers of capital markets growth.

It is also now well understood that fostering the development of capital markets can itself be a
strong drive to innovation and economic growth.

Islamic finance is one of the fastest growing segments of international financial markets and at
first glance, its principles are interesting. Deriving its core principles from the Quran and the
Jurisprudential body of knowledge known as the shariah, the objective of Islamic finance is to
Install a more equitable financial and economic order that at the same time is transaction
friendly, organized around religious principles.

Therefore, Islam could be seen as a foundation for the inclusion of the ethical and moral
dimensions of economics and markets. This coincides with an increasingly affluent Muslim
middle class, a rise in oil-income, and a reorientation towards cultural-religious values. As a
consequence, over the last few decades increasing efforts have been undertaken to structure
Shariah-compliant financial products, to develop and institutionalize Islamic capital markets
and above all, to make Islamic financial market acceptable to the majority.

This academic required paper investigates the possibility of Islamic financial market to
establish in a under developed countries like Somalia, its challenges and whether it can offer
an ethical alternative to the existing international financial system to the Somali Diaspora and
even other non Somali societies those involve in Somalia and also its acceptance opportunity
to the society, since like this market is unfamiliar to the Somali people.

So, it takes a closer look at the knowledge base from which Islamic financial products are
constructed and assessed and how this market can apply the international regulations for
Islamic financial markets and the development of local regulation by the Somali federal
government for this new market. From this point, it derives the real conclusion of that there is
a possibility of creating such market in Somalia instead of depending on other markets in the
world.

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Concept of Financial Market

The financial market is a broad term describing any marketplace, where trading of securities
including equities, bonds, currencies and derivatives occur. Some financial markets are small
with little activity, while some financial markets like the New York Stock
Exchange (NYSE) trade trillions of dollars of securities daily.

Financial market prices may not indicate the true intrinsic value of a stock due to
macroeconomic forces like taxes. In addition, the prices of securities are heavily reliant on
informational transparency to ensure efficient and appropriate prices are set by the market.

Capital Markets
The capital markets consist of the markets for stocks, bonds, mutual funds, and exchange-
traded funds (ETFs). At the end of 2012, according to the Bank for International Settlements,
over 46,000 stocks were traded globally, and the global market consisted of more than $54
trillion worth of traded stocks.

Financial Market for Stocks

The stock market is a financial market that enables investors to buy and sell shares of publicly
traded companies. The primary stock market is where new issues of stocks are first offered.
Any subsequent trading of stock securities occurs in the secondary market.

The over-the-counter (OTC) market is an example of a secondary market. An OTC market

handles the exchanging of public stocks not listed on the NASDAQ, New York Stock
Exchange, or American Stock Exchange. Companies with stocks trading on the OTC market
are usually smaller organizations as this financial market require less regulation is less
expensive to be traded on.

Financial Market for Bonds

A bond is a security in which an investor loans money for a defined period of time at a pre-
established rate of interest. Bonds are not only issued by corporations but may also be issued
by municipalities, states and federal governments from around the world. Also referred to as
the debt, credit or fixed-income market, the bond market sells securities such as notes and bills
issued from the United States Treasury. The global bond market was valued at about $80

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trillion in 2012, in terms of the aggregate value of the bonds traded. That means the global
bond market was about 50% bigger than the global stock market in 2012.

Money Market
A money market is a portion of the financial market that trades highly liquid and short-term
maturities. The intention of the money market is for short-term borrowing and lending of
securities with a maturity typically less than one year. This financial market trades certificates
of deposit, banker’s acceptances, certain bills, notes and commercial paper.

Derivatives Market
The derivatives market is a financial market that trades securities that derive its value from its
underlying asset. It involves trade in derivative contracts. As the name suggests, these are
financial contracts whose value is driven by the value of some other asset or security. The
value of a derivative contract is determined by the market price of the underlying item. This
financial market trades derivatives including forward contracts, futures, options, swaps and
contracts-for-difference. Commonly used derivatives are forwards, futures, options, and swap
contracts. The total notional amount of over-the-counter derivatives at the end of 2013 was
about $710.2 trillion globally.

Forex Market
The forex market is a financial market where currencies are traded. This financial market is
the most liquid market in the world as cash is the most liquid of assets. The inter-bank market
is the financial system that trades currency between banks.

