THE NATURE AND OPERATIONS OF THE INFORMAL FINANCIAL INSTITUTIONS IN SOMALIA: AN EMPIRICAL SURVEY

Access to sustainable, affordable and relevant financial services is considered to be a good indicator for the growth and development of all nations globally. Lack of accessibility to these important services is very glaringly among the low-income households in developing nations. Provision of these services is highly needed by this category of people. For them the services could be rendered to them formally or informally. The informal financial institutions in Somalia are considered as one of the best booming small businesses remitting millions of dollars annually. Most of these remittances go to households for consumption purposes. The remittances are vital source of livelihood for many poor households and it supports a wide variety of development purposes. At least a third of the country’s population benefits from the operations of these small financial institutions. The objective of this study is twofold: first, is to examine whether the informal financial institutions in Somalia are successful by assessing the indicators of business success named turnover and profitability and the second, to investigate the factors contributed to the success of these institutions. The study used an empirical survey in which data have been collected from both the operators and clients of informal financial institutions in Somalia. The study found that revenues of informal financial institutions in Somalia are growing and they contribute to the social responsibility. Likewise, the study found that mutual trust, less administrative cost, increased remittances, good ethical behavior of operators and using Islamic commercial dealings are considered to be contributing significantly to the success of informal financial institutions in Somalia