Snapshot Financial Inclusion In Tunisia

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Public Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure Authorized96222SnapshotFinancial Inclusion in TunisiaLow-Income Households and Micro-EnterprisesSeptember 2015

Financial Inclusion in TunisiaLow-Income Households and Micro-EnterprisesSnapshot – September 2015This snapshot provides an overview offinancial inclusion trends and challenges inTunisia. It follows the recent expiration of theCoordinated Vision for the Development ofMicrofinance in Tunisia 2011-2014, nationalstrategy published in 2011.1Financial inclusion is defined as a state inwhich households and businesses haveaccess to a range of financial services thatmeet their needs: savings, payments services(including money transfer), credit, andinsurance.2 Such services are ideally deliveredin a responsible and sustainable manner,within a legal and regulatory environmentconducive to their development, by a range offormal financial service providers (banks, nonbanking financial institutions, the Post,microfinanceinstitutions,insurancecompanies, money transfer companies, andmobile network operators).access. Payment services are limited and/orunder-utilized. Financing sources remain toofew and are often too complex for businesses(due to guarantees and administrativeprocedures required). Insurance is almostnon-existent. Besides, the market isgeographically concentrated in the GreaterTunis and the coast.DRAFTThis document does not examine all aspectsof financial sector development, but ratherconcentrates specifically on financialinclusion for low-income households andmicro-enterprises.3Although Tunisia enjoys a well-developedpostal network that provides affordable basicsavings services to low-income populations,and has recently made regulatory reforms toits microcredit sector, the overall offer ofinclusive financial services in Tunisia remainsfragmented, incomplete, and difficult toDespite 12 million bank and postal accountsregistered, there remains an estimateddemand for microfinance services rangingbetween 2.5 and 3.5 million individuals andtheir income-generating activities, or 30% to40% of the adult population, and between245,000 and 425,000 formal businesses, ormore than half of the estimated enterprises inTunisia. These figures are approximate sincethey are extrapolated from secondary sourcesthat are outdated and imprecise. However,they are corroborated by two market studies:the 2014 Findex study,4 in which only 27% ofadults reported holding an account with aformal financial institution; and the 2015study by the World Bank and the Center ofArab Woman for Training and Research(CAWTAR), which found that two-thirds ofadults are excluded from or underserved bythe formal financial sector. Extensive researchshows that these people have active financiallives, yet are forced to resort to informalfinancial services that may be risky and costly.The microfinance sector is struggling toexpand in part due to the lack ofcomprehensive studies examining consumerdemand, financial behavior, and the current1In French: Vision Concertée pour le Développement dela Microfinance en Tunisie 2011-2014.2 There is no official definition in Tunisia. This one isbased on that proposed by the Consultative Group toAssist the Poor (CGAP), a consortium of 34 internationaldonors whose goal is to advance financial inclusion.3 A 2014 IFC study focuses on financial inclusion for verysmall, small, and medium-sized enterprises in Tunisia.4The Findex survey, developed by the World Bank withfinancing from the Gates Foundation, are based onrepresentative surveys of the population covering 148countries and comprise a series of indicators on the useof financial services. 2/21

supply of financial services. The absence ofsuch a study prevents Tunisia fromdeveloping effective public policies and anappropriate legislative framework to supportinclusive finance.A high-level champion of financial inclusionshould be appointed among public authoritiesto establish priorities and advocate for acoordinated national financial inclusionstrategy. Such a strategy should be based on amarket study analyzing the unmet financialneeds of key segments.The advantages of developing access tofinancial services and promoting their usehave been widely proven: economic growth,financial stability, employment opportunities,reduction in inequality, asset accumulation,and risk management, amongst others. Forthese reasons, the importance of financialinclusion is now recognized by high-levelbodies such as the G20 and the UnitedNations.The strategy should also outline a clear visionfor the role of different public and privateactors, as well as an action plan for each(including the Post, banks, Tunisian SolidarityBank, microfinance institutions includingmicrocredit associations, mobile networkoperators, the State, etc.).Besides, it should include solutions to keymarket issues including access to liquidity formicrofinance institutions.Tunisian policymakers have prioritized thedevelopment of microcredit in recent years.However, the demand for other financialservices—such as inexpensive savings servicesand payment means—is greater, as is theirsocio-economic impact. In order to translatethe economic opportunities related tofinancial inclusion into reality, Tunisia mustovercome several challenges.In this effort, Tunisia can count on manyinternational donors who have the willingnessand expertise to work towards developingmore inclusive financial systems.DRAFTThis snapshot refers to a number of studies published between 2011 and 2015 on financial inclusionin Tunisia (full references at the end of this document). Its seeks to consolidate available informationin order to facilitate debate and knowledge sharing around the financial inclusion challenges facingboth public authorities and private actors in Tunisia. 3/21