Commodities markets offer investors the opportunity to invest in physical commodities. As

such, they provide investors with diversification opportunities that go beyond those provided
by the capital markets. About 50 major commodity markets exist worldwide, and they involve
trade in about 100 primary commodities, including mined natural resources (gold, silver, oil,
etc.) and agricultural products and livestock (soy, wheat, pork bellies, etc.). As of year-end
2011, commodity mutual funds—which provide investors with a way to invest in commodities
without trading directly in the primary commodities themselves—had $47.7 billion in assets,3
but this number is small compared with the size of global commodity markets. The monthly
global trading volume in commodity futures and options markets as of year-end 2011 was

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almost $11 trillion, and the total annual global sales in the spot market stood at about $6.4
trillion.

Importance of financial markets to the economy

The global financial system promotes economic growth in six ways: (1) by creating money
and money-like claims; (2) by facilitating specialization and promoting trade; (3) by
facilitating risk management; (4) by mobilizing resources globally and thereby improving the
effectiveness with which local challenges are met; (5) by obtaining information for the
evaluation of business and individuals and allocating capital; and (6) by increasing the set of
opportunities available to companies, entrepreneurs, and individuals to participate in and
contribute to global economic growth.

Creates Money and Facilitates Its Flows

We normally think of money as being currency issued by the government. That kind of
money, however, is only a component of what effectively functions as money in the economy.
Four core institutions are actually engaged in the issuance of money a money-like claims in
the modern financial system: the central bank, depository banks, dealer banks, and money
market funds. Each type of institution issues a different kind of money-like claim,
distinguished mainly by the assets backing these claims.

Hierarchy of Money Claims

Money or Money-Like Claim Issued Assets Backing Claim

Central Bank Currency and reserves (liabilities of Treasury bills (federal government
central bank) debt), agency debt, and residential
mortgage-backed securities
(RMBS)
Depository Banks Insured deposits (liabilities of Loans and deposit insurance
Issuing commercial banks)
Insured Deposits
Dealer Banks Repurchase agreement or repos Collateralized by corporate bonds,
(liabilities issued by dealers’ credit asset-backed securities, and private

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 trading desks) label RMBS
Money Market Constant net asset value (NAV) shares Commercial paper, Treasury bills,
Funds and
other short-term assets
Depository Banks Uninsured deposits Loans and securities
Issuing
Uninsured Deposits
Money or Money-Like Claim Issued

All of the money-like claims shown in above table have one thing in common—they all
promise to trade at par on demand. This is why they are called money. That is, one can
effectively use them like currency in transactions, even though they are not all currency. Think
of writing a check against your (insured) deposit balance in the bank. That check is being used
by you as currency when you pay for something using that check. Although these are all
money claims, they are not equal in terms of how they are perceived and used. One aspect in
which these claims differ is in the strength of the promise to pay at par on demand and par at
maturity in all states of the world.

Facilitates Specialization and Trade financial system also

The financial system facilitates global trade in various ways, such as by providing the different
kinds of money discussed above. Each plays a role in the global trade ecosystem. There are
also offshore money market instruments like Eurodollars, which are a form of private money,
like uninsured deposits. The financial system also facilitates global trade by way of allocating
liquidity (money-like claims) from liquidity-surplus areas of the world to liquidity-starved
areas.

Over view of Islamic financial markets

The popularity of Islamic financial instruments among Muslims is not surprising. Islamic law
prohibits any forms of interest (riba) or gambling (qimar). Transactions that lack transparency
(gharar) are also banned. In finance, this means that the vast majority of assets and popular
trading strategies (such as short-selling and speculation) are prohibited according to Islam.

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To circumvent this problem Islamic banks issue sharia compliant bonds known as sukuk.
Conventional bonds involve a contractual obligation to pay bondholders interest and principle
on a certain date. When sukuk bonds are sold to investors the money is used to invest in an
asset, of which the bondholders have partial ownership. Payments to sukuk bondholders them
comes from whatever after-tax profit is made on the asset. When they reach maturity, the
issuer is contractually obliged to buy the bond back at the value it was bought for.

There are also sharia-compliant stocks, which must comply to risk-averse criteria such as a
low debt to income ratio. Plus, the company should have limited engagement with activities
that are considered sinful in Islam, such as alcohol and tobacco. So Islamic stocks are
attractive for Muslim investors, but also for Non-Muslim investors, since these assets can be
seen as more ethical.

