The conventional banking industry in the Republic of Albania is almost as old as the modern state, which was declared independent on the 28th November 1912, since the first bank was established in 1913. After the fall of the communist regime in the early nineties, the banking industry entered a new era by being adopted to the market economy. Moreover, with a well-structured financial legislation and regulations which adhere more and more to be fully compliant to the EU’s legislation, Albania is currently home to 12 banks with domestic and foreign capital.
According to the Albanian Association of Banks, the banking sector comprises ALL1.73 trillion (US$16.1 billion) in total assets and ALL1.44 trillion (US$13.4 billion) in deposits. The rate of non-performing financings has reached the lowest level of 6.35% since 2008 (Bank of Albania). Furthermore, it has miraculously survived the recent COVID-19 pandemic period.
Review of 2021
Islamic banking is gaining increasing popularity in various international financial markets and Islamic banks can be found today in Muslim and non-Muslim countries. However, Albania does not seem to be among the countries that have Islamic banking products.
Nevertheless, based on the 2011 census data, 1.58 million Albanians declared themselves as Muslims and the Islamic financial incentives in the Albanian market are very small in comparison to what the industry has achieved internationally.
However, some significant steps have been taken. An institution that offers Islamic financial services in Albania is the United Bank of Albania which was established in 1993 under the name Arab – Islamic Bank.
Further, despite the lack of a specific law compliant to the Islamic banking industry, the United Bank of Albania has adopted and modified several instruments to the level permitted by Shariah. Among the instruments offered by the United Bank of Albania are Musharakah, Murabahah, Ijarah and diminishing partnership contracts.
Nevertheless, the low market share of Islamic banks in Albania indicates some hesitation in the relationship between the Islamic banking industry and Albania which seems to be a puzzle when compared to what the Islamic banking industry has achieved so far in many financial markets, and the liberalization of the Albanian financial market.
Hence, are Islamic banks not willing to enter Albania? Or is Albania not willing to accept these institutions?
Thinking reasonably, the answer to both the aforementioned questions is clearly a ‘No’. Firstly, Islamic banks have spread dramatically in the markets inhabited by the Muslim communities and have entered markets even under strict conditions by adapting themselves or their products to the market legal requirements, thus it would be very odd that these banks would not be willing to enter a country where the Muslim community exceeds 1.5 million members.
Secondly, the Albanian financial market is a free market where fair competition is supported and new business initiatives are encouraged as long as they respect the legal requirements. Thus, the rejection of Islamic banking from the side of Albania seems not to be a just argument.
Perhaps a strong reason behind this hesitation and lack of interaction between Islamic banking and Albania is the fact that both parties may have not considered carefully how to benefit from each other, and that comprehensive studies that analyze the economic benefits of this possible relationship have not materialized yet.
Preview of 2022
There has to be an introductory information process between the Islamic banking industry represented by its own regulatory institutions like the General Council for Islamic Banks and Financial Institutions, AAOIFI, the IFSB and the Albanian financial regulatory institutions represented by the Ministry of Finance, the Bank of Albania, the Financial Supervisory Authority and the Deposit Insurance Agency.
This process can be achieved by the organization of Islamic banking conferences in Albania with the participation of representatives from both parties, and the academic participation from the scholars interested in the Islamic banking industry;
The presence of the United Bank of Albania, which has experience in the Albanian market, may be another prospect for the implementation of Islamic banking in Albania, in case the IsDB decides to push other Islamic banks to enter the Albanian market;
The accomplishment of the first two phases should encourage Islamic banks to open foreign branches or subsidiaries in the Albanian financial market. This process has to be associated with training procedures for the Albanian staff that will provide the industry with local experienced human resources;
In this phase, stand-alone Islamic banks should be opened in Albania, or the conventional banks that already operate in Albania may open their Islamic windows. They must work to gain the trust of customers and the market regulatory institutions by providing financial solutions that satisfy the market needs and requirements, and prove to the market that their industry brings innovation and encourages fair competition in the Albanian financial market.
Nowadays, the world is suffering from several crises which are appearing one after another. Even the most prestigious institutions which provide loans to many countries such as the IMF and the World Bank have almost closed the doors to whoever is asking for financial aid from them.
Hence, the Albanian government may consider Islamic banking as an additional financial source to exploit. It has to promote this new philosophy to Albanian customers who may face the lack of information and knowledge about Islamic banking. Likewise, the government has to take its duty very seriously by sending students to countries where Islamic banks operate in full Shariah compliance.
Accordingly, it should exert pressure over Islamic financial institutions and especially the IsDB which is a key partner to Albania to send their professionals over in order to promote Islamic banking.
A subject titled ‘Understanding Islamic Banking and Finance’ should be added to the curricula of high schools and universities with economic and financial profiles.
Therefore, all the interested parties such as the Albanian government, Islamic banking and finance institutions, local investors and even individual customers especially Muslims must play their role toward the implementation of the aforementioned phases. They must show their motivation, interest and courage to urge Islamic banks to gain market share.
Dr Bledar Maçka is the finance manager at the Canadian Institute of Technology. He can be contacted at [email protected]