Abstract
The current huge financial gap of Tunisia cannot be reduced without the activation of new financial channels beyond the conventional ones. These non-conventional mechanisms and instruments shall enable public institutions to play their strategic role, in addition to the private sector, in catalyzing the economic transformation of Tunisia. This chapter sheds light on a variety of non-traditional mechanisms and instruments for financial resource mobilization. It begins by exposing the benefits of various mechanisms of securitization including an innovative mechanism tailored for the Tunisian context. Then, it defends the opportunity to develop equity finance, crowdfunding and trade finance. After that, it suggests a non-conventional monetary policy based on targeted quantitative easing (TQE) coupled with securitization. It dedicates a special section to the role of participatory banks in improving access to finance and the potential of coupling cooperatives and microfinance in generating jobs for the youth. Finally, it motivates the opportunity to utilize a globally emerging financial instrument, the Social Impact Bonds, to unlock and channel the philanthropic potential of Tunisia to support governmental social programs.
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Notes
- 1.
- 2.
Most of the sukuk are “asset-based” and not “asset-backed”. The latter type of sukuk grants to the holders the legal ownership of the underlying assets so that they can sell them in case of default of the issuer. On the contrary, the “asset-based” sukuk grants investors only the ownership of the cash flows and not the assets themselves. In July 2013, I have had the opportunity to animate a session on Islamic finance in the European Commission in Brussels. I remember that the participants were very interested by the project sukuk as a channel to mobilize funds and enable the PPPs for the development of costly infrastructure projects.
- 3.
The distribution of the type of sukuk issued in 2016 was the following: Wakala (12.1), Murabaha (11.2), Ijarah (7.3), Musharakah (2.7) and Mudarabah (2.5).
- 4.
The report reveals that the most preferred emerging sukuk market for investors is the US and for the issuers it is Hong Kong. But the most preferred country to issue and invest in sukuk remains the UAE.
- 5.
The reason for that cancellation is not only related to a technical constraint (impossibility to transfer the ownership of the stadium of Rades—which was chosen to back the operation—to a special investment vehicle) but also due to the negative perception by the public opinion. Many Tunisians considered the operation as a mortgage of a public infrastructure in return of foreign borrowing. This led to fierce opposition fuelled by the fear to see its ownership transferred to foreign investors in case of default. I understand this opposition and think that the Tunisian authorities should not have opted for that particular type of sukuk (called ijara sukuk) (although the documentation of the issuance was not available in order to judge the terms related to the ownership transfer in case of insolvency).
- 6.
In Tunisia, the juridical foundation of sukuk took place in July 2013 by the law n° 2013-30. However, as mentioned by Moncef Cheikhrouhou, Tunisia has already used such a financial mechanism for the infrastructural arrangement of the region Lac of Tunis in the 1980s. Contrarily to the enthusiasm of Moncef Cheikhrouhou in relation to the opportunity offered by sukuk to the Tunisian economy, the economist Radhi Meddeb was skeptical about their usefulness. Indeed, Meddeb (2013) argues that sukuk will cost the state the payment of higher interests relative to the conventional financial markets. He adds that these products are developed in the same manner as conventional bonds but are just adapted to the Islamic financial markets, namely, investors from GCC.
The reader might consult “Tunisie: Moncef Cheikhrouhou pour l’adoption des Sukuk”, http://www.investir-en-tunisie.net/fr/index.php/2013/07/19/tunisie-moncef-cheikhrouhou-pour-ladoption-des-sukuk/.
- 7.
A similar idea was announced by Mohamed Bichiou of Tunis Exchange Market in 2013. In September 2016, Habib Karaouli launched quite a similar idea through the magazine leaders. He suggested the issuance of bonds in foreign exchanges (but reimbursable in domestic currency) for the Tunisian Diaspora to participate in the financing of MSMEs.
- 8.
In 2011, Tunisia created the Caisse des Dépôts et des Consignations (CDC), a public financial institution under the control of the ministry of finance. The CDC is in charge of investing a part of the national saving (coming from the postal banking) in long-term financial investment accompanying the sectoral policies of the state, namely in social housing, energy projects, investment in rural regions and investment in environmental projects.
- 9.
Let us note here that some recent critics are globally emerging regarding the social optimality of the PPP (see Leigland, 2018).
- 10.
- 11.
The International Finance Corporation considers SMEs to be key engines of job creation and economic growth in developing countries noting that they represent 90% of businesses and more than 50% of employment globally. The World Bank considers that four out of five new formal jobs in emerging markets are created by SMEs. http://www.worldbank.org/en/topic/financialsector/brief/smes-finance.
- 12.
In April 2010, I conducted a study in cooperation with CJD Sousse on “SMEs and Export”. Among the results, I found that 60% of the enterprises are using less than 60% of their production capacity. Among the questioned enterprises, there were 50% which were not exporting due to problems and constraints related to transport, bureaucracy, finance and insurance and fierce competition.
- 13.
As recalled by Pofeldt (2012), it is opportune for the economies which are becoming technology-based to take into account the value of the intangible assets of such enterprises.
- 14.
This is done in a model with moral hazard in the form of hidden effort by a risk-neutral agent (entrepreneur) financed by a risk-neutral principal (financier).
- 15.
I showed that equity and debt are feasible for a determined range of projects’ sizes and entrepreneurs’ wealth. However, debt is less financially constraining than equity for large projects. In contrast, equity is more accessible to small projects. Another interesting result is the fact that extending the financial contracting to two periods enhances the access to debt under the necessary incentivizing termination threat (financing nonrenewal). As for the suggested equity contract, access to finance improves over a larger horizon only for small projects undertaken by sufficiently foresighted entrepreneurs.
