Libya says aims to run economy, banking system on Islamic lines

(Reuters) - Libya will transform its banking and economic system to comply fully with Islamic law that bans interest payments, the economy minister and other officials said on Monday, but they gave scant details on how the plans would be implemented.

Under Muammar Gaddafi, who was overthrown in 2011, the growth of Islamic banking was not encouraged and four state-controlled institutions dominated the relatively undeveloped financial sector of the OPEC oil producer.

Two years after Gaddafi's ouster, Prime Minister Ali Zeidan's government says it wants to attract foreign investment and develop the non-oil sector of the economy but is struggling to assert its authority against heavily-armed tribesmen and militias and parts of the country remain outside its control.

It has also been weakened by political wrangling with Islamists who dominate the parliament, the General National Congress (GNC), which strongly backs the plans to introduce Islamic law into the economy.

Economy Minister Mustafa Abu Fanas said experts would now study how best to apply Islamic Sharia law in the economy.

"Regarding a starting date, this will need studies ... to see how and when we will transform," he told reporters on the sidelines of a conference organized by his ministry to explore ways to introduce Islamic law.

"I can't give an exact start date," Fanas said.

"STRONG ECONOMY"

When asked whether banks could retain conventional business models, he said: "Many researchers say there could be a gradual transformation by the Islamic and other banks towards an Islamic system, but in the long-term it is in our interest to have it ... to build up a strong economy."

Some banking officials, technocrats and liberals privately fear a hasty transformation might add to the political turmoil in Libya, where militias use weapons seized in the 2011 uprising to lay siege to ministries or oil facilities to press their financial and political demands.

Fanas said the GNC had given the government time to ban interest payments, with the change to be in force by the start of 2015.

Salah Makhzoum, deputy head of the GNC, told the conference that Libya would be joining a growing international trend as more and more states turned to Islamic law following banking crises in the United States and Europe.

"The world is moving towards an Islamic economy," he said.

Libya has about 16 mostly conventional banks, which have few ties with the outside world, a legacy of its long isolation under Gaddafi.

As well as banning interest payments, Islamic law also forbids investment in the gambling industry and in firms producing alcoholic drinks or pornography.

Fanas said Libya had become too dependent on its oil sector and said the government wanted to boost investment to upgrade infrastructure including hospitals and universities. It is also overhauling a foreign investment law from the Gaddafi era.

(Reuters / 06 Jan 2014)

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Libya: CBL holds Islamic banking meeting with local bank heads

Te Central Bank of Libya (CBL) held a meeting yesterday on the strategy for the transformation to Islamic Banking attended by all the heads of the Islamic banking departments of Libya’s local banks.

At the meeting, a review was carried out of progress made in the conversion of the Libyan banking system into an Islamic Sharia-compliant system.  The progress of the abolition of interest (which is regarded as usury in Islam) was also discussed with committees formed to follow-up on this policy implementation.

The meeting also looked at all the negatives created in the sector by the abolition of interest bearing loans.

The CBL reported that those present at the meeting assured their commitment to implementing the Islamic banking law, despite the short period of time granted for its implementation.

Libya’s National Transitional Council (NTC) under Mustafa Abduljalil had introduced Sharia compliant Islamic banking in 2012 with Law No. 46

It is worth noting that the Ministry of Economy s holding a conference on an Islamic Economy: “The Scientific Conference on an Islamic Economy – the road to development,  strategies for change and its tools”, on 6-7 January 2014 at the Corinthia hotel, Tripoli.

(Libya Herald / 31 Dec 2013)

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Libya aims to issue three Islamic bank licenses in 2014, says central bank

Libya hopes to have its first three dedicated Islamic banks operating next year to satisfy unmet demand for sharia-complaint financial services, a senior central bank official said on Wednesday.

Under former dictator Muammar Qaddafi, overthrown in 2011, the growth of Islamic banking was not encouraged and the entire financial system was kept undeveloped, as four state-controlled institutions dominated the industry.

Libya is now trying to build a modern financial system and has passed rules to cover Islamic finance, although political instability and a chaotic security situation are slowing its progress.

Authorities have decided to issue three Islamic banking licenses and the central bank has received five applications from local investors, which are currently being evaluated, said Abdulmajeed Almaguri, deputy director of the central bank’s banking supervision department.

He did not name the potential investors but said the evaluation process would be completed after four to five months.

“There is good demand for Islamic banking and we want a balance between conventional and Islamic banking,” Almaguri told Reuters on the sidelines of an Arab central bankers conference in Abu Dhabi.

Currently the 16 banks operating in Libya, including seven foreign banks, offer mainly conventional banking services with some providing interest-free Islamic banking through sharia-compliant windows, he said.

(Al Arabiya News / 20 Nov 2013)

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Libya: The Central Bank and Islamic banking plans

The Central Bank of Libya is continuing to work on plans for the introduction of Sharia-compliant banking within the Libyan financial sector.

