Islamic banking: the case of Algeria

Abstract

Purpose -The purpose of this paper is to provide a detailed analysis of the Islamic banking in Algeria following the financial liberalisation initiated in the 1990 s. It seeks to examine the performance of the sole bank offering Islamic financial products in Algeria, Banque Al Baraka d'Algérie. The study also aims to analyse the methods adopted by the bank to improve the allocation of its financial resources and to boost its earnings. Design/methodology/approach -Interviews were conducted to learn about the performance and risks associated with Banque Al Baraka d'Algérie operations. All interviews were held one-to-one with each respondent in Algeria. Statistical data and financial ratio analyses are also used to support the arguments made in this study. Analyses are carried out on major factors affecting the bank operations. Findings -The study reveals four key findings: Banque Al Baraka d'Algérie offers only a few Islamic financial products to its customers; most of the instruments are geared towards short-term financing; the bank's overall performance has improved since its operations in Algeria; and credit risk remains the main obstacle facing the bank. Research limitations/implications -This research uses a single country case study. The study also refers to the case of one Islamic bank with no competition from other Islamic finance providers. Practical implications -The analyses presented in this research can be used by policymakers and managers as a guide to developing the existing Islamic banking practices in Algeria. Originality/value -The study makes a contribution to the literature on Islamic banking in Algeria. It is the first study to particularly investigate the issue of Islamic banking performance in Algeria. The findings achieved in this research will be of interest for practitioners and academics concerned with developments of the Algerian banking industry.

Contemporary Issues and Development in the Global Halal Industry

“…In other words, the willingness and the support of the government is key for the successful introduction of Islamic insurance into the Algerian financial market. Similar to this finding, Benamraoui (2008) stated that one of the obstacles that have constrained Islamic banking is the absence of a real Islamic inter-bank market in Algeria. Some of the respondents commented: …the central bank of Algeria, the regulator should understand that this industry is not something like an ideological kind of industry, any negative idea or any extremist tendency, it is not back door to terrorism,… it is a financial system that tries to operate accordingly to Islamic principles……this is what has been understood by even non-Muslims … and because of that we have Germany, France, and Britain who are now competing with each other to be the heart of Islamic finance in Europe… (Participant#1) …they are afraid when Islamic finance penetrate in the market it may create some disturbance, unbalance in the market …people behind the conventional, they don't like it whether the government is ready to open the doors or not (Participant#2) Another finding points that a critical success factor in Islamic finance and takaful is the comprehensive legal framework, which should be amended to suit the implementation of takaful in Algeria.…”

“…Benamraoui (2008) stated that one of the obstacles that have constrained Islamic finance in Algeria is the absence of a real Islamic inter-bank market, whereby banks are not allowed to raise funds from conventional financial market as this is not allowed under Islamic law. The first Islamic bank in Algeria is Bank Al Baraka d'Algerie, which was launched in 1991.…”

“…Abdul Wahab et al (2007) stated that takaful operators and products are offered in more than 22 countries. For instance, the study of Benamraoui (2008) simply examined the performance of the sole bank offering Islamic financial product in Algeria, Banque Al Baraka D'Algerie. The development of Islamic finance, particularly Islamic insurance "takaful" in Algeria, appears to have lagged behind the rest of the world.…”

The Evolution of the Algerian Banking System

“…lending and deposit interest rates may be explained by the decline of the inflation rate and the stabilization of the exchange rate which are the consequences of the economic reforms (Benamraoui, 2008). It is clear that spread interest rate (yield) has registered a significant increase from 4% to 6%.…”

Analyzing Islamic Micro Finance Performance with Economic Value Added (EVA): Learning from Baitul Wat Tamwil (BMT) Usaha Gabungan Terpadu Sidogiri Indonesia

“…The company's performance is measured by returns to labor, labor efficiency and return to the proprietor, so that the performance of the company is the result of the overall management decisions are carried out continuously. Suffian and Noor (2009), Benamraoui (2008), Siddiqui (2008), Rosly and Burn (2003) conducted a study on Islamic Banking's financial performance based on financial analysis. Furthermore, Wiyono and Rahmayuni (2010) also noted the importance of financial analysis to measure the success of the performance of Islamic Banking.…”