Would you like to make English your default language on this site?

2011-04-14

Algerians seek expanded Islamic banking options

By Lyes Aflou for Magharebia in Algiers – 14/04/11

Algeria needs legal reforms to encourage the growth of sharia-compliant finance, bankers and business experts concluded at a Monday (April 11th) symposium in Algiers.

The El Moudjahid forum attendees stressed that allowing the sector to grow would reduce unemployment and create new businesses. Islamic finance currently accounts for 1% of banking activity in Algeria.

Fouaz Sid, a bank clerk working for the Algerian arm of the French bank Société Générale, said he hopes that possible legal changes to the banking system would help to introduce more diversity into financial products.

"For this to happen, we'd like to see legal changes being introduced to make every product which conforms to sharia law able to compete with the more traditional products. This would give us a legal footing and encourage us to diversify finance products in Algeria," Sid said.

On Tuesday, the chairman of the MSP's parliamentary group, Mohamed Said Boubekeur, called for traditional banks to open counters dedicated to Islamic banking.

This "in no way means getting rid of the traditional banking operations currently available, but rather supporting them with another kind of operations which will satisfy sharia law," Boubekeur said.

One of the arrangements offered by Islamic financiers to avoid usury is called Murabaha, a purchase and resale contract in which the bank buys a material good from a supplier at its customer's request, and the price at which it is sold on to the customer is based on the cost price plus a profit margin.

Other such finance tools include Salam, a purchase contract involving the deferred delivery of goods. For agricultural finance, Istisnaa can be used prior to delivery while lease-purchases can be used for financing long-term projects. Other options include Qard Hassan (a gracious loan), which serves as a loan without interest, usually tied to a debt security instrument. Finally there is Ijarah, a lease-purchase agreement by which a party leases an item for a fixed rent and period.

Under these mechanisms, "any financial profitability must be justified by economic profitability," explained Sid.

The faltering performance of Islamic finance in Algeria should give way to a more audacious approach inspired by those adopted by key international finance locations, according to Mustapha Bouazza, an MP for the Movement for the Society of Peace (MSP).

The law on money and credit "lacked clarity when it came to the activities of the Islamic banks", economist Abdelmalek Serrai said. He blamed delays in reforming the sector on the "dominance of state-owned banks".

However, Nacer Haidar, Secretary-General of Al-Baraka Bank, the first one to specialise in Islamic banking products in Algeria, said that his institution's success bore witness to the "flexibility of the Algerian authorities when dealing with Islamic products".

"If there is any resistance, then it's not to do with the Islamic products, but it's a characteristic of the financial market in Algeria, which is still lagging behind in terms of product diversification," he said.

Algeria has one bank branch for every 26,000 people, compared with one branch per 7,000 people in neighbouring countries and one for every 2,000 in developed countries, according to Haidar.

He added that his bank was willing to help fund projects to reduce youth unemployment, provided that they were "economically profitable".

What do you think of this article?

13

Subscribe to our newsletter and get Magharebia's latest articles delivered to your inbox.

POST YOUR COMMENT 0

Anonymous thumb

You are not signed in. Anonymous comments are subject to moderation. Sign up to have your comment posted immediately - Learn more

Or post your comment using:

* DENOTES REQUIRED FIELD