Wider benefits

There are two popular beliefs that attract non-Muslim investors to choose sharia compliant
assets. First, Islamic financial instruments can offer higher profits than non-Islamic assets. For
example, for borrowers, high demand for ethical assets increases the marketability of sukuk in
comparison to conventional bonds.

Second is the idea that Islamic financial markets are decoupled from conventional markets.
There is a belief that the markets move in opposite directions during crisis periods so when
conventional markets decline, Islamic ones grow. So, Islamic markets offer an important way
for investors to diversify their portfolios and protect themselves against downturns in
conventional markets.

A safe haven

There have been a number of financial crises to rock stock markets over the years. The last
two decades have seen the 1997 Asian financial crisis, 1998 Argentinian crisis, 2007-08 US
and UK financial crisis to name a few. This causes significant volatility across markets,
causing substantial loses for investors. They are therefore constantly searching for markets
that are less influenced by crisis shocks.

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Shariah compliant assets will not save investors entirely from loses – it does not act as a
cushion against all financial shocks that affect the conventional markets. And, in periods of
economic stability, investors would not benefit much from investing in Islamic markets, as the
correlation between Islamic and conventional markets is high during calm periods. But,
nonetheless, Islamic markets have been less heated by global financial shocks and so can
claim the status of a new safe haven, particularly from a non-Muslim investor’s perspective.

The need for Islamic financial market in Somalia

According to M. kabir, Rasem M. naked and Omar(2011) ,the Islamic finance, it mostly
contains three main section needed to work together, which are:
a) Islamic banking
b) And Islamic financial markets.
c) Islamic insurance(Takaful)
Therefore, here in Somalia there is no any section which is working perfectly, although there
is some start point of Islamic banks and Takaful.
Islamic banks:
The types of Islamic banks in the world can be one of the following these following:
1) One window
2) Subsidiary
3) Or Full Fledged
If we discuss each one briefly, by taking respectively, we will start by Islamic window
banking.
Islamic window banking:
The increasing number of commercial banks around the world is considering the possibility of
offering Islamic financial products, through opening Islamic window as indicated by Adam,
Nathif, (2005).
- Management Team is conventional
- System= Core principles are conventional but some terminology changes are
introduced.
- Contract = Islamic based contracts
Islamic subsidiary banking:
- Management Team is Islamic
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 - System= Core principles are conventional but some terminology changes are
introduced.
- Contract = Islamic based contracts
- New Islamic Governance introduced
Fully fledged Islamic banking:
- Management Team is Islamic
- System= Islamic core banking system
- Contract = Islamic based contracts
- New Islamic Governance introduced
- New Islamic based capital raised
In Somalia there are almost five fully fledged Islamic banks which operate almost all regions
of Somalia, but the most challenge of these banks Islamic banks is the range of products, the
only well-known product they provide is Murabaha financing.

Islamic financial markets

In the Islamic financing mode there are two methods can be used to raise money, direct and
indirect, indirect means there should be mediation through financial institution such as banks
via the concept of intermediation. Intermediation involves the connection of surplus unit
(whose income exceeded over their expenditures to the deficit unit (whose expenditures
exceeded over their income) by a third party which is the financial institution itself.
While direct mean through financial market such as Islamic capital market, where transacting
parts meeting face to face facilitated by dealers and brokerages.

Types of capital market

As indicated in part one in our paper, financial markets can be classified according to:
1) Maturity of the securities.
- Capital market= long term securities are traded in this market
- Money market= mostly short term instruments are exchanged
2) The capital market itself can be classified into two according to the types of the
securities:
- Equity market or stock market only equities are traded here which shows the
ownership of the holder to the issued company.

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 - Debt market or bond market which itself debt based on fixed rate and maturity
3) The stock market can be classified into:
- Primary market =where first issued stocks are traded.
- Secondary market =where the holders of the stocks meet and exchange them.
So what we are talking about in the paper is the capital market and its implementation in
Somalia, so since we made this section’s header the need for Islamic financial market, we
will discuss briefly the benefits of the capital market.

The Importance of Islamic capital markets in Somalia

According to Andritzky, Jochen R.(2007),Capital markets have several beneficial features for
different participants in the economy. For a company or entity in need of funding, domestic
capital markets provide an alternative source of funding that can complement bank financing.
Capital markets can offer better pricing and longer maturities, as well as access to a wider
investor base. They can also offer funding for riskier activities that would traditionally not be
served by the banking sector, and by doing so contribute significantly to innovation in an
economy.

