Banking sector development and financial performance of small and medium enterprises in Mogadishu, Somalia

Abstract

This study attempts to establish the relationship between banking sector development and the financial performance of small and medium enterprises in Mogadishu, Somalia. Financial intermediation theory is adopted to explain this relationship. The study adopted a correlational research design with 55 SMEs operating in Mogadishu city, Somalia. These SMEs were purposively selected. The study adopted a census, and thus, all the SMEs were included in the analysis. Due to the unavailability of secondary data in Somalia, the study relied on primary data, for which questionnaires were carefully designed using the existing scales and available literature. This questionnaire was then administered to the respondents who shared their responses and were analyzed. Before collecting information from the respondents, the study adopted the questionnaire in the pilot testing stage to ensure that it was reliable and valid. The main analysis for this study includes means and standard deviations (descriptive statistics) and correlation and regression analysis. The results were that access to credit (p<0.05), bank deposits (p<0.05), and customer savings (p<0.05) were all significant predictors of increase in profits and stability of sales. The study concludes that banking sector development is a significant predictor of the financial performance of small and medium enterprises.

Credit Risk and the Financial Performance of Commercial Banks in Somalia.

“…As a result of their reaction to the perceived danger, their operations have shrunk, resulting in lower profitability and returns. This has resulted in a significant loss of public trust in the banking sector and the overall financial system and economy (Abdi, 2023). The Somali economy is becoming increasingly open, with international trade expanding all the time, exposing Somali businesses to foreign exchange rate volatility.…”

“…Changes in comparable prices can impact a company's competitive market position, causing changes in cash flows and, ultimately, the company's value. While firms in developed economies use a variety of instruments to manage financial risks, it is unclear whether their full potential is being realized in developing economies, particularly Somalia (Abdi, 2023). Even though financial risk has increased dramatically in recent years, risk management is not a new challenge.…”