Will Government Succeed In Absorbing Money Supply From Informal Market?

Finance Minister Ayman Benabderahmane cleared the way wide before the public banks, to market Islamic banking products for the first time in the history of Algeria, a step that brings back to the interface an important question: Will the authorities now be successful in containing the money circulating outside the banks in the informal market, estimated at more than 50 billion dollars and raised by other estimates to 80 billion dollars?

According to the statements of the Minister of Finance on the National Radio two days ago, two public banks, the National Bank and the Agriculture and Rural Development Bank, will officially start marketing Islamic banking products early August, after obtaining the legal fatwa or relevant religious ruling from the Supreme Islamic Council on the conformity of offers with the provisions of Islamic Law or Sharia.

Perhaps these statements reflect a belief and will of the government that it is necessary to pass directly to the concrete action away from the words and procrastination and the empty phrases “we will work and we will launch”, on the basis of loans and usurious products, and if they continue, they will maintain the largest percentage of financial blocks circulating outside the official channels, which is what the current government strives to avoid.

In light of the difficult financial and economic crisis, therefore, the authorities set the beginning of next August as a date to start Islamic financial transactions in government banks for the first time.

It is known that Bank of Algeria had licensed in March 2017 for 8 products of Islamic banking that can be marketed in banks, which are Murabaha, Mudaraba, Musharaka, Leasing, Istisna’a, Accounts of Deposits, and Investment Deposits.

It is noticeable that Islamic banking products in Algerian banks remained limited to limited offers in Arab (Gulf) banks, such as the Emirates Peace Bank, Bahraini Al Baraka and Kuwait Gulf Bank.

After the violent oil shock of 2014 and the financial and economic crisis that struck the country’s economy, the governments of former Prime Ministers Abdelmalek Sellal and Ahmed Ouyahia, now being imprisoned in corruption cases, launched projects and initiatives to revitalize Islamic banking, but they remained locked in the drawers and did not exceed the ink that they were written with.

And previous governments, especially between 2014 and 2019, initiated ambitious projects to stimulate Islamic banking to try to attract a significant portion of Algerians’ money circulated outside the official channels (banks), but the actions of those governments were completely the opposite of what they asserted.

In 2016, they launched a documentary loan with usurious interest, in two forms first for 3 years and the second for 5 years, embodied in loans of 50 thousand dinars per bond. The interest rate was estimated at 5 percent for a 3-year bond and 5.75 percent for a 5-year bond.

At the end of the Sindi loan for growth in the autumn of 2016, the process was considered a disappointing one by followers, as it was only able to collect 568 billion dinars (less than $ 5 billion), out of more than $ 40 billion circulating outside the banks, according to official estimates.

The Sindi loan for growth for the year 2016 with its usurious benefits showed that the government at that time silenced its ears despite invitations from specialists, experts and citizens to adopt products without usurious interest, because interest loans are rejected by the majority of citizens, and the government went further, as it disrupted and delayed the activation of Islamic banking products through government banks that did not see the light.

Today, by opening the way for Islamic banking, the government’s bet turns towards the necessity of absorbing the active monetary block in the informal market, and if the move is a very important mechanism in facilitating its financial affairs, but in the opinion of experts, it remains insufficient alone to restore the confidence of dealers and citizens and to compel everyone to exchange institutional money to strengthen supervision of collecting of tax rights and activating savings within the framework of the economy and development, which requires it to complete the task with various necessary mechanisms.