1. Introduction
Somalia’s informal money transfer operators provided limited financial services and billions of dollars from the diaspora into Somalia since the central government’s collapse in 1991 (Hassan, 2017). Some of the Somali remittance companies transformed into Islamic banks. There are differences between Islamic and conventional banks, for example, the replacement of interest-bearing agreements in conventional banks by return-bearing contracts in Islamic banks, where the lender and the borrower share the profits and losses and risks (Khediri et al., 2015). An interest-less operation is a significant aspect of Islamic banks, so people call them Riba (interest) free banks (Jafari, 2017). Another essential feature of Islamic finance is its role in tackling financial exclusion on religious grounds for less advantaged people (Warsame & Ireri, 2018). The Islamic finance industry comprises four segments: banking, Sukuk (bonds), equity and funds, and takaful (insurance; Sidlo, 2017). The Islamic finance industry comprises four segments: banking, Sukuk (bonds), equity and funds, and takaful (insurance; Sidlo, 2017). The Islamic banking sector comprises approximately 75% of all Islamic financial resources under management. Some Somali remittance companies went through a modular change (Todnem, 2005) that involved significant modifications of one or several departments or units of an organization. The transformation from remittance companies into Islamic banks was a new phenomenon with no existing literature. To address that gap, this study entailed exploring the lived experiences of a sample of 10 leaders of Somali remittance companies that transformed into Islamic banks.
2. Background of the Study
In 1991, the Somali state institutions, including the government-owned banks, collapsed (Rayner, 1991). Since then, remittances, which control money inflows from the diaspora, have become a significant income source for Somalia’s families and communities (Hassan, 2017). Remittance companies operate informal networks of small shops that collect money from the Somalis in the diaspora and pay the beneficiaries in Somalia while collecting their proceeds upfront. The estimates of remittances from the diaspora into Somalia were 1.4 billion USD in 2015, which equated to 24% of Somalia’s GDP (ENP Newswire, 2016). That surpassed the amount of money that Somalia attained in humanitarian assistance, development assistance, and foreign direct investment (Paul et al., 2015). Money transfer businesses, also known as hawalas, provide access to financial services across Somalia in places where formal banking systems do not exist to process transfer dealings (Cotter & Durner, 2015). The Central Bank of Somalia (CBS) regulates both the remittance companies and Islamic banks. The central bank issued law number 130 (Central Bank of Somalia, 2012), which stated that all banks including the central bank itself to be Islamic. However, the CBS has neither the human resources capacity nor the expertise to monitor Somalia’s financial services providers as it only began operations in 2012 (Sufi, 2016). The Somali currency in circulation is fake, and the central bank does not have the authority to regulate the U.S. dollar, which is currently the primary currency in use in Somalia (Dalmar, 2015). Another challenge in Somalia was that although some remittance companies transformed into Islamic banks, the central has no cadre that have Islamic banking expertise. That could make the change management of the remittance companies’ transformation into Islamic banks more challenging. Although some Somali remittance companies transformed to Islamic banks inside Somalia, there is a scarcity of studies written about Somalia’s Islamic banks (Sufi, 2016).
The organizational change in Somalia’s financial services industry needs effective leadership strategies for its leaders to implement the transformation from money transfer business into Islamic banks. Understanding the transformation process from remittance companies into Islamic banks may help the Central Bank of Somalia devise policies that will govern Islamic banking institutions in Somalia. That may also help the regulators develop regulatory procedures that measure the new banks’ level of compliance. One outcome of this study may be to stimulate further research into transforming money business services into Islamic banks. Researching this new topic is essential because it could deepen the current understanding of the transformation process and help other Somali remittance businesses successfully transform into Islamic banks.
3. Research Methodology
The purpose of this study was to explore the lived experiences of the leaders of Somali remittance companies that transformed into Islamic banks. The research method of the inquiry was qualitative, and the research design was phenomenology. Aspers and Corte (2019: p. 155) defined “qualitative research as an iterative process in which improved understanding to the scientific community is achieved by making new significant distinctions resulting from getting closer to the phenomenon studied.” Phenomenology is a qualitative methodology in which investigators aspire to create new understandings of peoples’ lived experiences, depending on first-person descriptions usually attained through participant interviews (Gentles et al., 2015). The population of this study was the leaders of five Somali remittance companies, which transformed into Islamic banks, and the plan was to recruit 10 - 20 participants. However, due to the Covid-19 pandemic, only three banks participated in the research. In qualitative research, the logic of selection grounds on the usefulness of information-rich cases and developing in-depth comprehension not available through random sampling (Reybold et al., 2013). A purposeful sampling strategy based on the assumption that all members had the knowledge and experiences of the transformation process was the participants’ selection method of this inquiry.
