The long overdue draft commercial banking bill currently awaiting Parliamentary approval suffered yet another setback earlier today after legislators failed to agree on proposed bill.
The Somaliland house of representatives was a scene chaotic during today’s motion while some MPs were in favor others vehemently opposed the draft commercial banking bill saying it wasn’t permissible with Islamic principles of finance, (sharia compliant finance).
The chairman of the house economy committee addressing the house said, “After consulting with top local Islamic scholars in the country on the ramifications draft commercial banking bill we came to the following conclusions
- Although the final decision on the bill rests with the house it is wise to avoid whatever deed or action which is permissible with the Islamic law and Somaliland constitution.
- The house should adhere by the advice of the Islamic scholars (Islamic law prohibits investing in businesses that are considered unlawful)
- To refer the bill back to the cabinet and cease further deliberation on this matter since it is un-Islamic to vote on such a bill.
The Islamic Sharia prohibits acceptance of specific interest or fees for loans of money (known as locally as Ribaa), whether the payment is fixed or floating. Investment in businesses that provide goods or services considered contrary to Islamic principles
The absence of commercial banks which are offering longer-term loans for investment creates a challenge for all Somaliland businesses, as investment for growth and expansion is limited to owner and investor equity.
The lack of investment capital also impacts public sector investment. Without access to bond markets and with limited investment from traditional sources of developing country capital such as the World Bank, it is difficult to improve infrastructure and other public goods that could contribute to wider economic growth.
Both Somaliland and Somalia has not seen non-state owned commercial banking since January 1971 when the military dictatorship regime nationalized the few existing commercial banks including the National & Grindlays Bank which was the only main commercial bank operating in Somaliland. It was only in its last year of rule when the country and economy was collapsing that the dictatorship passed belatedly a law allowing “private” commercial banking – Law No. 7 of 26 January 1989.