In Somalia there is an opportunity that allowing launching new capital market, since there are
a lot of challenges that are hindering the development and the growth of the economy as
whole, one of these challenges is lack of capital market that can be used as source of funds
where commercial banks and large corporation can raise money easily by issuing financial
securities as well as uses of funds where those having surplus can invest in a profitable
projects. The Islamic capital market can facilitate direct financing among different investors.

Currently in Somalia, there is no any Islamic capital market that facilitates the transfer of
funds among the individual and institutional investors. Islamic commercial banks in Somalia
currently operate with only their shareholders capital and depositors deposit as their source of
fund for their operations.

According to the absence of Islamic capital market, Islamic commercial banks in Somalia
have no capacity to finance huge infrastructural and development projects in this country
which is emerging from decades of destructive and downgrading, since deposits are
guaranteed funds because of they are based on Wadi’ah contract, thus, Islamic banks will be in

9
trouble in case their investments generate losses as stated in SOMALI-BUSINESS-REVIEW
(2017)

How can ICM be implemented in Somalia?

In 2012 some of Somali business men and individuals tried to open the first stock exchange in
the history and they named Somali Stock Exchange at Garowe Somalia.

Firstly Somali Stock Exchange with agreed Nairobi security exchanges to help in designing of
the market. This market since its birth doesn’t properly work six years later, it is still looking
for to trade its first shares. If you visit the website of the market, www.somalistockexchange.so/
there are two companies listed in this market, which are Somali Postal Express in logistics
sector and Saanqaad Group in agricultural sector, So what are the main challenges which
protecting this market to go forward, the following section we will discuss the key common
factors of this problem.

Challenges
Given the absence of network and scale effects, the lack of deepness is having a self-
reinforcing effect on the Somali stock exchange, as might be indicative for capital markets in
small countries. The benefits of financial markets are subject to significant network effects,
and the costs of creating and trading securities is driven by fixed costs. As the market is
illiquid, the cost of trading remains high. This reduces the benefits of capital markets,
discouraging further market entrants on both buy and sells sides.
In addition to that, Somalia has not yet fully adopted an equity culture which implies that
companies routinely resort to capital markets to raise funds, depositors direct their savings to
capital markets, and shareholder democracy is put to use.
Followings are the key common challenges of Somali stock exchange to Step forward.
SOMALI-BUSINESS-REVIEW (2017)
1- Low domestic saving.
2- Absence of government regulations.
3- Lack of adequate accounting and auditing system.
4- Family owned companies:
5- Information asymmetry.
We will discuss these five factors one by one;

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Low domestic saving
The low domestic savings rate is probably due to low income The Gross Domestic Product per
capita in Somalia was last recorded at 187 US dollars in 2010 as we quoted from
tradingeconomics.com, so this used for consumption rather than for saving. This indicates that
majority of the people consume their income and maintain low saving rate. One important
factor of well functioning stock market is funding liquidity; i.e. availability of people willing
to invest their money. If there is no people willing to invest their money “panic or low
income” whatever factor caused, companies will not get source of capital from their raised
shares.

Absence of government regulations

One of the most main functions of the federal government in the capital market is to protect
investors to maintain the stability of the financial system, so investors could have confidence
to put their fund in to the hands of other with profitable plans. If there is no any financial
regulation, there is no way for financial markets to exist since every one can open new one and
close whenever they like, and the customer confidence will be lost.

Lack of adequate accounting and auditing system

When listing companies in public financial market they should present their well prepared and
audited financial reports, but unfortunately there is no a reliable financial accounting system in
the most Somali business and this is an important factor in the development of stock
exchanges. The most pressing issues that need to be addressed include setting appropriate
accounting standards for different categories of companies operating in Somalia.
If the security market rely on uniform accounting system that all company to follow under
their financial statements and effective audit system that provide assurance that all accounting
rules are followed, management assertions are correct and all material information is
disclosed, then the market have standards to compare good performing firms and failing firms
to allocated scared resources in the market.

