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Algeria: 6 government banks to offer Islamic banking by 2018

Image of Algeria’s newly appointed Prime Minister, Ahmed Ouyahia [Ahmed Ouyahia/Facebook]

On Thursday, Algeria’s Prime Minister, Ahmed Ouyahia, announced that Islamic banking and financial services are to be approved in two public government banks before the end of this year and will be approved in four other banks in 2018.

This announcement came during Ouyahia’s response to the deputies of the People’s National Assembly (the first chamber of the parliament) during the ratification session of the government’s plan of action.

The government’s action plan won 341 votes out of 462, the total number of deputies in the first chamber, against 64 opposed votes and 13 abstentions.

Ouyahia explained that Islamic financial services (Islamic banking and instruments) will be approved in two government banks before the end of this year, without giving details on the process and the involved banks.

“The process will be approved in four other government banks in 2018,” he added.

According to Ouyahia, this step shows the government’s intention to move towards this option to attract financial masses from the parallel market to the banks. He explained that “the opposition’s claims that the government does not intend to adopt this type of funding are unfounded.”

The Algerian Prime Minister considered that “the financial mass that currently exists in the parallel market is estimated at 2700 billion Algerian dinars (26 billion dollars), but it will not solve the crisis by its own, even if the banks attracted it.”

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On this regard, he said: “The government now needs 200 billion Algerian dinars (about 2 billion dollars) to run the country for one month.”

Ahmed Ouyahia defended his government’s choice for unconventional financing, which allows the Public Treasury to borrow from the Algerian Central Bank and also to print more banknotes.

According to the same official, this funding was inevitable because of the country’ difficult economic and financial situation, and it will be limited in time because it will continue till no later than 2022.

During the Prime Minister’s response to Algerian deputies, Ouyahia explained that “unconventional funding will not be directed to consumption, but will finance productive investment projects and pay the Public Treasury’s internal indebtedness (construction, pension fund and so on…).”

Through the words of former Finance Minister Haji Baba Ammi, Algeria has announced its intention to launch financial products at public banks without interests.

Islamic banking in Algeria’s approved banks was limited to foreign banks, mainly from the Gulf, which started in the 1990s, such as the Algerian branch of Al Baraka Banking Group of Bahrain and Gulf Bank’s branch in Algeria (Kuwaiti).

Algeria has about 29 banking institutions, seven of them are government-owned public banks, and more than 20 foreign banks from the Gulf countries in particular, others are French and one is British.

Islamic banking services are considered as financing real estate purchases (lands and houses), cars and consumables (furniture and equipment) as well as financing small investment projects with limited amounts of money.

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The Algerian government has applied Islamic banking in a limited way through the Zakat Fund (public institution) of The Ministry of Religious Affairs and Wakfs (endowments), that was launched in 2003.

This fund financed projects of small and medium enterprises for young people in particular, with no interests at all, and was accompanied by the slogan “Give Him Money So He Can Endow Money, Too“.

In April, the Algerian authorities have launched an internal borrowing process in the form of treasury bonds with interest rates of more than 5 percent, but the majority of Algerians avoided the process because of its “interest rates”.

Algeria has been facing an economic crisis for three years due to the fall in oil prices. Authorities say the country has lost more than half of its foreign exchange earnings, which fell from 60 billion dollars in 2014 to 27.5 billion dollars at the end of last year.

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