Tunisia’s Islamic Finance Push Has Political Echoes

By Tarek Amara

TUNIS, Oct 10 (Reuters) – After decades of secular rule, Tunisia’s government aims to develop Islamic banking in the country, but some suspect the government’s motives are more political than economic: it wants to win the support of voters.

Governments across North Africa are promoting Islamic finance in the wake of last year’s Arab Spring uprisings, which ousted regimes that neglected or discouraged the business for ideological reasons.

The change of policy could bring economic benefits, giving the countries more access to a huge pool of Islamic investment funds from the Gulf. But as the controversy in Tunisia shows, there are political complications.

“Tunisia is looking to become a regional center for Islamic finance,” Tunisian Prime Minister Hamadi Jbeli declared in June.
Jbeli, a member of the moderate Islamist Ennahda movement which leads Tunisia’s government after the overthrow of president Zine al-Abidine Ben Ali last year, said authorities would ensure that Islamic banks were able to compete on a level playing field with conventional banks.

But some of Ennahda’s political rivals accuse the movement of using the issue to attract fresh support and head off any challenge from hardline Islamists in parliamentary elections expected next year, regardless of economic considerations.

Ploughing scarce resources into Islamic banking could end up hurting the economy if it dilutes state support for conventional banks, and creates new Islamic lenders that increase competition while not being fully viable themselves, critics argue.

“The focus on talking about Islamic finance over the past few months is only political propaganda before the next election,” said Adel Chaouch, an official in the Nida Touns, a secular party. “Talking about Islamic banks may increase divisions among Tunisians.”

Economy

Ennahda says Islamic finance, which obeys religious principles such as bans on the payment of interest and pure monetary speculation, will help the economy recover from the damage it suffered during Ben Ali’s overthrow.

Nearby countries have similar hopes. Egypt’s Muslim Brotherhood wants to promote Islamic finance and Morocco, also led by a moderate Islamist party, says it plans to become a regional hub for the business.

Morocco’s General Affairs and Governance Minister, Najib Boulif, told Reuters in March that the government was drafting a bill that would include regulations covering Islamic financial products.

In Tunisia, there are currently only two Islamic banks because of the Ben Ali regime’s coolness towards the industry. Their assets total 1.4 billion dinars ($893 million), or just 2.5 percent of the combined assets of all Tunisian banks, according to the central bank; in Gulf Arab countries, Islamic banks are estimated to hold about a quarter of banking assets.

Committees set up by the finance ministry, religious affairs ministry and the central bank are now working on a law that would facilitate the creation of more Islamic banks.

Nadia Kamha, director-general of the central bank, said the bill would be ready “within weeks” and that it would then be presented to the government for approval.

“Islamic finance can accommodate large groups of Tunisian people who have not been absorbed by traditional banks,” said central bank governor Chadli Ayari. Tunisia plans to issue its first sovereign Islamic bond early next year as it diversifies its sources of funding, Ayari told Reuters late last month.

Access to another pool of capital would be welcome; Tunisia expects to run a budget deficit of 5.9 percent of gross domestic product next year, when the government will need to raise an officially estimated 4-4.3 billion dinars.

Politics

But sceptics argue the government’s vision of an Islamic banking boom in Tunisia is fanciful. Fethi Jerbi, an economics professor at the University of Tunis, said it was unclear whether the economy could support more Islamic banks.

“The conditions for success in the Gulf countries are not available in Tunisia for Islamic banking products,” because Tunisia is not as rich as Gulf economies and its financial system is not as well developed, he said.

He also said authorities’ focus on promoting Islamic banking risked neglecting conventional banks, which could have serious consequences for the banking sector and the economy.

In a report last month, credit rating agency Standard & Poor’s said Tunisia’s banking sector faced “very high risk” in areas such as funding of the system.

It added that although the government had been supportive of banks, it had limited capacity to provide emergency aid to the sector in the event of a major crisis.

Noureddine Bhiri, Minister of Justice and an Ennahda leader, strongly denied that the Islamic banking drive was a political ploy.

“Turning to Islamic finance does not fall within political propaganda. The Tunisian revolutionary government does not need propaganda to attract voters,” he told a seminar.

Kamha said that while there was disagreement over whether conventional banks should be allowed to offer Islamic products, the central bank was inclining towards allowing this, by permitting the banks to operate “Islamic windows” which would segregate the money from conventional operations.

“This would increase the spread of Islamic finance in the country and make the banking sector more competitive.” (Editing by Andrew Torchia)

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