Algeria: “90% Reduction In Islamic Banking Profits In Banks”

The head of the Islamic banking committee at the Professional Association of Banks and Financial Institutions, Mr. Sofiane Mazari, reveals expected reductions that could reach 90% in the profit margin of Islamic banking, related to housing and real estate financing according to different formulas, stipulated in the executive decree recently signed by the Prime Minister.
This decree will ensure – says Mazari – equality between classical and Islamic financing in the field of real estate, which is what Algerians have been waiting for since the launch of Islamic banking in 2020, while bank operators have been anticipating this decree since June 2021.
In this regard, the Prime Minister signed an executive decree, which includes reducing interest rates and profit margins on loans and financing granted by banks, to finance some housing formulas, in specific areas of the southern states and the high plateaus. The decree aims to determine how to reduce the interest rate on loans granted by conventional banks, or financing provided within the framework of Islamic banking, in order to purchase collective housing, build rural housing, or build individual housing completed in the form of a complex, in some areas of the southern states and the high plateaus.
The profit margin for Islamic banking products means the difference between the purchase price of the housing by the bank and the sale or rental price to the customer. The reduction in the interest rate or profit margin borne by the public treasury is determined when purchasing a collective housing unit, building a rural housing unit, building a housing unit completed in the form of a complex, or within the framework of the public real estate offer in some areas, by 5 percent when the income of the beneficiary and his spouse is more than one time the guaranteed minimum wage and less than 12 million centimes and 3 percent when the income of the beneficiary and his spouse is between 12 and 24 million centimes.
The interest rate or profit margin borne by the beneficiary is not less than 1 percent when the income of the beneficiary and his spouse is more than one time the guaranteed minimum wage and less than 12 million centimes and 3 percent when the income of the beneficiary and his spouse is between 12 and 24 million centimes.
Mr. Mazari told “Echorouk” that the new decree has been awaited by those in charge of Islamic banking since June 2021, as it will end a major controversy over Islamic financing in the real estate sector, by ensuring equality between classical and Islamic financing in terms of privileges.
In this context, Mr. Mazari stressed that the public treasury bonus previously included only the interest rate, while Islamic banking does not benefit from any privileges, which makes its price more expensive in the real estate sector compared to other classical loans, but this executive decree will lift the embarrassment from financing institutions that have windows and Islamic agencies, by granting them the same advantages.
Our interlocutor believes that this decision will end the hesitation of many customers who were afraid to engage in real estate transactions with Islamic financing, given that Islamic financing was more expensive, especially real estate promotion housing and financing for public promotion housing “LPP”, as such a decree will open the way for many citizens to experience Islamic financing without fear.
Mr. Mazari further asserted that this step is an acknowledgement by the government of the completion of the file of generalizing banking financial transactions that comply with Sharia, and putting Islamic and classical banking on the same footing, with the same privileges, and opening competition between them in a fair manner, where the customer’s choice is for the one who innovates better and not for the one who obtains wider privileges, while taking into consideration the most appropriate financing for him.
The head of the Islamic Banking Committee at the Professional Association of Banks believes that the new decree does not cap the profit margin as expected, but rather reduces it by 5 percent, for example, for those who earn between 1 and 6 times the minimum national income, and reduces it by 3 percent for those who earn between 6 and 12 times the minimum income, while the profit margin will differ from one bank to another, as competition will be open between financial institutions.
For example, the Algerian Popular Credit, which proposes a margin on real estate Murabaha of up to 5.25 percent, will decrease to 0.25 percent in some cases, and will become almost non-existent for the low-income group, while the reductions may reach 90 percent.