July 31, 2013:
With population of just under 10.7 million, landmass of 165,000 square kilometers, financial sector as a representation of rest of Africa is 2.5 %. With this small size and significance on the globe, Islamic finance means to be the driver for growth for Tunisia.
It is the peculiarity of every developing country to have its fund flow from financial sound countries. The government of Tunisia has made efforts for such fund flows. However, rating companies such as Moody's still consider Tunisian Economy as an undercapitalized and fragile. The lawmakers have now decided to integrate Traditional Islamic Law with their national laws at a higher scale than before.
As said earlier Tunisia represents only 2.5 percent of the Africa's financial sector, with only two "Sharia-compliant" banks currently operating in Tunisia. One is the Bahraini-based bank Al Baraka, founded in 1983. Its services, however, are not available to residents of Tunisia. Tunisia's government has decided to issue sukuk, a kind of Islamic bond, to raise $700 million this year.
Mix Reaction for promoting Sukuk
With the announcement made by Tunisia Government that plans to issue Sukuk, to raise $700 million this year, has been opposed by few local politicians. It is believed that factors like the availability of ATM service at a reasonable cost and the location of bank branches were ultimately more important than religious factors in deciding which financial services to use. Only twelve percent of those surveyed cited Sharia as being very important in making such decisions.
In June, Thomson Reuters released a report on the Islamic finance industry in the country called "Cautiously Optimistic Tunisia" it was identified that favorable aspects of the Tunisian economic environment for Islamic finance, such as the existence of Islamic retail banking and the political will to support the industry. This was underscored by the announcement of the issuance of a sukuk in 2013 and the development of new Sharia-compliant funds in 2013.
Through Conventional Banking people can avail loans from the money lenders without government inference. These loans are negotiable as per the requirement of the borrower. However promoting Islamic banking would result into neglecting conventional banks. This would in turn affect the banking sector and the economy.
Tunisia OKs Islamic Sukuk Bond issues
And finally after a long stretched discussion on the Sukuk Bonds, followed by the pros and cons of the same, the Tunisian lawmakers on 17th July, 2013 approved the proposal for the state to issue Sukuk. The bill received 102 votes in favour in the vote in Parliament. Raising funds through Sukuk shall now enable the Tunisians Government to narrow down the gap of financial deficit and encourage more foreign exchange. The problem of mobilization of resources is not new in Tunisia however with the issue of Sukuk the same shall curb down in near future.
Future of Islamic Finance in Tunisia
It is expected that since the Tunisians that currently do not have bank accounts, an interest of conventional banks in offering Islamic financial products, and existing opportunities for financing small and medium enterprises which may been amenable to funding through Sharia-compliant financial products.
According to Thomson Reuters's report, Tunisia's Islamic financial assets could potentially grow to 40 percent of total financial assets to $28.5 billion by 2018 from a low base of just 2 percent. It confirms that the country will benefit from the anticipated Islamic finance regulatory framework expected to be in place by late 2014. It is expected that with Bill the Tunisian Government can get rid of the debts and make the economy much healthier than what is was before.
To add to the joys of the Tunisia's Ecomony the Saudi-based Islamic Development Bank (IDB) has decided to fund $1.2 billion. Tunisian Government has also signed a $1.7 billion standby loan agreement with the International Monetary Fund (IMF). Clubbing together all the recent happenings in Tunisia, it is expected to see the debt graph of the country to slope downwards in near future.
[Reported by: Pooja Rawal]