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Libya’s Financial Sector in Crisis: All But Frozen

TRIPOLI - Libya’s stock exchange has ground to a halt, with minimal public trading taking place due to a lack of political and legal clarity. The country’s financial sector is essentially on hold, with few private placements or initiatives being proposed.

Specialized Credit Institutions (SCIs)

The SCIs, which have played a distortionary role in the financial sector, are temporarily suspended due to high levels of defaults and a lack of replacement funding. The Agricultural Bank, one of the SCIs, has not been audited since 2013 and none of the state banks have recently published financial statements.

Microfinance Sector

The microfinance sector is one of the few bright spots, with the opening of Libya’s first microfinance institution, which is a subsidiary of an existing bank established with donor funding. However, even this development is limited by the lack of experience with shari’ah-compliant insurance approaches and the absence of a formal regulatory framework.

Underserved Communities

The underdeveloped state of Libya’s financial sector means that micro, small and medium- sized enterprises (MSMEs), individuals and households, as well as refugees and migrants, are severely underserved. Banks struggle to assess the risks and returns of investing in SMEs, making it difficult for these firms to function and contribute to the economy.

• Households and individuals face limited access to financial services, including savings and borrowing options. • High savings and borrowing rates are largely informal, leaving many without a safe place to store or transfer money. • Refugees and migrants are particularly vulnerable, with limited access to formal financial services and often forced to rely on informal networks.

Key Recommendations

To strengthen Libya’s financial sector, several initiatives must be undertaken. The first step is to reform and stabilize the monetary regime, which can only be achieved following the unification of the Central Bank of Libya (CBL) with its Eastern branch.

• In the short term, several measures should be implemented within the next six months, including: + An international audit of CBL and its Eastern branch + Discussions between technical teams on clearing payments and foreign exchange management + Preparations for independent asset quality reviews of leading banks • Longer-term measures include: + Revisiting the role of the state in the financial sector + Strengthening financial sector governance + Continuing to strengthen CBL capacity + Rebuilding the land registry + Implementing measures to combat anti-money laundering and terrorist financing risks

Implementation

The National Steering Committee, composed of main financial sector stakeholders, should be established to spearhead implementation of these reforms. The committee will play a crucial role in guiding the recovery of Libya’s financial system and ensuring that the country can move forward towards stability and growth.