Snapshot of Financial Inclusion in Tunisia – September 2015Table of contentsI.Why Financial Inclusion as a Development Objective? . 5II.The Demand for Financial Services . 7III. The Legislative and Regulatory Framework. 10IV. The Current Supply of Financial Services. 13V.Market Infrastructure . 18VI. Key Financial Inclusion Challenges . 19AcronymsACMAFDAfDBAFIAMCAMLAPRATMBFPMEAutorité de Contrôle de la Microfinance—Microfinance supervisory authorityAgence Française de Développement—French development agencyAfrican Development BankAlliance for Financial InclusionAssociation de MicroCrédit—Microcredit AssociationAnti-Money LaunderingAnnual Percentage RateAutomatic Teller MachineBanque de Financement des Petites et Moyennes Entreprises—Investment bank for smalland medium enterprisesBTSBanque Tunisienne de Solidarité—Tunisian solidarity bankCAWTAR Centre of Arab Woman for Training and ResearchCBTCentral Bank of TunisiaCFTCombating the Financing of TerrorismDDDemand DepositsEIBEuropean Investment BankGIZGesellschaft für Internationale Zusammenarbeit—German development agencyFTDFixed Term DepositsIFCInternational Finance CorporationIMFInternational Monetary FundLLCLimited Liability Company (SA – Société anonyme)MFIMicrofinance InstitutionNGFNational Guarantee FundNGONon-Governmental OrganizationRNERegistre National des Entreprises—National business registryTNDTunisian DinarVSSMEVery Small, Small, and Medium EnterpriseDRAFT 4/21

Snapshot of Financial Inclusion in Tunisia – September 2015I. Why Financial Inclusion as a Development Objective?The relevance of implementing a nation-wide program to promote financial inclusion has becomeindisputable. Numerous impact studies have shown the benefits of financial inclusion and helped tobetter understand its limits. Public authorities are paying more attention to the risks linked withfinancial exclusion and its negative impact on economic, social and political stability. In effect, theG20 has recognized financial inclusion as one of the global development pillars, the World Bank hasestablished an objective of universal access to financial services by 2020, and the General Secretaryof the United Nations appointed Queen Máxima of the Netherlands as its Special Advocate forfinancial inclusion. Since 2011, more than 60 countries have initiated reforms to improve financialinclusion.Financial inclusion has several positive effects on an economy. First of all, it improves theeffectiveness of financial intermediation by increasing the number of actors in the financial system,together with the volume and value of transactions. At the macroeconomic level, a developedfinancial system, measured by its level of financial intermediation, has a positive correlation withgrowth, employment, poverty and, through this, a reduction in inequality.5 Gross Domestic Product(GDP) growth is also positively correlated with access to credit and the opening of bank branches. Asa result, countries with advanced levels of financial development have seen the proportion of thoseliving in poverty decrease more rapidly and their Gini6 coefficient improve (see Figure 1).Average GDP growthDRAFTAverage reduction of povertyFigure 1. Correlation between financial intermediation and GDP growth and the % of the population living on 1 / dayPrivate credit/GDPPrivate credit/GDPSource: Beck, Maimbo, Faye, and Triki, 2011.Source: Beck, Demirgüç-Kunt, and Levine, 2007.Extracts from the study Financing Africa, 2011. African Development Bank (AfDB), World Bank, BMZ.In addition, partly due to risk diversification (e.g. wide and varied deposit base, portfolio of small andlowly volatile loans), financial inclusion contributes directly to financial stability.7 It also positivelyimpacts stability as it leads to the formalization of businesses, which in turn improves theeffectiveness of monetary policy and reduces the use of informal or unregulated financial services,themselves a source of instability (e.g. through fraud and over-indebtedness). In addition, financialinclusion promotes the rise of new economic models, which pushes the entire financial system toprofessionalize. Financial stability is of particular concern to central banks, particularly since the 2008financial crisis.5There is a two-way causal relationship between the financial system development and economic growth. According toeconomic theory, financial system development impact growth through increased capital accumulation and improvedproductivity, two key elements of GDP growth. In addition, access to savings promotes investment. The resulting economicgrowth stimulates employment and reduces poverty. See Where is the Cheese? Synthesizing a Giant Literature on theCauses and Consequences of Financial Sector Development, Pasali, World Bank, 2013.6 The Gini coefficient or index indicates the level of equality of income distribution within an economy. The Gini coefficientranges from 0 (perfect equality) to 100 (perfect inequality).7 See: Financial inclusion for financial stability, Melecky and Han, World Bank, August 2013. Financial Inclusion in Africa,Triki and Faye, AfDB, 2013. 5/21

