Garowe Micro-Finance Fair: Promoting Financial Inclusion: What Have We Learned

Feature Article Garowe Micro-finance Fair: Promoting Financial Inclusion held Garoowe, Somalia
AUG 10, 2022 LISTEN
Garowe Micro-finance Fair: Promoting Financial Inclusion held Garoowe, Somalia

On 8th August, Garoowe hosted its first Microfinance fair organized by the Africa Enterprise challenge fund with the collaboration of Commerce ministry, Puntland state of Somalia, under the theme of “Promoting Financial inclusion”. The event provided opportunity for the banks, MFIs, policymakers, NGOs, incubation hubs and universities to discuss access to finance for women, youth, and agricultural producer groups.

This article seeks to address key challenges faced by MSMEs in Puntland, and Identify clear measures that can address the regulatory and non-regulatory barriers for MSME access to finance, and finally give detailed recommendations based on the findings of a number of panelists in the event.

  • Challenges and Opportunities

Walking about at Inji market, in the Main road of Garowe city in Puntland state of Somalia, you will see many young people selling a range of products, from vegetables and fruits to electronic materials. It is such a busy place, and you will find nearly anything to meet your needs across many sectors of the economy. The traders are either mostly employed to run the business or it is their own. Such kind of market situation is a common sight in trading centers around this country of nearly 15 million people and an estimated 2 million micro small and medium sized enterprises (MSMEs).

These largely informal micro-enterprises are major part of the private sector in Puntland. The Ministry of commerce of Puntland estimates that MSME sector contributes about 80% of gross domestic product (GDP) and 70% of employment. This contribution is not small.

Despite their number and potential to contribute more to the economy, the capacity of the MSMEs to expand remains low because they often do not have the same access to finance and networks as larger businesses. They lack financing and have limitations in many areas such as business planning and management, book-keeping, financial management, marketing, and employee management. Sometimes, they simply do not have the resources to pay for support services that can help business growth and resilience. In addition to the high cost of formal credit by the banks (24% interest rate), the MSMEs tend to depend on informal credit mechanisms, Hagbad(rotating savings) and contributions from family and friends. These sources provide expensive money. But who can blame them when access to finances by such MSMEs from financial institutions requires fulfilling several unattainable conditions?

Imagine if half of millions of micro, small and medium-sized enterprises would be easily registered and given tax breaks, were able to access credit, technology platforms and capacity-building; Somalia’s challenges of weak growth and job creation will obviously be partly addressed.

But for now, the challenges remain, the young vendors at Inji market continue to ply their trade with few prospects for scaling their business. It is time to revolutionize and give them a good push for their own economic benefit and that of the country, too.

Furthermore, Women-owned/led MSMEs are often disproportionately excluded from access to finance due to structural or other barriers impeding women’s access to formal financial services, as well as inadequate knowledge of women’s financial services. In response, deliberate policy interventions is needed to address these barriers which will harness the economic potential of women to start and run MSMEs and expand access to finance for existing MSMEs operated by women.


  1. Accessibility

The MSMEs primarily rely on bank finance for their operations and as such ensuring timely and adequate flow of credit to the sector which remains one of the most acute constraints for small and medium-sized enterprises (SMEs) in Puntland. Due to their smaller size, limited experience, and undocumented performance, these SMEs can be very risky to lenders—because they operate challenging environments. Recognizing the important role played by MSMEs in economic development and its sizeable contribution to employment and GDP, and realizing that financial access is critical for MSMEs growth and development, Government initiatives that improve access to finance is required, the government is thus expected:

  • To establish a cross-agency oversight or monitoring structure that will ensure financial inclusion actions relevant to MSMEs are effectively implemented.
  • To easily facilitate regulatory documents required for MSMEs including residence I.D and Business permit at very low service fee.
  • To implement macro and fiscal relief through tax exemptions,
  • To officially conduct effective monitoring and evaluation of the performance of the MSME sector and develop informed policies.

2. Affordability. With the higher interest rate financial institutions require when providing finance to MSMEs, and the unattainable condition such as well-known guarantee person who can pay back the finance they give to MSMEs, local banks and micro-finance institutions operating in the region are expected:

  • To develop Clear eligibility criteria, transparent processes, a consistent risk-based financing policy.
  • To use alternative financing conditions for credit assessments and scoring for MSMEs, especially conducting feasibility study for any business idea and check its viability.
  • To lower interest rates for MSMES accessing finance.

3. Incubation
The hubs and universities working in the area have big role to play in promoting MSMEs validate their business idea, be financially literate, and conduct planning and management for their business effectively. They’re then expected to:

  • To create Awareness and digital literacy enhance trust, confidence and the use of digital platforms, including technology-based alternative credit mechanisms such as crowdfunding.
  • To train MSMEs in many areas such as business planning and management, book-keeping, financial management, marketing, and employee management.
  • To conduct research on how much finance MSMES require in their current setting.

MSMEs are the engine of growth and development of our country. They contribute significantly to output and employment generation in the economy. Their role is particularly important in providing employment to semi- skilled and unskilled workers. They act as ancillary units to the large companies and compliment them in the socio-economic growth of the country.

To ensure long-term sustainable economic growth, MSMEs need access to finance. Individuals and businesses need to have access to useful and affordable financial products and services that meet their needs—transactions, payments, savings, and credit.

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