Under Muammar Gaddafi, who was overthrown in 2011, the growth of Islamic banking was not encouraged and four state-controlled institutions dominated the relatively undeveloped financial sector of the OPEC oil producer.
Two years after Gaddafi’s ouster, Prime Minister Ali Zeidan’s government says it wants to attract foreign investment and develop the non-oil sector of the economy but is struggling to assert its authority against heavily-armed tribesmen and militias and parts of the country remain outside its control.
It has also been weakened by political wrangling with Islamists who dominate the parliament, the General National Congress (GNC), which strongly backs the plans to introduce Islamic law into the economy.
Economy Minister Mustafa Abu Fanas said experts would now study how best to apply Islamic Sharia law in the economy.
“Regarding a starting date, this will need studies…to see how and when we will transform,” he told reporters on the sidelines of a conference organised by his ministry to explore ways to introduce Islamic law.
“I can’t give an exact start date,” Fanas said.
When asked whether banks could retain conventional business models, he said: “Many researchers say there could be a gradual transformation by the Islamic and other banks towards an Islamic system, but in the long-term it is in our interest to have it…to build up a strong economy.”
Some banking officials, technocrats and liberals privately fear a hasty transformation might add to the political turmoil in Libya, where militias use weapons seized in the 2011 uprising to lay siege to ministries or oil facilities to press their financial and political demands.
Fanas said the GNC had given the government time to ban interest payments, with the change to be in force by the start of 2015.
Salah Makhzoum, deputy head of the GNC, told the conference that Libya would be joining a growing international trend as more and more states turned to Islamic law following banking crises in the United States and Europe.
“The world is moving towards an Islamic economy,” he said.
Libya has about 16 mostly conventional banks, which have few ties with the outside world, a legacy of its long isolation under Gaddafi.
As well as banning interest payments, Islamic law also forbids investment in the gambling industry and in firms producing alcoholic drinks or pornography.
Fanas said Libya had become too dependent on its oil sector and said the government wanted to boost investment to upgrade infrastructure including hospitals and universities. It is also overhauling a foreign investment law from the Gaddafi era.