In 2019, online forex trading companies rapidly emerged in Somalia, attracting hundreds of young traders. Over 90 forex companies were registered, and around 20,000 people invested in the retail forex market. The forex market was initially seen as a promising source of wealth and employment for struggling youth. However, the reality was starkly different—millions of dollars were lost, with much of it illicitly taken out of the country. Almost all investors, estimated at around 100 million dollars, lost their entire investments.
AARAN Center analyzed 62 forex companies managing a total capital of over 94 million dollars. Our survey revealed that more than 90% of customers either lost their entire investments or recovered very little. These companies lacked licenses from the Central Bank of Somalia (CBS), and there is currently no regulatory framework to protect investors from scams and fraud.
The Somali government’s handling of forex fraud raised concerns about politically exposed persons (PEPs), as a significant number of politicians are either involved in or have vested interests in these forex companies. Beyond registration and licensing, another key issue is the permissibility of forex trading in Islam. Given Somalia’s Muslim majority, the paper explores the religious concerns surrounding forex trading.
The introduction of forex trading in Somalia has left a negative legacy with significant socio-economic consequences. The Somali government must act swiftly to establish a regulatory framework and safeguards to protect novice investors from further exploitation.
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