Interview: Ahmed Osman

What specific measures can be taken to enhance access to credit for small and medium-sized enterprises (SMEs) in Djibouti?

AHMED OSMAN: It is important to keep in mind that the majority of SMEs in Djibouti are of a commercial nature and have historically been underfunded. The local banking sector is highly liquid and has the means to finance SMEs. In fact, a specific mechanism for SME financing exists called the Economic Development Fund. The contrast between supply and demand lies at the core of the challenge of financing SMEs, which are mostly small family businesses that work on the border between formal and informal. The structure of these companies, which lack accountability, institutionalisation and management structures, often renders them ineligible for financing. The government, in cooperation with the business community, has focused its strategy on institutionalising and structuring SMEs in order to make them gradually leave the informal sector, by lowering the required minimum levels of social capital and by reducing administrative formalities and costs of company registration through the creation of a one-stop-shop mechanism. At the chamber of commerce a new structure called the Authorised Service Centre has been set up to support SMEs by assisting them with their business development plans, accounting and applications for funding from institutions.

How will be the government’s new payment plan impact the transaction speed and efficiency of the banking sector?

OSMAN: The new payment plan is basically an initiative to modernise the infrastructure used for payments, replacing the costly manual execution of transactions with a digital one, allowing for real-time payment and financing of projects across the country. The introduction of the Payment Plan forms part of a wider strategy to digitise the banking sector, which will see the development of a system that will connect all banking operators in the country through a secured connection. Based on this system, a unified credit control system will be put in place that makes it obligatory for banks to keep each other abreast of possible fraudulent transactions and client profiles. A crucial element in digitising the banking sector in Djibouti is the effort to expand payment terminals for bank and credit cards. At the moment only the larger hotels have access to these services, leaving aside many of the smaller businesses across the country. Putting in place digital infrastructure and making it accessible will allow for everybody, including operators and entrepreneurs to benefit from the launch of the payment system. The legislation which will see the implementation of the system is ready and will most likely be adopted at the end of 2015.

Exim Bank

Which opportunities currently exist for Islamic finance in Djibouti?

OSMAN: Djibouti’s economic growth over the past decade has presented interesting new prospects. To consolidate this growth, many public and private development projects require significant funding. Despite the strong expansion of the banking sector, the banking rate, which currently stands at 20%, is still low. These elements have presented opportunities for Islamic finance in the country. It must be said that, although Islamic finance is experiencing rapid development, it has not yet realised its full potential in the African continent, which it accounts for nearly half of the 1.6bn Muslims in the world. There is still room for serious growth in this department.

Since their introduction to the Djiboutian market in 2006, and following their adaptation process, Islamic banks have experienced rapid development of their market shares. This success is strongly linked to the operating principles of Islamic finance based on sharia that are more in line with society’s values.