Sydney: Tunisia plans to provide Islamic financing to small and medium-sized enterprises via a tie-up between the public and private sectors, which could serve as a model for other Arab states trying to repair their economies after political turmoil.

The Tunis-based Bank of Financing Small and Medium Enterprises has agreed with the Jeddah-based Islamic Corporation for the Development of the Private Sector (ICD), a private investment arm of the Islamic Development Bank, to aid smaller companies in Tunisia.

The plans include a 50 million dinar (Dh118.6 million) sharia-compliant SME fund. It was launched on Wednesday by Tunis-based United Gulf Financial Services — North Africa (UGFS-NA), which is 60 per cent owned by Bahrain-based United Gulf Bank.

“The success of the fund will serve to increase foreign direct investment and further develop Islamic banking in the country,” UGFS-NA chairman Mohammad Fekih said in a statement.

The fund, financed by the ICD and the Tunisian government’s Deposit and Consignment Fund, will focus on urban areas, and hopes its investments will create up to 1,000 new jobs.

The plans also call for the ICD to assist BFPME, which has a capital of 100 million dinars, in developing Islamic lending products tailored for SMEs.

Islamic finance, which is structured to obey religious principles such as a ban on interest, is gradually expanding in North Africa as governments promote it in the wake of the 2011 Arab Spring uprisings, which ousted regimes that neglected or discouraged the industry for ideological reasons.

The Tunisian government is working on a legal framework to cover issues of Islamic bonds, and a draft may be discussed by authorities as early as this month, a source at the ministry of finance told Reuters.