Ten leaders from three banks participated in this study, and an open-ended face-to-face interview was the data collection method. The researcher created the interview protocol of this investigation comprised of 10 questions, which answered the research question, and each interview took about 45 minutes. During the interview, I used phenomenological reduction consciously, which enabled me to temporarily set aside my own beliefs, experiences, and judgments (Converse, 2012). Unlike theoretical saturation, data saturation signifies reaching a stage of informational redundancy where further information gathering contributes little or nothing novel to the inquiry (Gentles et al., 2015). Data saturation occurred after 10 interviews. The interviewees’ responses related to the research question. Issues such as what influenced the Somali remittance organizations’ leaders to transform their remittance companies into Islamic banks, the challenges they faced, and what they did to overcome the challenges were the essence of the collected data. Williamson et al. (2018) argued that thematic analysis and category coding, qualitative content analysis, and discourse analysis are the three approaches to data analysis. The data analysis method of the study was Giorgi’s (1975) four-stage phenomenological data analysis method, which conforms to thematic analysis and category coding, and Microsoft Excel was the analysis tool. Giorgi’s method involves 1) reading through the transcripts several times to gain an understanding of the whole, 2) ascertaining the natural meaning units as the participant describes them, 3) cross-examining the meaning units in terms of the specific aim of the inquiry, and (4) after identification of the themes, incorporating the essential, nonredundant ideas into a descriptive statement.
4. Results
As this study’s nature is phenomenology, the emphasis was on describing the participants’ lived experiences without additions or deletions. Descriptive phenomenology is fundamentally different from other qualitative methods because of the presentation of psychological knowledge without theorizing, placing a thematic focus on discourse, literary similarities, or theoretically based interpretation (Wertz et al., 2011). There were many themes, which emerged after the data analysis. The most significant findings of this study are the eight essential, nonredundant themes that 50% or more of the 10 participants mentioned in response to the interview questions. The following paragraphs contain insights drawn from the most significant findings of the study.
4.1. Theme 1: Existing Demand
Most of the participants (70%) expressed that what motivated their organizations to transform into Islamic banks’ was existing demand for their services in the market. Remittance companies dominated Somalia’s financial sector until the Central Bank of Somalia reopened in 2012, and some remittance companies began transforming into Islamic banks. The public did not have bank accounts and had no opportunity to get loans or investments in their business. Somali society is also 100% Muslim, which created a massive demand for Shariah-compliant products that only Islamic banks could satisfy. The new Islamic banks filled a market gap: a lack of banking institutions created since Somalia’s central government collapsed in 1991. The creation of these banks benefited millions of Somalis who did not have the opportunity to have bank accounts or deal with banks before.
4.2. Theme 2: Staff Recruitment
Staff recruitment was one of the most significant aspects of the transformation process according to 60% of the participants. Somalia had no skilled staff that could work in the new Islamic banks. A primary task of the organizations was recruiting new qualified employees to fill that gap. Some organizations trained their remittance staff and shifted them to the new banks to build sufficient human resources. Others mixed new teams with the trainable existing staff. In contrast, other organizations recruited a new workforce for their new Islamic banks. An organization intent on transforming itself into an Islamic bank could create the best plans and build the organizational structure. Still, these efforts would be fruitless without the right workers to implement the strategies and achieve them, so the leaders spent a lot of money and time building teams that could operate the new Islamic banks effectively.
4.3. Theme 3: Marketing
A significant job that 50% of the participants stated they did during the transformation was marketing. Marketing was an opportunity as well as a challenge for the leaders. The organizations introduced new banks that offered Shariah-compliant products and services. Branding of the organizations was the first marketing step the leaders said they took. This involved creating awareness by educating the public about what the new Islamic banks stand for, what Islamic banking services and products mean, and the benefits of dealing with Islamic banks. Marketing media were available at competitive rates. The organizations used TV, radio, signboards, and social media in their marketing campaigns, although expertise was not as good as in the developed world. Somalia lacked professional advertising agencies to perform the essential aspects of marketing communications strategy during the transformation process. Qualified marketers were also scarce. Only 20% of the participants had a full grasp of marketing, one of whom had earned a marketing degree in Malaysia. Another challenge of marketing was how difficult it was to convince the customers of the Shariah compliance of the products and services. One participant said they employed religious scholars to explain their products’ compliance with Shariah through the TV for many months. Other participants described how challenging it was to change customers’ perceptions about Islamic banking, as customers did not know the difference between conventional and Islamic banks.