Family owned companies

Most of the Somali business uses the conservatism concept since the structure of these
business companies are family owned, which is also another obstacle to the creation of a stock
market in Somalia. Somalia has a large number of businesses that are family owned and which

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are likely to have enough resources to issue shares but whose managers who are the owners
themselves may fear from losing the control their business if they open up their businesses to
public ownership since the biggest share holder can have power vote.
Therefore, the main factors limiting the supply of equities include the unwillingness of family-
owned businesses to reduce ownership and the perception by many companies that the risks
associated with additional disclosure requirement when they spread the ownership. It is
estimated that majority of businesses in Somalia are family or individual owning businesses
who are unwilling to share their business ownership so, they are going far away from listing
security market, and instead they prefer to find other source of raising capital such as debt.

Information asymmetry
Information asymmetry Condition in which at least some relevant information is known to
some but not all parties involved. And the most companies in Somalia don’t issue financial
statements, therefore, if one of them wants to list in the financial market and offer its shares to
the public, how did the investors evaluate past performance of that company and even if they
provide all its past financial statements how did investors insure it is not misleading, and even
how investors can verify if company use the money as they claim.
Finally, to fully reap the economic benefits of deep and liquid capital markets, Somalia needs
to take measures to break out of the self-reinforcing cycle. As a small economy, Somalia lacks
the natural scale which makes capital markets develop organically.

Opportunities
Solé, Juan, (2007), beside of the above discussed challenges those are the obstacles of the
financial markets to step forward, there can be other opportunities which can arise like this
virgin and recovering country with high motivated Diaspora returning to the home back those
grasped from different countries different development techniques. Finally if the above
challenges are overcame, there is a very beautiful opportunity to those entrepreneurs those are
thinking like this market.
So, we can summarize the points the gearing up to start a new capital market in Somalia in the
following points.
1) The increasing commercial banks
2) The increasing of the awareness of the financing activities in Somali Community

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 3) The increasing number of universities offering this discipline.
4) The recovering condition of the country which can minimize the challenges
mentioned above and cause foreign financial bodies to come, which can in turn fasten
the need of this market.
5) And finally the competition of the Somali business groups to be the first one to open
this important market.

The increasing commercial banks

The only source of capital of currently working commercial banks in Somalia is the deposit of
their clients which it is not reliable since there is little or no any fixed maturity deposits in
Somali banks currently and their shareholders capital, when they feel liquidity problem they
may use the capital market to raise money, and this can fasten the establishment of such
market in Somalia, so it is one main opportunity that Islamic capital market can born.

The increasing of the awareness of the financing activities in Somali Community

Several years ago Somalia individuals who have special luxury car were little number, but the
recent years there are very traffic jams caused by the increasing number of personal cars that
are financed by the commercial banks, this need for financing activity is already created and
this eventually will bring the need for a place where huge can be raised which is the capital
market.

The increasing number of universities offering this discipline

Years before, this discipline was very rare in Somali universities, but just every university
has special faculty of this field of finance, which in turn can increase the public knowledge of
the benefits of finance to the growth of the finance , since a lot of students graduate every year
from this faculty.

The recovering condition of the country

The recovering condition of the country according to economically or politically can cause to
foreign investors to glance this virgin market and try benefit if they get allowing environment.

And finally knowing of the above mentioned opportunities, this can bring immediately to get
more sectors which are trying to benefit these compounding opportunities to be the first
Somali capital market establisher.

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Instruments could be traded in this market
Ayub, Muhammad, (2002), basically there are two types of securities which can be traded in
the Islamic capital market, which are equity and debt, so since the debt based capital is save
for both investors and the business owner, because for owners they fear from to lose the
control of their business and for investors they mostly like fixed maturity projects, so in such
markets it is appropriate t issue Sukuk (Islamic bonds. This will not only help them to raise
capital but also to reduce profit risk because currently Islamic banks and other business are
either using their own funds or deposits/amaanaat and both of them are associated with
greater profit risk.
In contrast, Sukuk is a financial instrument that enables Islamic financial institutions and and
corporate to establish funds with a profit-loss sharing contract to reduce the profit risk
associate with Wadi’ah based deposits/debt. Therefore all Somali business groups especially
Islamic financial institutions in Somalia should work together to establish Islamic capital
market that induces institutional investors to collaborate in order to keep the country’s
financial sector to contribute to the process of post-war development.

