Diagnostic Report on the Legal and Regulatory Environment for Microfinance in Tunisia

This paper discusses the observations of a mission led by CGAP to examine the legal environment for microfinance in Tunisia. The paper provides an overview of existing financial system. It elaborates on the current situation of microfinance sector:

• The types of institutions allowed to engage in microfinance activities under the microcredit law;
• Operational issues faced by microcredit associations including:
  • Resource constraint;
  • Insufficient access to training.
• Operational status of BTS which is an apex institution managing microcredit associations;
• Status of other players involved in microfinance.

The paper describes the legal and regulatory environment for microfinance activities highlighting:

• Currently available legal forms for carrying out microfinance activities;
• Cap on interest rate to be charged by institutions engaged in microfinance;
• Tax exemptions for institutions engaged in microfinance;
• Cap on external borrowings.

It then mentions the policy related obstacles to the development of microfinance as follows:

• Necessity of the Central bank approval for foreign borrowings;
• Lack of transformation options for microcredit associations;
• Inability of bank and finance companies to participate directly in micro-lending due to interest rate caps.

The paper concludes by recommending the following for policy related activities:

• Intervention with the BTS system with assistance from CGAP for:
  • Impact assessment of existing microfinance system;
  • Assistance in training for microcredit associations;
  • Technical assistance to microcredit associations to develop into more effective institutions.
• Engagement of commercial banks in microfinance.