International banks cleared to operate in Somalia , what’s in for Mogadishu ?

By Abdiaziz Daud

Central Bank of Somalia approved banking license for two international banks Egypt’s Banque’s Misr and Turkey’s ziraat katilim  to operate in Somalia.

A commendable Move that will aid the country’s embryonic economy.

The greater the foreign-bank presence is the better a country’s growth prospects become regardless of its financial or economic development

The introduction of foreign banks is a component of the banking reform. Foreign capital from or through international banks is anticipated to bridge the gap between domestic savings and investment.

Foreign banks play a crucial role in strengthening the financial structure of an economy. This is How ;

The banking sector serves as the primary channel by which financial fragility might be transferred to the other sectors in the economy by distracting the interbank lending market, by decreasing the credit availability, and by providing a better payment mechanism. 

International banks contribute to not only  economic growth but also helps in  promoting bank competition by pressuring other banks to lower their costs  which lead  to overall improvements in the banking system efficiency.

Beyond the promise of efficiency improvements, which remains the most oft-cited rationale for allowing foreign banks, foreign banks contribute to the development of overall financial and money markets in the host economy which eventually leads to favourable economic growth. Foreign banks will contribute to financial sector  by expanding banking credit to the private sector, enhancing liquidity in the domestic equity market, and  contributing to a well-capitalised bond market.

foreign banks generate efficiency gains by facilitating a reduction in cost structures; improvements in operational efficiency; and the introduction and application of new technologies and banking products. In relation to this, foreign banks will enhance the quality of human capital in the domestic banking system by importing high-skilled personnel to work in the local host subsidiary as well as via knowledge spill overs to local employees which may in turn benefit customers through access to new financial services

WHAT IT MEANS TO THE LOCAL POPULATION

 Entry of foreign banks helps in promoting bank competition by pressuring other banks to lower their costs  which lead  to overall improvements in the banking system efficiency , this means the local population will enjoy efficient financial services.

Foreign banks alleviate financial constraints, improve access to credit, and lower borrowing costs.

Entering institutions often have access to a larger pool of capital, which potentially increases the supply of loanable funds to local population.

The realisation of financial inclusion of Small and Medium-sized  enterprises ( SMEs ).

Small and medium-sized enterprise (SME) financial inclusion, in particular, is at the core of the economic diversification and growth challenges many countries are facing.

WHAT IT MEANS TO THE DOMESTIC BANKS

Unpleasant news for the domestic banks.  Big names who have access to a larger pool of capital, modern technologies & skilled human capital have ventured into arena

This marks the end of monopoly in Somalia’s banking sector , comprehensive competition is in their door step.

As the saying goes by “ one man’s trash is another man’s treasure “

The competition in the banking sector is treasure to the local population,  for that they will enjoy efficient financial services.

Conclusion

There are also various challenging forces that might offset the beneficial influence of foreign banks’ entry and expand the risks  of domestic banks to disturb financial stability.

Domestic banks might be undesirably affected by the shift of clients after the foreign banks’ entry. On the one side, the entry of foreign banks might concentrate their credit and other services on well-informed customers, depriving the domestic banks of this market position. The government should come up with policies and strategies to protect the domestic banks from these fo