Tunisia's fledgling Islamic finance industry could take a 25 to 40 percent share of the country's financial sector in five years' time if necessary rules, consumer education and private investment plans materialise, a Thomson Reuters study found.
Islamic finance was previously neglected by Tunisia's rulers but in the wake of the 2011 revolution, the new Islamist-led government is promoting the industry.
Currently, sharia-compliant business accounts for just 2.5 percent of the Tunisian financial sector, the study said. In the Gulf Arab states, the ratio is believed to be about a quarter.
The study estimates that Islamic financial assets in Tunisia could reach $17.8-$28.5 billion by 2018, up from $1.4 billion at present.
In a poll of about 700 ordinary Tunisians conducted for the study, 54 percent said they would consider switching to banking with Islamic lenders even if that meant lower rates of return, while 40 percent would be open to switching even if their money was not guaranteed.
But 64 percent of respondents said they were unclear about how Islamic finance worked.
One boost for Islamic finance in Tunisia would be issuance of the country's first sukuk, which the government is planning.
"I expect the issuance process to take place in the second half of 2013," Chaker Soltani, general director of debt management and financial cooperation at the finance ministry, was quoted as saying in the study.
The Jeddah-based Islamic Development Bank (IDB) has given Tunisia a financial guarantee to issue a sukuk worth $600 million. Last week, the IDB extended said it would extend $1.2 billion in funding to Tunisia for industrial, agricultural and trade projects.
Mohamed Sadraoui, deputy director of general supervision and banking regulation at the central bank, said Islamic windows - units of conventional banks that offer Islamic financial services - would be permitted to operate under central bank guidelines that ensured operations were segregated.
"There are four or five well-known banks in Tunisia that are trying to facilitate the way for their Islamic finance businesses," said Mahmoud Mansour, deputy general manager of the Tunisian arm of Bahrain-based lender Al Baraka Bank.
He added that three takaful (Islamic insurance) companies had applied for licences.
Al Baraka, which entered the country in 1983, is awaiting approval for an onshore banking licence so it can open more branches and serve a broader client base, said Mansour.
Zitouna Bank, the country's only full-fledged domestic Islamic lender, also plans expansion.
"We are planning for over 100 branches across the country within the next five years," Ezzedine Khoja, president and general manager of Zitouna Bank, said in the study.
The bank, set up in 2009, plans to increase its capital base to 100 million dinars ($61.7 million) from the current 70 million dinars by the end of this year, as well as launching an investment funds unit and possibly expanding abroad, he added.
Some industry practices that are controversial among some Islamic scholars, and could therefore affect customer perceptions, are generally being avoided in Tunisia, the study found. One of these is tawarruq or commodity murabaha, a common cost-plus-profit arrangement in Islamic finance.
"We here in Tunisia do not consent to tawarruq, a product that is widely spread in the GCC (Gulf Cooperation Council)," said Khoja.
"We don't believe in this product and reject its use for Tunisia, despite its widespread use in other jurisdictions."