(MENAFN- Gulf Times) Recent news that Bahrain-based Al Baraka Banking Group, which has banking branches across North Africa, received the prestigious 'Best Islamic Financial Institution award for its Algeria operations sheds light on the development opportunities of the Islamic finance industry in the North African nation which formulated a definite roadmap on Shariah banking only last year.
The award has been bestowed for consistent business growth, meeting professional standards, offering quality products and services that are also innovative, and for geographic reach, profitability and robustness of financial position.
This clearly describes the potential of Islamic finance in Algeria, whose government in the past has been at odds with Shariah-compliant financial services and banks for political reasons — like most other North African countries — and still mostly refers to the industry as 'participation banking rather than Islamic banking owing to perceived sensitivities related to political Islam. Hence, Islamic finance was until now more of a shadow industry in the country with no clear-cut regulations, and existing Islamic lenders were operating on their own rules and each being responsible for Shariah compliance on their own accounts.
However, the necessity to reform and diversify the oil-dominated industry emerged after crude prices waned in the past, and Islamic banking has been considered by the government in Algiers as one way to push and expand the sluggish financial industry in the country.
As a consequence, Bank of Algeria as the country's central bank is expected to release its long-awaited Islamic banking regulatory framework this November in order to equip the unregulated industry with tools, rules and policies which would allow it to grow.
The new framework also seeks to contribute to the roadmap Algeria's Prime Minister Ahmed Ouyahia announced last year that by the end of 2018 at least six state-owned Algerian banks would be approved to offer Islamic finance services, a concession which was so far granted only to two foreign banks, namely Al Baraka Bank of Algeria, as well as Gulf Bank Algeria, a local branch of the Kuwaiti bank. It is understood that three state-owned banks, namely Banque de l'Agriculture et du Développement Rural (BADR), the Caisse Nationale d'Epargne et de Prévoyance (CNEP) and the Banque de Développement Local (BDL) have already opened Islamic windows.
Fostering Islamic banking in the commercial banking sector is also geared towards re-routing the 'grey financial money flows within the country which are currently taking place outside the official banking system through informal community money systems, hawala transactions and the like. Prime Minister Ouyahia said that this 'parallel money market would amount to an estimated $26bn, which is more than 20% of Algeria's total banking assets, according to central bank data.
Furthermore, to ease its chronic budgetary weakness caused by the drop in energy revenues, the Algerian government also plans to issue an unspecified number of sukuk in the period between 2019 and 2022. The new regulatory framework for Islamic finance is further expected to encourage private companies to issue Islamic bonds as a fund-raising alternative to conventional banks.
The Higher Islamic Council in Algeria at the end of 2017 acknowledged that the envisaged Islamic banking model in Algeria, based on the principles 'no reward without risk and 'income bound to obligation, is Shariah-compliant. The council also pushed for the creation of a central Shariah board within the central bank to overview all issues related to Islamic finance and Shariah compliance.
This opened the way to draw the said Islamic banking framework due to be released this November and bring the country a big step forward on its Islamic finance roadmap.
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