(Nov. 23, 2020) On August 4, 2020, Algeria’s National Bank officially launched Islamic banking as the first state-owned bank to practice Islamic banking services in Algeria. The launching of Islamic banking on the level of state-owned banks is in accordance with the government’s efforts to establish a more effective and diversified national financial market. The Algerian authorities aspire to recoup the large mass of funds circulating outside the banking sector. The Algerian Central Bank estimates that this bloc totals between $30 billion and $35 billion.
Some experts believe that Islamic banking can attract many customers who refrain from opening bank accounts due to religious considerations or because they avoid lending or borrowing money with interest. Therefore, Algeria will be able to push its economy towards growth through the Islamic banking system.
These financial system reforms are among the most prominent demands of the continuing popular movement in Algeria since last year. For years, businesspeople and companies supported the fight against financial corruption. They have been calling on the state to accelerate the adoption of a clear-cut road map to absorb liquidity from the black market to bring about the principle of equal opportunity and fair competition.
Regulation No. 02-20 of March 2020
Regulation No. 02-20 of March 2020 specifies the banking operations related to Islamic banking and the rules for their practice by banks and financial institutions. According to this regulation, in order to be considered an Islamic banking operation, bank transactions should not result in a collection or payment of interest. A bank must obtain prior authorization from the Bank of Algeria before offering Islamic banking.
National Sharia Fatwa Board for the Islamic Financial Industry
The regulation establishes the National Sharia Fatwa Board for the Islamic Financial Industry. The new body grants certificates of compliance with Sharia (Islamic law) to banks and financial institutions. A bank must obtain a certificate in order to offer Islamic banking.
The regulation creates the “Islamic banking window” as a body within a financial institution exclusively assigned to Islamic banking products and services. It also requires that the “Islamic banking window” be financially independent from other structures of the financial institution.
In the context of practicing Islamic banking operations, a bank or financial institution must establish a Sharia Supervisory Board. This body consists of three members. The tasks of the Sharia Supervisory Board are to ensure the conformity of the bank’s services to Sharia and to monitor the Islamic banking activities of the bank or financial institution.
Reactions to the New Regulation
Many private banks in Algeria, including Al Salam Bank and Al Baraka Bank, appreciate the addition of Islamic financing to Algeria’s national banking system. According to Mr. Karim Said, general manager of Al Baraka Bank of Algeria, the new regulation will open the door for competition between banks to provide the best services in accordance with Islamic law. He also considers the new regulation a great step toward creating a larger Islamic banking market, and believes it will improve overall banking services, which will benefit the general population interested in Islamic banking.
Professor Mohamed Boujelal, a prominent Algerian economist, considers the desire of Algeria’s government to advance the economy by improving access to Islamic banking a great step. He referred to a speech made by Director General of the European Central Bank Christine Lagarde, who at the time was managing director of the International Monetary Fund, to the 2015 Islamic Finance Conference. Lagarde called for encouraging Islamic banking because it supports economic growth by providing access to banking services to a large part of the Islamic population.