Algeria is the largest country in Africa with an area of over 2.3 million square meters and a population of 45 million. About three-quarters of this area is covered by sand of the Algerian desert, which provides a major part of the fossil energy that is oil which constitutes the main source of currency for Algeria.
Dependent on oil prices, after the oil shock of 2014, Algeria has resolutely moved toward a new model of non-hydrocarbon growth, supported by a new model of financing. It is in this context that the country is trying to make the most of Islamic finance by officially authorizing this activity from 2020.
Review of 2021
In Algeria, the financial system is dominated by the public banking sector, with its six major banks, plus 20 private banks and public and private financial institutions. This sector finances more than 85% of the needs of the national economy.
However, the fall in oil prices during the first half of 2014 was the cause of a drastic decline in bank liquidity, directly impacting the financing of large companies and major projects.
In addition, the existence of a parallel economy, whose sums in circulation are estimated by the president of the Republic to be more than US$90 billion, complicates the situation, insofar as this money does not benefit the community but on the contrary, it causes significant shortfalls for the state budget including in terms of taxation.
It is in this context that the public authorities have started a series of reforms with the aim of better financial inclusion, fighting against the informal market and guaranteeing the sustainability of the financing of the economy.
Preview of 2022
The reform of the financial system is among the priorities of the government. Thus, the first step was the creation of the National Charaic Authority of the Fatwa for the Islamic finance industry (Regulation No 20-02 of the 15th March 2020 defining the banking operations under Islamic finance and the conditions of their exercise by banks and financial institutions published in the Official Gazette No 16).
The second step authorized conventional banks to offer Shariah compliant products through the opening of Islamic windows. Thus, the banking operations authorized by the central bank concern Murabahah, Musharakah, Mudarabah, Ijarah, Salam, Istisnah, deposit accounts and deposits in investment accounts.
In addition, in 2021, the Ministry of Finance published the Executive Decree n° 21-81 of 11 Rajab 1442 corresponding to the 23rd February 2021 which fixes the conditions and modalities of the exercise of Takaful insurance. This enabled a private insurance company, GAM Assurance, to obtain in December 2021 the authorization to put on the Algerian market the first Takaful products of the market.
It is obvious that the ecosystem of the Islamic finance industry, even if it is not yet fully established, has achieved in such a short time considerable progress supported, it must be said, by the efforts of the highest authorities of the country, headed by the president of the Republic.
Thus, the complementary finance law for 2020 and the finance law for 2022 have introduced tax adjustments for both banks and individuals, with exemption from taxes regarding the operations and income related to Islamic products.
In order to complete the ecosystem, a project of setting up Sukuk at the level of the Algiers Stock Exchange has been initiated by the Ministry of Finance which will certainly open new horizons to the Algerian stock market which will, in the years to come, play a central role in financing the national economy.
Yazid Benmouhoub is the general manager at the Algiers Stock Exchange. He can be contacted at [email protected]