4.4. Theme 4: Transformational Leadership
The consensus among the leaders was the use of transformational leadership strategy to facilitate the transition. Every participant stated that his organization trained and developed their employees. The leaders delegated power and trusted the employees to do their jobs without fear or excessive supervision. They created new departments and a new hierarchy of management. In return, the leaders earned their staff’s trust and were rewarded with outstanding employee performances. These actions reflected the essence of transformational leadership, which entails mutual trust and collaboration, and resulted in the new Islamic banks’ smooth operations.
4.5. Theme 5: Theory O
According to Beer and Nohria (2000), 70% of the organizational change initiatives fail due to managerial mistakes. Instead of executing a radical change, 70% of the participants stated they followed a step-by-step change approach. After they obtained their Islamic banking license, the organizations started recruiting staff, sourcing software, hiring consulting companies, recruiting new teams, and training their previous staff. They began integrating their remittance offices into the bank, created departments, and started offering their services and products to the public. Slowly implementing these efficient organizational change strategies is what the leaders did, and it resulted in the organizations achieving their goals.
4.6. Theme 6: Resistance to Change
Heathfield (2020) stated that resistance to change is challenging or fighting to present alterations or transformations that change the status quo. Resistance can be covert or overt, organized or individual. Staff resistance to change is a common challenge for every organization that seeks to make a change. Fifty percent of the participants said they met resistance to change from their employees. Concern for loss of jobs, salary, or status were the main aspects of staff resistance. Organizations used different strategies to tackle that challenge. Some participants said they prepared their staff for the change through training and development before opening their first Islamic bank branch. Others stated that they mixed training with incentives, whereas other organizations released those who resisted changes and provided compensation to them. That implies that resistance was inevitable when making organizational change, and there was no single approach to offsetting it. In general, organizations expected staff resistance and managed their staff as appropriately as possible to mitigate the challenges of resistance to change.
4.7. Theme 7: Shariah-Compliant Products
The expected outcome of the transformation process was Islamic banks that offer Shariah-compliant products. That was what all participants stated their organizations began doing when they transformed into Islamic banks. Shariah-compliant products satisfy the Somali society’s need for non-interest-bearing Islamic banking products. The products that all participants said they offer are Islamic microfinance and murabaha. All investment schemes, such as car finance, real estate finance, and trade finance, used Marabaha as the Shariah-compliant finance instrument. The banks invested in small businesses through their microfinance schemes. There was also a non-profit bearing small personal loans called Qard-Alhasan, which benefited many people and created financial inclusion opportunities for millions of people in Somalia.
4.8. Theme 8: Plan Subject to the Lifting of the Ban on Somalia
According to 50% of the participants, Somalia was under a geographical risk ban. Full international recognition of the Central Bank of Somalia had not yet happened. AML and terror financing were a primary concern of the global financial institutions. This resulted in a lack of international recognition for all Islamic banks operating in Somalia. However, the participants stated that planning for the transition was underway and would be completed after the global financial institutions lift the ban on Somalia, which is expected to happen sometime in 2022 according to the participants.
5. Discussion
Leadership is the process that synchronizes the achievement of better life for humans, and it plays a vital role in establishing a society, which governs itself according to the values and procedures of Islam (Jamsari et al., 2012). This study concerns a leadership and organizational change project, which is unique as no studies of this nature were available in the literature. Finding out what the leaders of the Somali remittance companies did to transform into Islamic banks was the essence of the study. As organizational change is inevitable, Kral and Kralova (2016) stated that companies must attune their operations to the changing environment and organizational structures according to new operational models. All participating companies adjusted their worker behaviors to match a new strategic direction to alter the formal organization structure (Beer & Nohria, 2000). There were many themes or strategies that the leaders used to transform into Islamic banks, the most significant of which were the eight strategies described in the results section. Moran & Brightman (2001) stated that change management is the activity of continually renovating an organization’s course, makeup, and competencies to satisfy the ever-changing requirements of its external and internal customers. All participating banks changed their remittance organizations’ structure and adapted to the new circumstances, which emerged from becoming Islamic banks. The change varies from a shift in a single business process to transforming the entire establishment (AlManei et al., 2018). Most leaders employed Beer and Nohria’s Theory O change strategy to effect a meaningful change as it involved transforming the whole company and development of employees. Change needs effective leadership, which introduces it successfully and manages it well to be sustainable (Khan et al., 2016).