A consultant engaged on the project at the bank, Fatih Aqoub, has been reported as saying that rapid progress has been made, since a special committee began work this January.  The committee had been seeking best practice from elsewhere in the Islamic world . It was formulating amendments to the banking laws that would enable Sharia banking for an interim period before separate legislation was enacted.

Aqoub also reportedly said that Libyan banks were working hard to produce Sharia products ahead of being licensed to trade them. Confusingly, however, stories in the Arabic language papers then quoted him as saying that some banks were already providing Sharia banking from the Islamic banking branches.

Last month, Libya Herald reported that some employees from Sahara Bank in Benghazi had held a demonstration  outside their workplace, to protest against its use of interest. They demanded that it start using Sharia-compliant banking.

At the time, the governor of the Central Bank, Saddek Elkaber, said that he believed that demand for Sharia-compliant banking was so high, that it might become an important part of Libyan banking.  Speaking at an Arab banking conference in Kuwait in August, he said that specific rules governing Islamic banking in Libya would probably be implemented by the end of the year

(Libya Herald / 06 Nov 2012)

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Libya says pushing forward with Islamic finance plans

The country approved an Islamic banking law in May and has been working to amend its legislation to attract foreign investment and stimulate its private sector following last year's war that ousted Muammar Gaddafi.

"The demand is so high in Libya so we set up a higher committee for Islamic finance...Now they are working to set up a road map for Islamic finance in Libya," Elkaber told reporters on the sidelines of an Arab central bankers' conference in Kuwait.

Asked when Libya might be able to start implementing the rules, he said: "Hopefully very soon. Hopefully this year."

He said the authorities envisaged several options for Islamic banking services. One would be to allow conventional banks to open branches or windows for Islamic finance; another would be permitting conventional banks to become Islamic. Libya is also looking at introducing a special licence for Islamic banking, he said.

The licensing option is still under discussion because authorities have yet to agree on capital requirements, he added.

Apparently for ideological reasons, Gaddafi did not support the development of Islamic banking, which follows religious principles such as bans on interest and pure monetary speculation.

Libya's banking system under his regime was dominated by a few state-owned institutions; most ordinary Libyans did not use credit cards and their banking services were largely limited to basic cash deposits and withdrawals, making it easier for Gaddafi to keep control over the economy and society.

The country's new authorities want to develop the financial sector and the central bank has been looking to update a 2005 banking law which first allowed foreign banks into Libya.

Asked whether planned changes to the law might mean that Libya would start awarding new foreign bank licences soon, Elkaber said that topic was under assessment.

"We asked the World Bank to do a financial sector review - they sent the first draft and we need to review it. Then we will decide," he said. "But Libya will be an open market anyway, for everyone.

(Reuters / 01 Oct 2012)

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Libya approves Islamic banking law

May 17 (Reuters) - Libya has approved an Islamic banking law that will introduce sharia-compliant banking in the North African country, a member of the ruling National Transitional Council (NTC) said on Thursday.

Libya has been working to amend its banking laws to attract foreign investment and stimulate its private sector following last year's war that ousted Muammar Gaddafi, the central bank governor has said.

NTC Chairman Mustafa Abdul Jalil said in October Libya's new rulers were working on an Islamic banking system. The central bank submitted a proposal on this to the council for approval in the last few months.

"The NTC has adopted the central bank's proposal regarding Islamic banking," Salwa Al-Dgheily, a member of the NTC judicial committee, told Reuters. She said it was up to the central bank to now announce the law.

The central bank has been looking to update a 2005 banking law which first allowed foreign banks into Libya. (Reporting by Ali Shuaib; Editing by Elaine Hardcastle)

(Reuters / 17 May 2012)

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Libyans ‘hoarding $12bn’ pending Shariah banks

Ahmed Saeed, a Libyan poultry farmer, says he is waiting for his country to open Islamic banks to deposit money for the first time.

“I’m sure that Islamic banks are more in tune with my culture,” he said on Thursday. “I had a religious upbringing and I hear clerics ban dealing with current banks because of usury.” 

Once a law that allows the establishment of stand-alone Islamic banks gets approved later this month, Libya’s interim government may be able to attract cash from people like Saeed, deputy central bank governor Ali Mohammed Salem said.

“When the people see Islamic banks, they’ll put this money there,” Salem said in an interview in the capital Tripoli on April 17. “It’s a win-win situation. The money that’s now outside the system will be circulated in the economy and used in development.”

Islamic lenders in Libya, where some banks offer Shariah-compliant services, may attract some of the estimated 15bn dinars ($12bn) outside the banking industry, he said. Total commercial banking assets were about 71bn dinars at the end of 2011. The nation, where almost all the 6.7mn people are Muslim, saw its economy shrink 61% last year after an uprising that toppled its ruler of 42 years Muammar Gaddafi. 

Oil production dropped to virtually zero from 1.6mn bpd.

The holder of Africa’s biggest crude reserves is now pumping more than 1.3mn bpd, data compiled by Bloomberg show. Its economy is expected to surge 76% this year, the most since at least 1988, the International Monetary Fund estimates. While Libya doesn’t need financial assistance from the IMF, it needs guidance to lower unemployment and to improve the business environment, including increasing access to finance, the fund said on April 16.

