Over the past four years, the Tunisian economy has faced significant challenges which have increased pressure on Tunisia’s public finances and led to the country revising higher current account and fiscal deficits, indicating a significant deterioration in the debt burden over the past year.
In the same way, these challenges will continue to influence Tunisian banks’ financial performance despite the recent banking regulation enhancement and the development of the Islamic financial landscape in Tunisia.
The Tunisian banking system consists of 23 full-service banks, of which five banks are specialized (three Islamic banks, one SME finance bank and one microfinance bank).
The three Islamic banks are:
- Zitouna Bank, which obtained a license in May 2010
- Al Baraka Bank, which was transformed from a non-resident bank to an onshore bank in January 2014, and
- Wifack International Bank, which was transformed from a leasing company to an onshore bank and which was granted a banking license in November 2015 and authorized to transform its activity to Islamic banking.
There are also six Islamic mutual funds: ATID Fund (March 2009), Al Kaouther Fund (March 2010), FCPR MAX-Jasmin (2012 ), Theemar Investment Fund ( February 2013), UGFS Islamic Fund and CEA Islamic Fund ( December 2014).
Furthermore, four Takaful institutions were recently created: Zitouna Takaful (2011), El Amana Takaful, Al Takafulia Insurance (June 2013) and Tunis Re which created a dedicated unit, Tunis ReTakaful to meet the needs of the domestic market. In addition, there is also BEST RE (L) (April 1985) which is considered as an offshore reinsurance company (with headquarters based in Tunis) and as the world’s re-Takaful pioneer.
Another component of the Islamic financial landscape is Best Lease (1999) which is the only operator on the market of Islamic leasing in Tunisia.
Review of 2016
Zitouna Bank’s initiatives continued in 2016 after its successful TND40 million (US$17.41 million) local issuance in December 2015 of participative bonds for seven years (a hybrid facility with a fixed part of its yield of 6% and a variable part of up to 2%). Indeed, Zitouna Bank recently developed the activities of an Islamic microfinance fund, Zitouna Tamkeen, in partnership with the IDB.
Moreover, the Tunisian Solidarity Bank recently adopted the Islamic banking option in conformity with the new banking law to regularize the funding for projects supported by the IDB’s grant of US$50 million.
In 2016, Tunisia and the IDB signed an agreement to fund the gas turbine power plant in Mornaguia with a budget of US$200 million in addition to a US$27.7 million funding for the Sfax Integrated Agricultural Development Project.
Following certain major changes related to tax provisions (Finance Act 2014: the exemption of profit margin from value-added tax and the avoidance of double taxation on the transfer of properties) and those related to certain legal provisions (Sukuk law, Islamic funds and Takaful), the New Banking Law approved in 2016 introduces a number of changes to the functioning and supervision of the banking sector in order to reorganize it through the formal legal recognition of Islamic banking activities.
This banking law defines Islamic finance transactions (Murabahah, Ijarah, Mudarabah, Musharakah, Istisnah, Salam, Wadiah Istithmar) and also allows all banks to carry out Islamic finance transactions, subject to approval from the central bank (including for Islamic windows).
Preview of 2017
Although Islamic finance transactions are expressed in the law, and subject to the same law, the central bank is expected to elaborate more on this in early 2017 with a circular which will define these transactions and provide their regime.
Even though the law is placing Islamic finance transactions under the supervision of the central bank, it is also expected in 2017 that Shariah compliance will be well defined in the subsequent regulations (for example, the limits between the roles of the Shariah board, the board of directors and the central bank and the recognition of international regulations).
The following is a list of what should and perhaps what needs to happen for the Islamic finance industry to develop regarding the legal and regulatory framework:
- Tax and accounting aspects
- Convergence between Tunisian law and Islamic principles and even additional laws
- Conditions to accept the approval to perform Islamic banking activities
- New regulations with reference to the new banking law that will fit alongside with other laws
- New Islamic finance transactions not regulated by the banking law to be allowed in Tunisia, and
- SPV/trustee regulations and law to develop the Sukuk market and project finance.
Any public opinion or media appearance is the author’s independent personal opinion and should not be construed to represent any institution with whom the author is affiliated.
Mohamed Araar is the deputy director of external private financing and international relations at the General Directorate of External Financing and Settlements at the Central Bank of Tunisia. He can be contacted at [email protected].