Algeria turns to Islamic finance to prop up economy

In Algeria, Africa’s largest nation and home to 43 million people, most transactions are done in cash circulating outside the formal banking sector, said professor Mohamed Boudjelal, an expert on Islamic finance. (File/AFP)
Updated 16 August 2020

Algeria turns to Islamic finance to prop up economy

  • Falling oil prices and the coronavirus pandemic have battered the North African country
  • IMF forecast that Algeria’s economy will shrink 5.2 percent this year

ALGIERS: Algeria has launched Islamic finance products in a bid to attract money from the informal market, but bankers warn it will take more to fix the country’s struggling economy.
Falling oil prices and the coronavirus pandemic have battered the North African country, triggering alarm bells among officials and experts.
The International Monetary Fund (IMF) forecast that Algeria’s economy will shrink 5.2 percent this year.
Prime Minister Abdelaziz Djerad has warned of an “unprecedented economic situation,” and experts have estimated unemployment at nearing 15 percent.
In Algeria, Africa’s largest nation and home to 43 million people, most transactions are done in cash circulating outside the formal banking sector, said professor Mohamed Boudjelal, an expert on Islamic finance.
Many Algerians “turn their nose up” at conventional banking, Boudjelal said.
Some Muslims believe that the traditional banking system is incompatible with their faith.
Islamic finance — the provision of financial services in accordance with religious laws — is a fast growing sector that has been adopted in many Muslim countries.
The industry is based on shared profit and loss, while earning interest is banned as “usury.”
Funds are also blocked from investing in companies associated with tobacco, alcohol, pork or gambling.
Algeria is hoping the new products could woo new investors into the market, following the success of Islamic finance products over the past decade in other countries, notably in the Gulf and Malaysia.
The country’s neighbors have already rolled out similar schemes.
In Tunisia, Islamic finance has operated in the private sector since the 1980s, although the sector remains modest, while in Morocco it began in 2017, though it has recorded net losses it says are due to initial start-up costs.
But Algeria hopes to tap into the significant revenues of the informal market, estimated to be as much as $30-35 billion, according to Abderahmane Benkhalfa, a former minister of finance and ex-head of the banking association.
“It is not only necessary to draw these resources, but to inject them into banks in order to bolster the economy,” Benkhalfa said.
Earlier this month, state-run National Bank of Algeria offered nine Islamic financial services, receiving a certificate from Muslim clerics ensuring they were compatible with Islamic law.
Only two other private banks, subsidiaries of the Bahrain-based Baraka Bank and Al Salam Bank, offer Islamic finance services in Algeria.
However, Algeria’s other banks — all state-run — are now expected to follow suit by the end of the year.
Most foreign banks are also planning to sell Islamic finance products too.
But Benkhalfa, who is also a member of a panel of African experts tasked by the African Union to mobilize international funds to help the continent combat coronavirus, warned that Islamic finance is not a “miracle solution.”
Only a small slice of cash in the informal economy circulates because of people’s religious beliefs.
The solution, Benkhalfa argues, are to make steps to modernize the traditional banking system — to make it more responsive — and develop in parallel with Islamic finance.
Economist Abderrahmane Mebtoul was even more cautious in his assessment.
It is only viable if inflation can be brought under control and if households have faith in the government’s management of the economy, Mebtoul said.
According to several studies, Islamic finance products are often more expensive that those provided by the traditional banking sector.
By the end of the year Algeria’s state banks are expected to propose several Islamic finance products, including “murabaha,” “ijara” and “musharakah.”
Murabaha, or cost-plus financing, is among the most popular products, and is used to finance a variety of consumer purchases from cars to houses.
It involves the bank buying on behalf of a client a property or another product, which it sells back to the client at a certain profit that replaces an interest rate.
Ijara is a way of buying a house through a lease and subsequent ownership, rather than through a mortgage.
Musharakah is seen as a way of enabling a buyer to avoid taking an interest-bearing loan, though some Islamic scholars say it is too similar to the charging of interest.
Algerian authorities are also considering issuing Islamic bonds.


Dubai’s Al-Habtoor Group to open representative office in Israel

Updated 20 September 2020

Dubai’s Al-Habtoor Group to open representative office in Israel

  • Al-Habtoor and Fogel both welcomed the landmark agreement that was signed on Sept. 15 in the US
  • The tycoon revealed his plans to open a representative office in Israel

DUBAI: Dubai’s Al-Habtoor Group (AHG) plans to open a representative office in Israel its chairman said, following an historic peace deal signed last week between the UAE and Israel to normalize relations.

Khalaf Ahmad Al-Habtoor, who is AHG founding chairman, welcomed Ampa Group’s co-owner, chairman and CEO Shlomi Fogel at the hospitality conglomerate’s Dubai headquarters. Ampa Group deals in real estate, finance and industry. 

Al-Habtoor and Fogel both welcomed the landmark agreement that was signed on Sept. 15 in the US. 

The UAE and Bahrain signed the Abraham Accords in a ceremony overseen by US President Donald Trump. The two Gulf countries join Egypt and Jordan as the only Arab nations to have full relations with Israel.

“I have been looking forward to this day for a very long time,” Al-Habtoor said. “I have always believed that Emiratis and Israelis have a lot in common. Both peoples are business-oriented and have relied on human talent and ambition more than their countries’ natural resources to build robust, innovative economies. The opportunities that this deal will present are great for both sides. I am confident this will open up new doors and lead to stronger economies, and closer cultural ties between the peoples.”

The tycoon revealed his plans to open a representative office in Israel and said that there was a lot of interest in collaboration.

“We have received a large number of inquiries for collaboration in several fields, ranging from AI and technology, to agriculture, hospitality and trading. The possibilities are endless for both sides in our diversified fields and new ones, and we want to be present to grasp them.”

He previously disclosed that AHG had started talks with Israeli domestic carrier Israir Airlines to open direct commercial flights, “and we are preparing to reveal a few collaborations in the coming days.”

Fogel said that peace would be cemented through successful business collaboration and trade. “Together with our Emirati counterparts we will show the way to live in peace to the rest of the world,” he added.

Fogel was accompanied at the meeting by Ampa Group executives, including Erez Katz and Saar Bracha.

AHG was represented at the meeting by Mohammed Al-Habtoor, Ahmad Al-Habtoor, Maan Halabi, Sanjeev Agarwala and other members of senior management.