Investigating the Socio-Cultural Dimensions of Financial Practices in the Fragile States: Lessons from Somalia

This study aims to investigate how sociocultural factors shape financial practices in fragile contexts such as Somalia. This study employs structural equation modeling (SEM) to analyze survey data collected from various sectors of Somali society in March 2024. The measurement model was tested for validity and reliability, whereas the structural model examined the hypothesized relationships among sociocultural factors, financial practices, and regulatory environments. The analysis reveals a statistically significant positive relationship between sociocultural factors and financial practices, affirming the centrality of trust, communal norms, and informal institutions in shaping financial behavior. The regulatory environment was found to play a mediating role, either facilitating or constraining the influence of sociocultural dynamics. Furthermore, communal financial perceptions and participation were strongly linked to broader socioeconomic outcomes. The findings underscore the need for culturally attuned financial policies that legitimize and integrate informal financial systems. This study proposes a novel multitheoretical framework in the context of Somalia, urging policymakers in fragile states to design hybrid regulatory systems that align financial inclusion efforts with the social and cultural embeddedness of financial behavior. By situating informal finance within its sociocultural and institutional context, mainstream development narratives that marginalize informal systems as transitional or deficient are challenging. The research extends the theoretical discourse by empirically validating the interplay between sociocultural dimensions, institutional environments, and financial practices in fragile states. It also advances methodological rigor in the field by applying SEM to model latent relationships in an underresearched context such as Somalia.