This study attempts to establish the relationship between banking sector
development and the financial performance of small and medium enterprises
in Mogadishu, Somalia. Financial intermediation theory is adopted to explain
this relationship. The study adopted a correlational research design with 55
SMEs operating in Mogadishu city, Somalia. These SMEs were purposively
selected. The study adopted a census, and thus, all the SMEs were included in
the analysis. Due to the unavailability of secondary data in Somalia, the study
relied on primary data, for which questionnaires were carefully designed
using the existing scales and available literature. This questionnaire was then
administered to the respondents who shared their responses and were
analyzed. Before collecting information from the respondents, the study
adopted the questionnaire in the pilot testing stage to ensure that it was
reliable and valid. The main analysis for this study includes means and
standard deviations (descriptive statistics) and correlation and regression
analysis. The results were that access to credit (p<0.05), bank deposits
(p<0.05), and customer savings (p<0.05) were all significant predictors of
increase in profits and stability of sales. The study concludes that banking
sector development is a significant predictor of the financial performance of
small and medium enterprises