- 16.
- 17.
InfoDev (2013) reports the following distributions of crowdfunding in selected countries: the US (344), France (53), the UK (87), Canada (34), the Netherlands (34), Spain (27), Germany (26), Brazil (17), Italy (15), Australia (12), India (10), South Africa (4), Russian Federation (4), Belgium (1), Hong Kong SAR, China (1), China (1), UAE (1) and Estonia (1).
- 18.
In terms of monetary policy, article 10 clearly prohibits the use of seigniorage for financing the public deficit.
- 19.
As the majority of the central banks in the world, the CBT has the monopoly of issuing the monetary base but delegates to the commercial banks the creation of the scriptural money (which constitutes the main component of the money in circulation).
- 20.
The authors note that “in 17 of the 20 largest developed economies, investment growth remained lower during the post-2008 period than in the years prior to the crisis; five experienced a decline in investment during 2010–2015”.
- 21.
I published it on my LinkedIn profile in June 2016 and later in November 2016 on the web magazine investir-en-Tunisie.
- 22.
De Grauwe (2009) argues that the reforms implemented since the 1930s in order to enhance the stability of the banking system and to prevent large-scale banking crises (central bank’s lender of last resort role, deposit insurance mechanism and banks’ capital regulation) have shown their limits. He argues that the solution is narrow banking where banks act as money market funds that use the sight deposits they collect to buy riskless financial securities. Meanwhile, the traditional role of transforming deposits to loans should be assigned to financial firms (investment banks) involved in financial markets with close matching of the average maturities of their assets and liabilities.
- 23.
The full substitution of conventional banking by participatory banking in this modeling exercise is motivated by the simplification of the mathematical framework.
- 24.
In practice, the features of the financial intermediation I consider are typical of an ideal business model of the participatory (Islamic) bank. Indeed, under Islamic banking, assets and liabilities are (ideally) expected to be integrated such that borrowers share their profits and losses with the bank, which in turn shares profits and losses with depositors. One advocate of the participatory business model of the financial intermediaries is Chapra (1985), who argues that the entrepreneur and the financier should share equitably any gains and losses. Khan (1987) argues that the business model of participatory banks can successfully fill the failure of conventional banks in maintaining stability. Indeed, it requires the separation of investment deposits (funds) from demand deposits (on which 100% reserve is constituted). While demand deposits are perfectly guaranteed and yield no return, investment deposits should be similar to mutual fund shares and not guaranteed a fixed return. It is clear that the “theoretical” or ideal business model of a participatory bank has some commonalities with narrow banking.
- 25.
Besley (1994) identifies the various forms of governmental intervention in rural credit markets in developing countries. They range from government ownership of banks (e.g. India, Mexico) to the obligation imposed on commercial banks to open branches in rural areas (Nigeria). The subsidization of credit to farmers is another form of intervention. Besley (1994) notes that what makes rural credit markets in developing countries different from other credit markets is the intensity of the following imperfections: scarce collateral, underdevelopment in complementary institutions (insurance, credit bureaus) and covariant risks.
- 26.
In 2014, the group of saving banks in Germany comprised more than 500 institutions that employed 341,000 staff members. The German banking system comprises also a cooperative banking group with around 1050 institutions (including around 1000 local cooperatives) employing 200,000 staff members (Behr and Schmidt, 2015).
- 27.
We conceived this program on the occasion of our participation to a workshop organized by the IMF Institute and the World Bank Institute on “Employment Policies in the MENA Region”. Then, I have had the opportunity to present it at a national conference in 2013 before publishing it in Abdelkafi and Nabi (2017).
- 28.
The microfinance sector received particular attention by the successive governments since 2011. In January 2013, a new legal framework for the microfinance sector was promulgated enabling (1) the emergence of companies specialized in microfinance and the change of the legal status of existing associations, (2) the expansion of the range of microfinance services to include micro-insurance and (3) the establishment of a monitoring and regulatory framework.
- 29.
In my quality of senior economist of the Islamic Development Bank Group, I participated in field missions and meetings with senior officials from the Tunisian government, in preparation of the “Member Country Partnership Strategy for Tunisia 2013–2015” (MCPS).
- 30.
Similar recommendations were suggested by the International Labor Organization in its report ILO (2015). For instance, the report suggests the following: (1) rethinking the institutional support to the micro-projects, (2) revalorizing the vocational specialties and encouraging the private initiative, (3) supporting the social and solidarity economy by setting specific mechanisms in cooperation with the vibrant civil society.
- 31.
See objective 4 on the website www.utss.org.tn.
- 32.
There are other rates for agricultural products, mining produce and animals.
- 33.
Cash, gold and silver, commercial items and assets, excluding long-term business capital and housing owned not for resale.
- 34.
This threshold is called Nissab, which equals 3 ounces of gold (87.48 g) or its cash equivalent.
- 35.
The Organization of Islamic Cooperation.
- 36.
In 1992, my father (www.salahnabi.net) was designated the President of the Regional Fund at the Governorate of Monastir. I found documents mentioning meetings during the inception phase of the regional Zaqat funds.
- 37.
He added that proceeds of Waqf helped needy Singaporeans regardless of race and religion by providing them with medicine.
- 38.
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Nabi, M.S. (2019). Daring New Financial Channels for Development and Social Inclusion. In: Making the Tunisian Resurgence. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-13-3771-0_6
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