To recover part of the funds circulating outside the banking circuit, the Algerian authorities encourage the opening of counters and bank branches dedicated to Islamic finance. But the results are not necessarily there
“It’s the first time I’ve put my money in a bank. From now on, I can put my funds at the shelter without going against the current of my religious convictions. »
While waiting for his turn, in front of an agency of the National Bank of Algeria (BNA, state) rue Didouche-Mourad, in Algiers , Lotfi Sayeh does not hide his enthusiasm. This general food trader used to keep his money in safes at his home.
He explains to Middle East Eye that his religious beliefs did not allow him to put his money in a traditional bank, which charges “interest”, considered illicit (haram) by Islamic law.
So when the Algerian authorities launched a campaign in early 2022 to open as many branches dedicated to Islamic finance as possible in Algerian bank branches, the 40-year-old did not hesitate to try his luck.
To capture a maximum of capital often kept in cash with individuals, the authorities have decided to encourage banks to open agencies and counters dedicated to Islamic finance.
The official figures revealed in February 2023 show since March 2020, the date on which Islamic finance, hitherto reserved for foreign banks, became accessible to Algerian public banks, a real craze for this type of banking product.
Islamic finance is still in its infancy
From the first days of their launch in public banks, queues had formed in front of the establishments. In less than three years, 469 counters dedicated to Islamic finance in eleven banks have been opened.
Until December 31, 2022, more than 594 billion dinars (almost 4 billion euros) had been collected by Algerian banks within the framework of Islamic finance, indicated on March 28 the president of the Professional Association of Banks and financial institutions (ABEF), Lazhar Latreche.
Even if this figure remains modest compared to the nearly 45 billion euros which still escape the banking circuit, according to the figures of the authorities, the specialists underline that it is not negligible either if one considers that Islamic finance in Algeria is only in its infancy.
The figure provided by the authorities is misleading. To give the impression that the operation is a success, bank advisers have asked savers to transfer their assets from the traditional system to Islamic finance accounts,” a public bank executive told.
The latter takes, as an illustration, the situation inside his own bank, in Algiers-Centre, where the only two agents not to have customers on this day of March are the two employees assigned to the counter dedicated to finance Islamic.
An observation that Middle East Eye was able to make during the few hours spent on the premises of this bank.
Contacted by, financial expert Abdelghani Remram evokes a problem specific to Algeria: “the lack of confidence in the banks and their leaders and the lack of awareness [of Islamic finance]”.
For Amina Athamnia, director of this sector within the National Bank of Algeria, the establishment she represents clearly wants to “separate the traditional offer” from the new product, to distinguish what is traditional finance and what is “consistent” with Islamic principles, she told.
The BNA has thus opened twelve branches dedicated to Islamic finance across the country, according to Amina Athamnia.
“To give the impression that the operation is a success, bank advisers asked savers to transfer their assets from the traditional system to accounts under Islamic finance” – A public bank executive
Private banks also benefit from this new legislation: this is the case of Al Salam Bank, an Algerian-Lebanese institution dedicated mainly to Islamic finance.
But until then, the Algerian legislation did not give much leeway to this kind of banking establishments which were content to offer Islamic finance as a simple service, without counters or branches dedicated to this activity.
To capture more funds, its CEO, Nasser Hideur, is banking on financing small businesses active in e-commerce and real estate, he told.
According to these principles, the saver or the borrower becomes a partner of the bank, remunerated according to the profits made by the money he has placed there. Interest rates are therefore not fixed in advance as is the case in traditional finance. And this appeals to conservative circles in the Muslim world who consider bank interest to be “illicit”.
Risks
Seemingly virtuous and devoid of interest, Islamic finance nevertheless applies margins that sometimes exceed the interest rates of conventional banks.
“Islamic banks are not as efficient as conventional [private] banks. They have a higher cost/revenue ratio and are often exposed to the risk of non-compliance with Sharia [Islamic law] due to the lack of employee skills in Islamic banking products and services,” said Abdelghani Remram.
According to him, “multiple credit agreements are found to be non-compliant with Shariah and should therefore be considered as ”products to be liquidated”. To compensate for losses, banks may charge higher fees.”
For example, if you place $1 million in a “certified” account, you will not have a pre-set interest rate. The bank will put your money into investment projects and you will be remunerated, as a unitholder, according to the profits of the funded project. But if the project is not profitable, your savings do not bring in money, explains an expert in Islamic finance.
“But the main problem of the Islamic bank remains the lack of liquidity”, slice Moncef Fakhet, head of the Tunisian bank Zitouna, in a communication given on the occasion of the ninth Algerian Forum of Islamic finance which was held in November 2022 in Algiers.
He is referring here to the low savings rate. He also points to “the absence of accounting standards” specific to Islamic finance, which “always applies traditional banking standards”.
To overcome these pitfalls, the authorities plan to put in place new mechanisms to make Islamic finance more efficient.
Finance Minister Brahim Djamel Kassali has pledged to put in place the legal and regulatory framework governing the sukuk ( Islamic bond) market by 2023.
More than 200 Algerian banking executives have benefited from training for a year
The government has also introduced a Sharia-compliant insurance, “Takaful”. A draft law was studied at a government meeting in December 2022. A month later, a first Algerian General Takaful insurance agency, the result of a collaboration between banks and insurance companies, opened in Algiers.
More than 200 Algerian banking executives have also benefited from training over the past year at the Banking Training Institute, according to its director, Ali Benali, who notes a real “craze on the part of banks” since the establishment of the new legal framework governing the opening of counters and bank branches dedicated to Islamic finance.
