IITE Institute invited guest speakers from the public and private sectors for a TV and Radio Show on the obstacles and opportunities in line with trade finance for startups in Mogadishu at Goobjoog Studio. The goal of the TV show was to help IITE Institute and its startups better understand the trade finance landscape in Mogadishu, Somalia.
The purpose is to help the incubated startups learn from their potential ideas on economic prospects in Somalia and have improved through social media campaigns leading Mogadishu to a target of 1,000 listeners per month. Guest speakers for the Radio/TV Show consisted of persons from startups, Government, and Bank (s). Guiding questions were provided to guest speakers in advance to facilitate the interview process smoothly for brilliant discussion.
Among the four guest speakers were Abdirizack Hassan Yussuf, Director of investment at the Ministry of Commerce and Industry (MoCI); Maryamo Mohamed Ahmed, Co-founder of SomHealing and Mindful service; Ismail Abdalla Ali, Founder of Cagaaran Company; and Khadija Abdi Hassan, Credit officer at IBS Bank.
According to Abdirizack Hassan Yussuf, the Somali government is struggling to boost the country’s economy with SMEs and Startups. So far there are policies like foreign investment law, SMEs Policy and currently lobbying legal framework for Startups. The Ministry of Commerce and Industry (MoCI) is building the capacity of SMEs and Startups to run their own businesses. MoCI has national priorities like economic development through fishing, solar energy, livestock, and farming. The line ministries have several projects to implement regarding their programs in partnership with the Somali Chamber of Commerce and Industry, Japan International Cooperation Agency (JICA), United Nations Industrial Development Organization (UNIDO), Academia, and many more. So far, there are four (4) training centers known as the Enterprises Development Unit (EDU) which is meant to build the capacity of SMEs & Startups in Mogadishu, Kismayu, Beletweine, and Baidoa. The aim is to ensure youth access life skills training at the nearest center leading them to establish their own businesses. The centers offer counseling, mentorship, and coaching.
Maryamo Mohamed Ahmed mentioned that challenges startups face can be their weaknesses in terms of capacity and there can be external factors like lack of capital investment from banks and even government regulations can be obstacles. Also, startups have barriers to trade finance due to their poor planning and lack of business skills. Currently, Somalia has business potentiality since gaps can be turned into market opportunities. According to Maryamo, when she was learning the core life skills (CLS) at IITE Institute of SIMAD University, she was taught more about “the tree of Life”. This tree of life can be adapted to everything and if startups adapt that can help boost their businesses. The tree has roots and the business roots of startups are their ideas, their inspiration, and their value of product and service. The trunk of the tree can represent their customers and market. The tree requires sun, rain, and overall weather to grow. Those are external things, which are not controlled inside the tree. So, the legal framework as an external factor for startups is one of the conditions that lead the startups to thrive and comply. Without proper conditions, it will always be hard to thrive no matter how startups have bright ideas but a strong foundation is needed for business success.
According to Khadija Abdi Hassan, startup capital and competition are the most obvious challenges faced by startup incubators. Most startups in Somalia face difficulties in raising capital. Entrepreneurs and small business owners do not have easy access to finance to expand their businesses, and they usually encounter problems of collateral, additional bank fees, an inability to evaluate financial proposals, and limited financial knowledge, which makes it difficult for small businesses to access investment opportunities. While funding challenges are slowly easing, Somalia still has a very huge gap to fill in terms of infrastructure. For a business to prosper successfully, basic needs such as good roads, adequate transportation systems, fast internet services, and continuous power must be provided by either the government or the private sector. The solution for startups is to ensure that their business idea is unique, creative, and consistent within its sector. Trust in business is gained over a long period of time and cannot be purchased. It is important for startups to build their customer base patiently and sincerely with goods and services that are unique to them. The bank also gives out other types of investment which are mostly given to business owners or entrepreneurs. Microfinance is a type of investment given to small businesses/entrepreneurs. This is divided into two micro-credit and micro-investment. Micro-credit is the type of loan given as cash to small business owners. The minimum is 500USD and the maximum 1000 USD. It is given to a group of five people who own the same type of business in the same area. The guarantee needed is a group guarantee. Micro-investment is the type of loan that starts from 1,500 USD to 5,000 USD. The bank buys commodities for the client and the profit is less compared to Murabaha investment. The Bank also offers a Letter of Guarantee and a Letter of Credit to IBS clients. SMEs get loans from the bank from $50,000 – $100,000 by working together with Gargaara Bank for four sectors like Fishing, Noble energy/Solar, farms, and animals. IBS Bank gives letters of Credit, to companies with commodities at international markets for shipment trust since Somalia is under fragile state with less business confidence. IBS is carrying out such support to Startups and SMEs in partnerships with Gargaara Bank, Central Bank of Somalia, UNIDO, and ILO.
Ismail Abdalla Ali stated that Lack of funding, lack of security, and lack of infrastructure are some of the challenges startups face. The youth can start their own businesses after training. He mentioned that there is a monopoly in the local market and Somalia has got limitations on standardization when it comes to international markets. According to him training and capacity building are the most important things that help startups to succeed.
Finally, youth are 75% of the population in Somalia and require a roadmap for the establishment of startups including enabling environments and many more. There is needed to form Business Associations like Farming Association, Livestock Association, and Fishing Associations, and etc. These associations will help the government to respond to business strategy easily.