The days when Djibouti only had two banks that shared the market without real competition. Over the past 20 years, the bank's landscape has changed dramatically. Twelve institutions are operating, with two new institutions – Egyptian Banks (MISR) and Australian Banks – preparing for the establishment.
This transformation was gradually carried out through a series of reforms that began in 2004-2005. “These reforms and the economic performance of Djibouti have made banks booming,” says Ahmed Osman Ali, governor of the central bank.
The financial sector has attracted investors of a wide range of nationalities, including France, Ethiopia, Moroccan, Chinese, Bahraini, and Yemen. “The banking market is booming. There is still space for new players in the country where economic growth fluctuates between 6% and 7%. It's a prominent rate in a global context.”
This banking boom is based on clear strategies and economic choices designed to make Djibouti an attractive financial center. Measures include modernising the regulatory framework, lack of exchange control and, above all, pegging of Djibouti Franc, the local currency of Djibouti Franc since 1949. Under the Monetary Commission System, each franc is supported by an equal amount. “This ensures financial stability, which is rare in Africa, and provides a complete conversion to ensure international transactions,” said a banking executive.
However, Abdallah Ibrahim Abdallah – Red Sea (BCIMR), Associate CEO of the Bank of Trade and Industry, said, “Unlike other systems, we cannot intervene as a lender of last resort for financial institutions. Capital.”
Over the first three quarters of 2024, bank assets rose 16.3%, driven by a rise in loans. Access rates to banking services follow the same trend. “It's rising from 7% in 2005 to 32% today,” says Ahmed Osman Ali. Increases stimulated primarily by the growth of Islamic finance.
Introducing Islamic finance
Since the introduction of Islamic finance in 2006, three full-scale Islamic banks, the Saba Africa Bank, the Salaam Bank and the East Africa Bank have quickly been established. “They meet specific needs. The majority of the population (98%) are Muslims and prefer to avoid banking products that include interest rates for Sharia compliance. Today, these banks represent around 20% of the banking market.” Furthermore, they inject liquidity into sectors that are often ignored by traditional banks.
Unlike traditional institutions, these banks invest directly in strategic sectors such as real estate and insurance. “They combine the roles of banks and economic managers, which distinguishes them from traditional banks,” the bankers say.
To make financial services more accessible to populations, microfinance is structured around a collaborative model with more flexible terms for opening accounts. Similarly, the executive order requires businesses to pay salaries over 40,000 Djibouti francs ($225) through bank accounts.
International Finance Hub
Rachid Muremangingo, CEO of Bank of Africa Mer Rouge, said, “Djibouti has what it takes to become an international financial hub. Its financial, political and security stability allows it to envision an ambitious development plan. However, he warns that investment in training is essential for the workforce to improve skills and respond to this expansion.
To achieve that objective, Djibouti must meet some expectations, particularly from the perspective of financial institutions. “We need to develop stock and bond markets while encouraging the creation of investment funds,” Slimferiani argues. “With FSD, we launched our first crowdfunding platform, but we need to go further,” he says.
Another important issue is compliance with international standards. In November 2024, Djibouti concluded a mutual assessment by the Middle East and North African Financial Conduct Task Force (MENA FATF), designed to measure effectiveness in AML/CFT.
To ensure full compliance with international standards, Djibouti has strengthened its financial oversight.
By the end of 2024, six technical subcommittees were established with the aim of fully aligning with the Financial Action Task Force (FATF) requirements, and new strategies were adopted to combat organized crime, corruption and terrorism.
Djibouti, East African stepping stone?
The stable banking framework places the country as an entrance to banks that want to establish themselves on the Horn of Africa and more broadly in East Africa.
In fact, progressive liberalization of Ethiopia's banking sector offers new opportunities for Djibouti, which can capture 1320m of population and neighbors' share of the financial market. “There is a direct link between the Djiboutian and Ethiopian economies. The point of convergence is Djibouti,” says Mulemangingo of Marrouge, the African Bank.
But that's a double-edged relationship. “If the Ethiopian economy slows down or its stability decreases, Djibouti will feel an immediate impact,” said an industry executive. Furthermore, the country must overcome other external challenges, such as the Ukrainian war that disrupted the markets and the Hooty attacks in the Red Sea.
“All this has a direct impact on customers. Costs are rising, uncertainty is weighing supplies and traders need to accumulate safety stock,” the observer said.
Djibouti has laid a solid foundation in its quest to become an East African financial hub like Singapore, Asia. However, BCIMR's Abdallah is not enough to attract banks. “Local and multinational companies need to set up in Djibouti to raise funds and then raise funds there.”