Snapshot of Financial Inclusion in Tunisia – September 2015At the microeconomic level, access to financial services has a positive effect on employment and onhousehold consumption, and stimulates the local economy. In Morocco, access to credit led to a52% increase in the number of days worked outside of the household and a 10% increase in the inkind savings and consumption levels.8 Access to savings allows people with low, and frequentlyirregular, incomes to better manage emergencies and spikes in spending, and therefore maintain amore stable level of consumption over time. Additionally, access to finance is an essential growthdriver for very small, small, and medium-sized enterprises (VSSMEs), which is of particularimportance since the most dynamic small and medium-sized businesses have been demonstrated tocreate the largest number of jobs in an economy.Finally, financial inclusion allows for a cost-effective implementation of social policies, such asgovernment-to-person payments. In Brazil, the administration costs of the Bolsa Família (familyallowances) program have fallen by more than 80% following the introduction of prepaid cards andthe payment of several allowances at once.9In sum, the empirical evidence shows that financial inclusion, even if it does not eradicate povertyon its own, helps to achieve the goal of social and economic inclusion, in conjunction with otherpublic policies. At household level, this is achieved by expanding income-generating opportunitiesand by improving risk management. For businesses and the wider economy, it is through moreefficient capital mobilization for investment and growth (see Table 2). This is especially important in acountry like Tunisia, which has an unemployment rate above 15% (42% among young people)10 and alarge number of informal businesses.Table 2. Impacts of Financial inclusionSavings: accumulation of assets and working capital, emergency management,consumption smoothingHouseholdsCredit: mixed impact (wide variety of results)Insurance: risk reduction, management of shocksBusinessesCredit: increase in investments, production and employment (hiring)StateElectronic payments: reduction in the cost of paying allowancesMicroeconomicJob creation, growth in income, female economic empowermentMacroeconomicGDP growth, financial stability, reduction in inequalitiesDRAFTSource: Financial Inclusion and Development: Recent Impact Evidence, CGAP Focus Note no. 92, 2014.Capturing the benefits of financial inclusion is in line with the Coordinated Vision for theDevelopment of Microfinance, published by the Tunisian Finance Ministry in 2011 and aimed atdeveloping a “socially responsible and durable microfinance sector that, by promoting access for asmany people as possible to quality financial services, would contribute to the fight against financialexclusion, to harmonious regional development, and to the strengthening of the national economicstructure.”Since November 2013, the Finance Ministry and the microfinance supervisory authority (ACM orAutorité de Contrôle de la Microfinance)11 have been members of the Alliance for FinancialInclusion (AFI), 12 an international network of policy-makers, central banks, supervisory and8Source: Evaluation of the Impact of Microcredit in Morocco, by Crépon, Devoto, Duflo, and Parienté, 2011; cited by AFD inthe Ex Post note no. 7, October 2011.9 See: The Nuts and Bolts of Brazil’s Bolsa Familia Program: Conditional Cash Transfers in a Decentralized Context, Lindert,Linder, Hobbs, and De la Brière, 2007.10 Source: International Monetary Fund (IMF).11 www.acm.gov.tn12 Created in 2008, the AFI works to advance financial inclusion through knowledge exchange. Since the Maya declaration of2011, under which its members recognized the importance of financial inclusion and committed to achieving concreteresults, AFI has 47 institutional commitments across the world, of which 27 are quantitative. 6/21

