Over the past four years, there has been a growing trend among banks to offer Islamic finance products as a way to attract excess liquidity and incorporate funds that were previously outside the traditional banking system. Initially limited to Islamic banks like Al Baraka Bank (since 1991) and Al Salam Bank Algérie (since 2009), these products are now being introduced by conventional public banks, with many of them announcing the establishment of specialized branches for Islamic finance and expanding the Islamic finance market in Algeria. This shift has accelerated notably following regulatory modifications.
Since 2020, the supervision of Islamic finance activities has been regulated by Regulation 20-02 dated 15 March 2020, which outlines the banking operations falling under Islamic finance and the conditions under which they can be conducted by banks and financial institutions.
A month later, Instruction 03-2020 dated 2 April 2020 was issued, specifying the products encompassed by Islamic finance and establishing the terms and technical features for their implementation by financial institutions.
To demonstrate their commitment to Islamic finance and adapt to these changes, banks have implemented various measures, including creating dedicated structures for marketing Islamic finance products and establishing Shariah control committees to review applications. Additionally, they have organized training sessions for bankers and devised commercial strategies. In a significant move, on 4 August 2020, Banque Nationale d'Algérie (BNA) became the first public bank to venture into this sector by offering Sharia-compliant products through its branches.
Read also: What are the New Minimum Capital Requirements for Banks and Financial Institutions in Algeria?
Other major banks like CPA, BEA, and BADR have also embraced this trend, leading to increased competition in the market. Despite this competition, the majority share of Islamic finance products remains with specialist banks Al Baraka and Al Salam, with these two entities holding 79.9% of the total financing products volume.
Looking ahead, the sector is expected to witness the entry of more private players, as foreign banks have shown interest in investing in Islamic finance. As per reports, Islamic financing products are projected to account for 60% of all new products and services introduced by banks in 2023. However, the dominance of Al Baraka and Al Salam is likely to persist, with these banks holding a significant portion of the financing products market.
Enhancing Attractiveness
Despite a notable increase in Islamic finance activities, public banks still hold a relatively small share of the total outstanding amount in this sector. Efforts are needed to enhance the appeal of Islamic finance offerings through the implementation of specific strategic and operational marketing plans. Educating customers about the distinctions between conventional and alternative products is crucial for driving adoption and competitiveness in the market.
Decline in Investment Account Deposits
Investment account deposits have witnessed a decline of 14.2% to 257.5 billion DZD ($1.9 billion), following a previous increase in 2022. These funds are expected to be integrated into Islamic investment funds managed by experts in Islamic finance and overseen by a Sharia compliance committee. The generated income is distributed based on principles of fairness and equity, offering investors diversified alternatives and promoting financial inclusion.
Islamic investment funds play a vital role in enriching the financial landscape by providing investment solutions aligned with ethical and religious principles, supporting innovation, and contributing to sustainable development. The issuance of Islamic bonds, such as the upcoming sukuk by AOM Invest, aims to raise funds for specific development projects while offering investors competitive returns linked to the company's performance.
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