Interview: Abdenour Houaoui
How can Islamic finance boost the competitiveness of North African financial markets?
ABDENOUR HOUAOUI: First of all, it should be noted that the different levels of development of the financial markets across the region call for varying measures to encourage competitiveness. Alternative financial systems, such as Islamic finance, would provide a welcome method to deepen the sector across the region, but would fail to raise competitiveness if implemented in isolation.
One common trend in the region is the sheer dominance of the banking sector vis-à-vis the marginal size and role of the financial markets, with the exception of public debt. Before considering alternative financial systems in earnest, we should focus on more fundamental issues that make it possible for these options to flourish. This includes raising market liquidity, encouraging new listings on the stock exchange and ensuring compliance with international rating standards.
Only when these basic elements are integrated can we look forward to a rise in contribution of financial markets and alternative financial systems of which Islamic finance is only one option. As for the specific role the latter can play, it is important to take into account its proliferation around the world since the recent global financial crisis. Indeed, it has been widely adopted by the world’s largest international banks with the accompanying development of sukuk emissions. Therefore, I am convinced that the Maghreb region only stands to benefit from its introduction and development. Lastly, I think it is important that its introduction is preceded and accompanied by a social debate that creates understanding of the value of Islamic financing and prevents its misrepresentation.
What potential is offered to leasing companies?
HOUAOUI: Competition among leasing companies in neighbouring countries is quite high. As in any mature market, the environment is marked by a high number of actors, reduced profit margins and moderate market growth. However, Algeria contrasts with many of its neighbours as it continues to show strong growth potential. One way in which this is expressed is the growth rate in liabilities between 2011 and 2012 which stood at 32%. Moreover, the Algerian leasing industry offers interesting opportunities, since the market holds huge potential and provides attractive investment returns as well as decent collection rates that can reach up to 98%. The country’s fiscal and legal framework enables sound business practices with the exception of some areas that need to be adjusted in order to promote sustainable development of the sector.
It must be recognised that more than 10 years after the establishment of leasing services in Algeria, the government has shown particular interest in the development of this mode of funding. This has raised expectations among leasing companies for further improvements, notably the encouragement of leasing products and services through financial and fiscal incentives. On the other hand, increasing levels of awareness of this financing method among both financial providers and clients will continue to support a continuation of market growth, for example among small and medium-sized enterprises (SMEs).
To what extent is leasing considered a viable alternative to bank financing in the Maghreb region?
HOUAOUI: While leasing offers significant advantages over conventional financing, such as lower transaction costs and swifter application procedures, it should be considered complementary rather than an alternative. It is often more suitable for specific financial needs and requirements such as those of SMEs, which cannot always access conventional financing forms. In addition, leasing often offers more suitable arrangements to acquire production equipment and new technologies, which are vital to innovation. And, as this way of financing is based on assets and cash flow, it is a relevant tool to financing companies’ development plans. Going forward, such advantages will cause leasing products and services to grow in credibility and popularity.
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