Murabaha Financing and Profitability of Selected Islamic Banks in Mogadishu-Somalia

This study examined the relationship between Murabaha financing and the profitability of selected Islamic banks in Mogadishu, Somalia. A quantitative research approach was adopted, employing a correlational design to determine the nature and strength of the relationship between the study variables. The target population comprised 154 senior and middle-level staff drawn from Salaam Somali Bank and Premier Bank, including managing directors, chief financial officers, product development officers, customer care officers, and risk management officers. Using Yamane’s (1970) formula, a sample size of 111 respondents was determined. Data were analyzed using descriptive statistics and Pearson correlation analysis. The findings revealed a strong and positive statistically significant relationship between Murabaha financing and bank profitability (r = 0.882, p < 0.001), leading to the acceptance of the study hypothesis. The results indicate that Murabaha financing plays a critical role in enhancing the profitability of Islamic banks in Mogadishu. However, the study also notes that Islamic banks face operational challenges compared to interest-based banks, particularly due to their involvement in supervising financed projects. The study recommends that monetary authorities encourage Islamic banks to diversify their financing portfolios across multiple Islamic financing modes and reduce overreliance on Murabaha and collateral-based risk mitigation strategies to enhance financial sustainability and resilience.