Islamic finance in Tunisia is only a recent trend, and one that is still working through the hurdles to meet the competition in the domestic banking sector.
In 2009, the Islamic Bank of Zitouna was established by Mohamed Sakher El Materi – a Tunisian business magnate at the time, and the thirty-year-old son-in-law of former President Zine el-Abidine Ben Ali. Mention El Materi’s name, and most Tunisians will wince with distaste at the memory of the Ben Ali-era corruption and the excesses of which he was so intimately a part of.
Ever since the Tunisian revolution wrested the Ben Ali clan’s control over the domestic economy, El Materi has been holed up in Doha, and the post-revolutionary government has since assumed ownership of Zitouna, the country’s first retail Islamic bank.
Nowadays, Zitouna no longer appears muddled by its genesis with El Materi, and is seeing its market share in the banking sector increase, say Islamic finance experts.
The absence of any coherent legal framework to support Islamic finance, though, is a major constraint for its future expansion in Tunisia, according to Amine Ben Salah, a member of the Council of Islamic Finance in Tunisia.
To understand why this is so, one should look closely at the following fundamental in Islamic finance: murabaha. Any Tunisian customer wishing to receive financing from Zitouna, for example, would initially specify the good for which they lack funds to purchase. Once Zitouna agrees, it then buys the good from the vendor and immediately assumes the title of ownership over it. The customer then makes the offer to purchase the good from the bank and draws up a pay schedule with Zitouna. When the contract has been signed between Zitouna and the customer, the title then transfers over to the client.
What is interesting is that an Islamic bank charges a fixed amount as its profit margin, since interest rates are forbidden in Islam.
Murabaha essentially entails two transactions – one from the original vendor to the bank, and then from the bank to the customer. In Tunisia’s case, the existing law taxes both of these transactions at the expense of not only the Islamic bank, but its client as well.
Burdened by such taxes, Zitouna must raise the percentage that it charges its customer in order to compensate for such taxation. With higher rates, it will inevitably find itself losing ground to conventional banks that do not experience such high levels of taxation.
Istisna’ is one of many notable Islamic financial products that are rooted in murabaha. It generally relates to the construction of buildings as well as the manufacture of machinery and vehicles. An investor seeking financing for the construction of hotel, for example, would agree with the bank that the latter will build the hotel and even provide the expertise to do so. The investor, according to the specific pay schedule, will then pay back the bank up-front or in installments until a certain maturity date.
The Lac Palace in Tunis was financed through Istisna’ and the planned financial harbor in Raouad is set to be so as well.
The Tunisian government is aware of the challenges facing Islamic finance. Article 13 of the 2012 complementary budget – currently under review by the Constituent Assembly (CA) – precisely supports a legal framework to bolster the competitiveness of Islamic finance vis-à-vis conventional banking. According to Lobna Jeribi, a CA member from Ettakatol party, the goal is to reduce these taxes on the dual transactions undertaken by Islamic banks in most of their financial transactions, so that they can charge rates competitive with the interest rates imposed by conventional banks.
The Ministry of Finance is prepared to draw up a clear legal framework to allow more Islamic financial products to be commercialized in the financial services market, said Jeribi.
The government has good motivation to brush aside obstructions to Islamic finance in the current economic context. With not enough money circulating in the Tunisian economy, an expansion of Islamic finance could attract funds from oil-rich Gulf nations as well as Malaysia, suggested Jeribi.
Besides Zitouna, Al Baraka bank is the only other Islamic financial institution operating in Tunisia. However, it only offers offshore services to this date.
Corrections: In a previous version of this article, it was written that Ben Ali’s son-in-law, Mohamed Sakher El-Materi, is currently residing in Dubai while in fact he is in neighboring Doha. It should be noted as well that Zitouna is the first retail Islamic bank in Tunisia. Best Bank preceded Zitouna as an Islamic financial institution but was later bought by Al Baraka Bank. Finally, Islamic banks charge a fixed amount for any transaction rather than a fixed percentage of the good whose title of ownership it transfers to the client. All changes have been made accordingly.