Transformational leaders nurture workers’ eagerness for and commitment to change, affect workers’ readiness for organizational change, and inspire them to support the change (Faupel & Süß, 2019). Using transformational leadership strategy, the leaders prepared their employees to transform the remittance companies into Islamic banks. Some leaders trained and developed their staff before their organizations changed, while others recruited new teams and trained some of their existing staff during the process. The leaders motivated the workers to work at ease without excessive supervision and factored their inputs into the decision-making process. One leader stated that his organization established employee committees to find the best approach to transform their organization into an Islamic bank. That diminished resistance to change, which conforms to By’s (2020) argument of creating and sustaining high levels of organizational change willingness. The transformation process was successful because Islam as the concept of leadership is consistent with trusting (Amanah), which implies a psychological contract between a leader and his followers whereby the leader will do his best to guide, guard, and deal with them equally and with justice (Trmal et al., 2015). Also, Mujani et al. (2012) stated that Quran stipulates that Muslim leaders must imitate the leadership of the Prophet (PBUH) in the affairs of this world and hereafter. Based on the words of Allah in Surah al-Ahzab, 21: “There has certainly been for you in the Messenger of Allah an excellent pattern for anyone whose hope is in Allah and the Last day and (who) remembers Allah often.” Acting upon these principles, the leaders of some Somali remittance companies transformed into Islamic banks.
Finally, five banks, which transformed from remittances, operate in Somalia and serve the public with Islamic Shariah-compliant products and services. Some participants stated that the transformation process was challenging. In contrast, others noted that it was a learning process, but sourcing the software was challenging because of non-availability of such products in Somalia. The leaders did a pioneering job that no other remittance company in the world did before them. Therefore, the findings of this study will contribute to the literature and provide more opportunities for more research into this field.
6. Implications
Dunfey (2019) stated that sociologists describe social change as changes in human relations and associations that transform cultural and social institutions. The remittance companies’ transformation into Islamic banks had positive social change implications for millions of Somali people who never had financial inclusion. The transformation process study shed light on many significant matters that showed the alterations that positively affected the organizations, their employees, and their leaders. The leaders learned from the study and the transformation process. During the data collection stage, some participants told me they learned many things from the interviews, which could be a positive social change that would stay with them in the future. They stated that money transfer companies’ operations were only receiving money from the customers and paying money to the beneficiaries—no skill requirements or training for the staff. Instead, every employee who worked for the remittance companies and accepted the organizational change was trained and developed, learning new skills and acquiring Islamic banking expertise. This was an individual positive social change for the employees that positively affected their financial industry careers. Understanding what the leaders did to transform their organizations and workers may positively impact the academic community who had no knowledge or experience of this phenomenon. All participants said they never met anyone who showed interest in studying their lived experiences of transforming from remittances to Islamic banks. After reflecting on what they did, participants found that information about leadership and organizational change strategies I presented to them before the interviews augmented their learning curve. This might also benefit their organizations’ future leadership strategies and could be an organizational level positive social change. Many individuals benefited from the new Islamic banks and supported their families by obtaining microfinancing and shariah-compliant products and services. In turn, the banks made profits and banking customer experiences. It was a mutual benefit for both parties, the description of which this study covered, and a potentially positive social change.
7. Conclusion
This first-of-its-kind study covered a unique organizational change project that fills a literature gap. Exploring the lived experiences of the leaders of Somali remittance companies that transformed into Islamic banks was the purpose of this inquiry. The participant’s responses to the interview questions provided the data necessary to answer the research question and achieve the study goal. The study results confirmed the use of some well-known leadership and organizational change strategies, which I presented in the results section. The research outcome also confirmed that the new Islamic banks offered Shariah-compliant products and services as other Islamic banks globally. The study results indicated that existing demand was the most significant motivator and driver of the organizational change process. Many organizations met a significant staff resistance challenge, and marketing was both an opportunity to educate customers and a challenge to implement for them. Interpretation of this study’s findings was challenging due to the lack of previous research findings on this research topic. Further research on the effectiveness of the new banks and their effect on Somali society is necessary. Besides its contribution to the literature, this study has many social change implications, including public access to Shariah-compliant products and services.