By HAN News Desk
MOGADISHU — Somalia, long known for its dependence on remittances and informal money transfer systems, is entering a critical phase in the modernization of its financial sector. After more than three decades of state collapse and weak state institutions, the country is now laying the groundwork for a regulated and more resilient banking industry.
For years, remittances—amounting to more than a billion dollars annually—served as the backbone of the Somali economy. Informal transfer networks kept money flowing even during the most turbulent years, but these systems operated in largely unregulated spaces, drawing international scrutiny and exposing the economy to risks associated with financial crime and high compliance costs. These long-standing challenges have limited Somalia’s ability to fully integrate with the global financial community.
In recent years, the Federal Government of Somalia, with strong support from international partners, has taken steps to introduce new laws and strengthen regulatory bodies. Legislation aimed at tackling money laundering and preventing the financing of illicit activities has been introduced, signalling a move toward greater transparency and accountability. Government officials say reforms are intended not only to safeguard the sector but also to build confidence among international institutions and investors. While compliance requirements present challenges for local banks, they are increasingly viewed as necessary steps toward modernizing the financial landscape.
Within this evolving environment, Salaam Somali Bank has emerged as one of the country’s leading financial institutions. Established in 2009, it was among the first banks to offer Islamic banking services to communities long excluded from formal financial systems. The bank’s leadership says its mission extends beyond profitability, focusing on strengthening national recovery, supporting business development, and expanding financial access across the country.
A major part of this effort includes its partnership with the World Bank on the $360 million DRIVE programme. The initiative, which uses satellite data to provide drought insurance and integrates digital savings tools with mobile financing, targets pastoralist communities across Somalia. Around 60 per cent of those benefiting from the programme are women, many of whom are responsible for managing household resources but lack access to formal financial services. The programme’s design allows vulnerable families not only to access emergency support during climate shocks but also to build long-term resilience in the face of recurring droughts.
As Somalia’s regulatory framework matures, Salaam Somali Bank says it has continued to strengthen its compliance mechanisms, improve internal controls and collaborate closely with regulators to meet both national and international standards. Financial analysts say such efforts are essential for restoring confidence in Somalia’s banking sector, especially in a country where trust in formal institutions was deeply eroded during the years of state collapse.
Despite recent gains, rebuilding trust remains one of the sector’s greatest challenges. Many Somalis still prefer informal systems they have relied on for generations, while international partners remain cautious due to historical concerns related to security and financial transparency. Observers note that continued cooperation between government agencies, private banks and global partners will be essential to overcoming these barriers.
Somalia’s financial sector is still early in its transformation, but the reforms underway mark a potential turning point. The country’s modernization efforts could help shift the economy away from exclusive reliance on remittances and toward a more diversified, secure and inclusive financial system. For the first time in decades, Somalia’s financial future appears to be moving toward greater stability, stronger governance and expanded opportunity.
