Financial Inclusion Opportunities and Challenges in Tunisia

Tunisia commanded global attention in January 2011 by sparking the Arab Spring revolutions. It has since made important transitions in adopting a new constitution and appointing in late 2014 a democratically elected president. This hard fought political progress, however, has been threatened by ongoing economic stagnancy, unemployment (33% among youth), and domestic security issues.

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Financial inclusion is one of many the areas that caught the new public authorities’ attention. A decree-law was passed in November 2011 that authorized the establishment of credit institutions dedicated to low-income people. It also created a modern regulatory agency, the microfinance supervisory authority. This paved the way for a sound development of the microcredit sector, leading to the transformation of top tier existing actors and creation of new ones in the past year.

Beyond micro-lending, the Ministry of Finance now aims at modernizing the entire financial sector in Tunisia by 2020. Such a plan is timely and provides hope for further financial deepening. In this regard, a recent snapshot on financial inclusion completed by CGAP and the World Bank provides important insights.

A woman in Tunisia makes flour

The 2011 Tunisian national microfinance strategy estimated that around 30% to 40% of the adult population (2.5 to 3.5 million individuals), and more than half the enterprises in Tunisia (245,000 to 425,000 registered businesses) remained unserved or underserved by the mainstream financial sector, despite 12 million registered bank and postal accounts. These figures are approximate since they are extrapolated from secondary sources that are outdated and imprecise. However, for individuals, they are corroborated by two market studies: the 2015 study by the World Bank, which found that two-thirds of adults are either excluded from or underserved by the formal financial sector; and the 2014 Findex study, in which only 27% of adults reported holding an account with a formal financial institution. Global and local research shows that these people have active financial lives, yet are forced to resort to informal financial services that may be risky and costly.

The Tunisian Post caters for some of their savings and payment needs, thanks to its extensive network spread out across the country (1,051 branches in 2014), as well as its electronic and mobile transfer products. However, with only 178 ATMs, a quarter of its branches not connected to a central server, relatively limited opening hours, and minimum payment amounts, it does not yet offer easy-to-use micro-savings solutions (regular withdrawal and deposits of very small amounts) or payment means. Over 50% of the 5.5 million postal accounts are reported inactive, with no movement recorded for 2 years.

Businesses also lack access to adapted formal financial services, especially the very small, small, and medium enterprises (VSSME) that are deemed risky despite being inevitable given their importance in the Tunisian economy. Banks lend primarily to salaried workers and medium to large businesses (338,000 financed businesses in 2013 with 50% of the 41 billion TND portfolio allocated to large groups). A 2014 IFC survey found that 29% of the VSSMEs had never attempted to open a bank account; 37% reported needing financing although never entering into contact with a financial institution; and 78% used cash to pay their supplier and 91% to pay their employees. A solution to financing their equipment needs might come from the nine leasing companies that are increasingly active, especially in the SME market.Digital finance, which is bank-led, has seen some progress in recent years, with four services on the market. These products, however, offer limited services, lack interoperability, and have seen limited uptake. Less than four percent of Tunisians use mobile financial services. Insurance companies remain a small part of Tunisia’s financial sector: premiums represent less than 2% of GDP.

Looking ahead, the opportunities for financial inclusion in Tunisia are significant. There remain, however, a number of structural and short-term challenges to overcome. Expanding beyond microcredit to develop savings, micro-insurance, and payment services would require:

• Identifying a high-level advocate for financial inclusion;
• Coordinating a national financial inclusion strategy;
• Conducting a thorough market study to obtain nationally-representative and up-to-date data on market characteristics;
• Clarifying the role of different public and private actors in the market (e.g. Tunisian Post, banks, microfinance institutions, mobile network operators, etc.);
• Addressing potential refinancing difficulties in a context of scarce liquidity;
• Finally, developing a robust consumer protection framework to manage sectoral growth and address ongoing challenges.

Overall, financial inclusion can be an important mechanism for promoting economic growth and providing a better future, especially for low-income Tunisians. Progress will require that public and private actors work pursue change through concerted action. Given recent reform in the microfinance industry, the reach of the Tunisia Post, and recent discussions to expand digital finance, Tunisia has the opportunity to set the example for other countries in the region and, by doing so, provide much needed hope in Tunisia and beyond.

Read more about financial inclusion in Tunisia in the snapshot from CGAP and The World Bank.