The best type of financial market (private or public)In Somalia

Brodhage, Eberhard and Rodney Wilson (2001), private markets are markets where
transactions are negotiated directly between two parties. While public markets are where
standardized contracts are traded on organized exchanges, bank loans and private debt
placements with insurance companies are examples of private market transactions. Because
these transactions are private, they may be structured in any manner that appeals to the two
parties.

On the other hand, securities that are issued in public markets (for example, common stock
and corporate bonds) are ultimately held by a large number of individuals. Public securities
must have fairly standardized contractual features, both to appeal to a broad range of investors
and also because public investors do not generally have the time and expertise to study unique,
none standardized contracts.
Private market securities are more tailor-made but less liquid, whereas publicly traded
securities are more liquid but subject to greater standardization. Therefore, the currently

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needed market in Somalia is Public because of the main aim of this market is to get more
liquid and the most liquid market is the public one.

Participants (local, international or both)

A capital market is basically a system in which people, companies, and governments with an
excess of funds transfer those funds to people, companies, and governments that have a
shortage of funds. This transfer mechanism provides an efficient way for those who wish to
borrow or invest money to do so. For example, every time someone takes out a loan to buy a
car or a house, they are accessing the capital markets. Capital markets carry out the desirable
economic function of directing capital to productive uses.
So in the case of Somalia; a country which is recovering from prolonged civil wars and
functional crisis, it should be started by local participants specially government to encourage
the civilians and it can attract the eyes of the foreign investors.

Conclusion and Recommendations

The rapid growth of Islamic finance during the last 10 years across regions for various Islamic
Financial Products provides opportunities to the financial institutions to finance more
profitable projects which can enhance the economic development of the community. Muslims
who constitute more than one fourth of the world population constitute a huge potential
markets for IFPs. IFPs are getting popular even among non-Muslims. The geographic
distribution of IFPs is extended to the Gulf countries while Africa especially Somalia presents
untapped potential. The paper provides an understanding of how Islamic capital markets
which Islamic securities are traded can be established in Somalia.
Therefore all Somali business groups especially Islamic financial institutions in Somalia
should work together to establish Islamic capital market that induces institutional investors to
collaborate in order to keep the country’s financial sector to contribute to the process of post-
war development.

In Somalia, future initiatives could include further improving the regulatory and supervisory
framework and promoting secure environment which allows the capital market to operate
smoothly, the Somali Federal Government should continue to implement the following three
main issues to promote local capital market development and international integration.

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1- Structural issues: List state-owned companies with the option to subsequently sell a
state-owned stake at the stock exchange; set incentives to foster financial innovation;
and support efforts to establish international partnerships for the stock exchange and
the clearing and depository house.
2- Regulatory/Security issues: The authority should bring Islamic capital market
guidelines for corporate governance, and remove remaining restrictions for local
investments by foreign investors as well as foreign investments by locals.
3- Supervisory issues: Step up surveillance and enforcement, in particular with regard to
transparency in securities trading; and streamline administrative procedures

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 REFERENCE
Adam, Nathif, 2005, “Converting a conventional retail bank to Islamic banking,” in Islamic
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Andritzky,Jochen R.(2007)Capital Market Development in a Small Country: The case of
Slovenia. IMF, Working Paper No. 07/229, 2007
Avedian, Arevik, Henrik Cronqvist, and Marc Weidenmier, “Corporate Governance and the
Creation of the SEC,” Working paper, September 2014. Available at SSRN: http://
ssrn.com/abstract=2498007
Ayub, Muhammad, 2002, Islamic Banking and Finance: Theory and Practice, published by
State Bank of Pakistan Pr ess, Karachi, Pakistan.
Bradfield 2007: James Bradfield: Introduction to the Economics of Financial Markets, Oxford
et al. 2007
Brodhage, Eberhard and Rodney Wilson (2001), “Financial Markets in the GCC: Prospects for
European Co-operation,” European University Institute Policy Paper 01/2.
M. kabir, Rasem M. naked and Omar (2011), Introduction to Islamic Banking and Finance.
Solé, Juan, 2007, “Prospects and Challenges for Developing Bond and Sukuk Markets in -
Kuwait,” Selected Issues Paper SM/07/84, (Washington: International Monetary Fund).
SOMALI-BUSINESS-REVIEW -VOLUME-9-ISSUE-3-4-July-December-2017
https://tradingeconomics.com/somalia/gdp-per-capita Retreived at 6 jun 2018
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