Tunisian Businesses Struggle as Checks Fail to Generate Sufficient Income
The Problem of Check Financing in Tunisia’s Informal Economy
A significant number of small and medium-sized enterprises (SMEs) in Tunisia are struggling to make ends meet due to the widespread use of checks as collateral for payment in installments. This practice has led to a situation where many businesses are unable to generate sufficient income to cover their operational costs.
The High Cost of Check Financing
According to Abderrazak Houas, spokesman for the National Association of Small- and Medium-Size Enterprises (ANPME), “the specter of prison is what undergirds the trust between suppliers and customers. The check therefore offers a strong guarantee of payment.” However, this guarantee comes at a steep price, with interest rates on check financing reaching as high as 40 percent.
The Impact on Small Businesses
The use of checks as collateral has become a common practice in Tunisia’s informal economy, particularly among vendors who cannot pay cash upfront for goods or services. While it may seem like an attractive option, the reality is that many businesses are struggling to make ends meet due to the high interest rates and fees associated with check financing.
The Study by Boudrigua
A study by Boudrigua found that sellers in Tunisia tend to discount their prices if customers pay cash, which amounts to a disguised interest rate that covers the resources and risk costs for suppliers. This highlights the need for alternative payment methods that do not impose such heavy burdens on small businesses.
Problematic Legislation
The problem is compounded by problematic legislation in place. A disclaimer printed on the last page of all checkbooks in Tunisia states that issuing a check without sufficient funds constitutes a serious offense punishable by up to 5 years’ imprisonment and a heavy fine.
Critics Argue “Imprisonment for Debt”
Critics argue that this law amounts to “imprisonment for debt,” which conflicts with international human rights law, specifically Article 11 of the International Covenant on Civil and Political Rights (ICCPR), which stipulates that no one shall be imprisoned merely on the ground of inability to fulfill a contractual obligation.
The Consequences
The consequences of issuing an unfunded check are severe, with the issuer facing fines, fees, and even imprisonment. For example, if a check is presented for payment but lacks sufficient funds, the bank must notify the issuer on the same day, giving them three business days to provide sufficient funds. After seven working days, the issuer must pay a fine of 20 to 40 percent of the check’s value.
The Need for Reform
The situation has raised concerns about the impact on small businesses in Tunisia, many of which are struggling to stay afloat due to the high costs and risks associated with check financing. As the country looks to revamp its economy, it is clear that reforming the laws governing checks will be crucial to supporting entrepreneurship and growth.
Key Points
- Checks are widely used as collateral for payment in installments in Tunisia’s informal economy
- High interest rates and fees associated with check financing are suffocating small businesses
- Problematic legislation punishes debtors with imprisonment and fines, conflicting with international human rights law
- Reforming the laws governing checks is crucial to supporting entrepreneurship and growth in Tunisia.