“Islamic banks could be one of the tools of development,” the central bank’s Salem said. “We hope that Islamic banks will focus on real investments and not just consumer-linked products such as cars.” Transactions in Islamic finance are based on the exchange of assets rather than interest to comply with Shariah principles, as well as profit and loss-sharing agreements.

Mustafa Abdel Jalil, the chairman of the National Transitional Council in Libya, said in October the interim government plans to eradicate interest from the banking industry. 

Charging interest “brings about disease and creates hatred,” he said.

Interest-bearing accounts, such as savings and time deposits, fell 8% and 6.6% respectively last year compared with 2010, according to a report published on the central bank website. So-called demand deposits, which don’t pay interest, rose 9.5% last year.

Gumhouria-Bank, a state-owned lender, has three branches offering Islamic banking services and is unable to cope with requests from companies and civil servants, according to Jamal Ajaj, the director of the lender’s Islamic banking project. Demand for Shariah-compliant financial services helped establish “informal banks,” he said in an interview in Tripoli April 19.

“It’s proof that Islamic banks will support the economy and bring out the money stored in the homes and the excess liquidity at corporates,” Ajaj said.

The central bank said in October that it plans to allow lenders to sell Islamic bonds to help develop banking services. Egypt and Tunisia, which saw uprisings that led to the ouster of long-serving rulers, also plan to permit the sale of debt that comply with Islamic principles. Bahrain, Dubai and Ras Al Khaimah are the only sovereigns in the Arab world to sell global dollar-denominated sukuk.

The average yield on Islamic debt in the six-nation Gulf Cooperation Council, which includes Arab sovereign sukuk, fell 45 basis points so far this year to 3.86% on Friday, HSBC/Nasdaq Dubai GCC US Dollar Sukuk Index.

Global sales of sukuk more than doubled so far this year to $12bn from the year-earlier period, according to data compiled by Bloomberg.

While Libya’s central bank is keen to boost the nation’s economy with Islamic banking, the new government has struggled to rein in armed militias built around regional and tribal loyalties. The groups were instrumental in toppling Gaddafi and have largely refused to disarm before the central government provides more funding and services to their respective regions.

Until the political situation in Libya is restored, Noor Islamic Bank, a lender controlled by Dubai’s government, won’t consider expanding its services to the North African nation, chief executive officer Hussain al-Qemzi. “We still feel that it’s too soon for us,” he said in an interview on Wednesday. “It’s still unsettled.”

The central bank’s priority in the first three years is to develop domestic Islamic lenders before opening the door to international banks, Salem said. Libya will honour bank licenses issued before last year’s civil war, including one given to Qatar Islamic Bank, Central Bank governor Saddek Omar Elkaber said in November.

Demand for Islamic financial services is likely to appeal to a wide segment of the population, many of whom withdrew their money during the revolution because of concern that their cash was safer at home than in banks, said Essam al-Zleiteeni, an employee at the Ministry of Culture. He is waiting for an Islamic bank to open before he will return his savings.

“I’m more convinced with Islamic banks because they don’t deal with interest,” he said on Thursday. “I’ll put my money in an Islamic bank to have a clear conscience.”

(Gulf Times / 24 April 2012)
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Libyan Foreign Bank Rolls Out Islamic Products as Rules Change

Feb. 21 (Bloomberg) -- The Libyan Foreign Bank will offer Shariah-compliant products as the government prepares regulation to make Islamic banking the norm in the North African nation following the ouster of Muammar Qaddafi.

“Islamic products are being introduced and will predominate, but we will not relinquish the use of traditional banking,” General Manager Mohamed Ben Yusef said in an interview today in Tripoli. “A decision will be made by the Central Bank of Libya by the end of March to introduce a new article in the banking law regarding Islamic governance.”

Shariah-compliant finance may reap the benefits of regime changes in North Africa, where protests last year toppled three leaders who persecuted Islamists. While Muslims make up about 95 percent of North Africa’s 220 million people according to the CIA World Factbook, access to Shariah-compliant financial services remains limited as past leaders, including Qaddafi, held back the industry’s growth to curb the influence of Islamic parties.

Mustafa Abdel Jalil, the chairman of the National Transitional Council that lead the rebellion to topple Qaddafi, said Oct. 23 that the country’s banking industry should comply with Islamic law, which bans interest. Central Bank Governor Saddek Omar Elkaber on Nov. 24 said the government will honor bank licenses issued during Qaddafi’s era, including one given to Qatar Islamic Bank to start the only Shariah-compliant lender in the country.

“We are a traditional society so we are looking for products that are ethically and morally comfortable; we think that Islamic banking can re-energize the industry and move our economy forward,” Ben Yusef said.

The Libyan Foreign Bank, a fully owned unit of the central bank, is the biggest bank in Libya in terms of capital and assets, he said. Paid capital was $3 billion and total assets were $18 billion at the end of January.

(BloombergBusinessWeek, 21 Feb2012)

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