Snapshot of Financial Inclusion in Tunisia – September 2015regulatory financial authorities in developed and emerging countries, with the objective of improvingaccess to quality financial services to low-income populations. AFI count over 80 member countriestoday.II. The Demand for Financial Services13Today, there is significant demand for financial services inTunisia stemming from both private individuals (2.5 to 3.5 million)and businesses (245,000 to 425,000 micro and very smallenterprises). These figures are approximate.81% of Tunisiansinterested in microsavingsTunisians seek access to a productthat would allow them to put asidesmall sums each day or each week.Such a product is currentlyunavailable in Tunisia.Numerous studies have shown that all socio-professionalcategories make use of financial services. Low-incomepopulations, however, need them even more than other groups,owing to the irregularity of their incomes. Despite limitedSource: World Bank/CAWTAR, 2015.resources, low-income populations have very active financiallives: they save, borrow, manage different cash in-flows and outflows and lend money—often all atthe same time. They fall back on social solidarity mechanisms in case of problems. The financialservices they use, however, are not always reliable and could be insufficient, risky and/or expensive(e.g. family, friends, money-lenders, in-kind or under the mattress savings). This underscores theimportance of developing formal financial services that respond to their needs.In Tunisia, although the supply of inclusive financial services is more advanced than in othercountries in the region—not least thanks to the postal network—it remains far from comprehensive.The World Bank/CAWTAR study identified a level of financial inclusion of just 36% of the adultpopulation (see Box 1 below). Recent efforts by the government and private sector have focused oncertain microcredit products (see section III), and have not responded to the demand for savingsservices,14 insurance, and payment services. Various studies have highlighted a demand fallingbetween 950,000 and 1.4 million individuals for microcredit, but an even larger demand of 2.5 to3.5 million individuals for a wider range of microfinance services, equivalent to 30% to 40% of theadult population (see Table 3).15DRAFTSimilarly, many enterprises have financing needs that are far from being met by existing supply. It isestimated that 245,000 to 425,000 micro and very small enterprises require a specific range offinancial services, equivalent to 37% to 65% of those registered in the national business registry(RNE). 16 The 2014 IFC study estimated that approximately 15,000 small and medium-sizedenterprises (SMEs) should be added to this figure17. It found that only 15% of very small, small, ormedium-sized enterprises (VSSMEs) have taken out bank loans whereas 58% have expressed theneed for financing in order to make investments or for working capital. This gap is significant enoughto indicate a lack of supply, even if not all of this demand was credit-worthy. It may be explained by a13This section is based on different studies carried out on microcredit demand and financial services in Tunisia. Theseinclude: IBM Belgium 2009; Finance Ministry, 2011; Mercy Corps, 2012; Coopération Luxembourgeoise-ADA-EIB, 2013 and2014; IFC 2014; World Bank/CAWTAR 2015.14 The demand for savings services is generally higher than for credit. At the global level, including the Arab world,specialized microfinance institutions serve between 4 and 10 times more savers than borrowers.15 For a comparison, the number of adults living on less than 4 TND per day (or 1,500 TND per year) is estimated at around2.7 million adults (Source: Study on Financial Inclusion in Tunisia, MicroMED, February 2014).16Formal enterprises are those that have a tax identification number and are registered with the RNE. There were 654,000formal enterprises in 2013. By conservative estimates, 245,000 is the number of enterprises that reported their sales.Informal enterprises are included in the demand for individual persons since lending to an informal enterprise, in practice,means lending to an individual.17The frontier between micro, very small, small, and medium-sized enterprises remains vague given the lack of a nationaldefinition. 7/21

Snapshot of Financial Inclusion in Tunisia – September 2015number of inefficiencies in the financial system, such as bankruptcy procedures, the underdeveloped guarantee system, the lack of g

There is no official definition in Tunisia. This one is based on that proposed by the Consultative Group to Assist the Poor (CGAP), a consortium of 34 international donors whose goal is to advance financial inclusion. 3. A 2014 IFC study focuses on financial inclusion for very small, small, and medium-sized enterprises in Tunisia.

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