Interpreting Middle East Economic News and Analyzing Market Trends

Islamic Banking in Libya: putting the cart before the horse

Even before the fall of Gadhafi, Libyan rebels were busy launching a central bank.  Never before in the history of revolutions have rebels setup a central bank before gaining control of the government.  This is strange enough in its own right and brings up many questions, but that’s another story.


One of the first items on the agenda for Libya’s new government was to convert all banks in the country into Islamic banks.  The main problem with this decision is that the government failed to come up with Islamic bankinh regulations before putting this law forward.  Now banks are stuck in limbo trying to figure out their way through this.


The General National Congress chose to ban non-Islamic banking outright in response to “the desires of the street and pressures,” he said, adding the law doesn’t apply to institutions.

The debacle adds to Libya’s fitful transition since the end of the armed conflict that ended Muammar Qaddafi’s rule in 2011. Authorities are struggling to rein in the militias and root out radical Islamists from the oil-producing east. A timetable for the democratic transition has been largely abandoned while the May 5 passage of a bill to purge senior Qaddafi-era officials from office threatens more delays.

Unhappy Citizens

While the 200-member GNC didn’t order banks to stop giving out loans, banning interest left lenders scrambling to find Shariah-compliant alternatives, Fathi Agoub, adviser to the governor, said. “We understand the feelings, needs and situation of the citizens who aren’t happy with these procedures,” he said.

At a Tripoli branch of Gumhouria Bank, the country’s biggest, manager Miloud Taher throws his arms up in despair.

“Customers are angry; they come every day to ask when they will be able to get loans and prepayments to solve their problems,” Taher said. The bank offers Islamic car loans, which some customers use “because as soon as they buy the car they sell it new in order to get money,” he said.

Gumhouria had assets of $6.46 billion and 142 branches before the 2011 uprising. Standing inside the branch, mother-of-two Khadija, a school teacher, said she’s been trying for two months to get a loan to finance her daughter’s wedding. “I need financial support from the bank,” she said, declining to give her full name. “It used to be very easy to get a loan and it only took a few days.”

Lives ‘Paralyzed’

Taher said he doesn’t believe banks can hold off giving out personal loans and overdrafts for as long as two years. “The lives of people are paralyzed,” he said. “That is why we urge the congress and the Central Bank to find ways to help customers to get loans and make prepayment more easier.”

The process “probably has to be reviewed and restructured to allow the system, infrastructure and resources to match the challenge,” said Raza of the Islamic Finance Advisory & Assurance Services. “Islamic banking is a priority, but probably they have bigger priorities as well, so I’m not sure if enough thought was possibly given to this challenge.

In the meantime, the central bank plans to award about three licenses for domestic Islamic banks, Elkaber said. The minimum capital requirement is 250 million Libyan dinars ($196 million), according to Ali Shambesh, director of statistics and planning department at the central bank.

Read the full story from Bloomberg.


Having Islamic banks operate in Libya will be a win for consumers, but banning interest and expecting banks for find their way around is absurd.  What’s even more difficult to understand is since setting up a central bank was a priority before the Gadhafi government fell, then why now is it not a priority to establish new banking regulations?