Untapped potential: Islamic financial products are rolling out into the market

As Algerian authorities look to empower an underdeveloped banking sector to drive broader economic growth, Islamic banking is among the areas that appears poised for expansion. Islamic finance is currently dominated almost entirely, by Algeria’s oldest private bank, Al Baraka Bank, a subsidiary of Bahraini Al Baraka Banking Group, with Algeria’s state-owned Banque de l’Agriculture et du Dé veloppement Rural holding a minority stake.

Since its establishment in 1991, Al Baraka has grown to encompass a network of 30 agencies, and today claims 2% of Algeria’s overall banking market and nearly 15% of the private segment. Algeria’s second Islamic bank, Al Salam Bank, launched in 2008 with Emirati and other outside financing, has six locations and offers a range of sharia-compliant saving, lending, investment and leasing products.

Old & New

Conventional banks, including Gulf Bank Algeria and Trust Bank, have also launched Islamic finance windows in recent years; 22% of Gulf Bank’s loans issued in 2013 were reportedly sharia compliant, and the sector continues to show potential for growth, tempting others to test the waters. Abderrezak Trabelsi, delegate general of the Association of Banks and Financial Institutions ( Association des Banques et Établissements Financières, ABEF) told OBG, “We are about to see a great expansion of the Islamic finance sector. By mid-2016 more than half of Algerian banks are expected to be offering Islamic finance products, and all of them will be doing so by the end of the year.”

While a dearth of market studies makes demand difficult to quantify, some industry analysts estimate that roughly one third of Algerians could be considered strong potential clients for Islamic retail banking. But Al Baraka deputy director general Badreddine Benflici told OBG that the appeal is wider: “Yes, our services are sharia-compliant. In addition to this fundamental principle, most of our clients also look at the quality of the services we offer. For example, maybe another bank makes them wait six months to have their loan application processed, while we handle it in a few weeks.” While Benflici told OBG that about half of Al Baraka’s deposits come from retail clients, demand is also strong from corporate customers, particularly SMEs. Corporate financing needs growth of all kinds, Trabelsi said, “There is not a specific interest for Islamic finance more than for other products. Everyone wants to see the range of available banking products enlarged, and this is just one element of that.”

Among the traditional sharia-compliant products currently offered to retail and corporate clients, bank representatives cite household savings products as one of the most in-demand. Al Baraka has also developed a series of microfinance products aimed at artisans and micro-enterprises, hoping to see them develop into major clients as their businesses grow. Further diversification of microfinance options is in the pipeline, along with new products to finance hajj and umra travels, and expanded bancassurance options, including sharia-compliant life insurance. Al Baraka is even exploring the establishment of specialised subsidiaries to develop these new products individually.


In September 2015, finance minister Abderrahmane Benkhelfa announced that a range of new Islamic finance products would soon be approved in order to widen the options available to citizens considering participation in the new voluntary fiscal conformity programme. The sector is in good health due to prudent lending practices, and analysts have suggested that sukuk (Islamic bonds), which have seen strong growth in other markets in the region, could be an ideal mechanism for draining funds from the informal sector. However, the absence of a legal framework for Islamic banking currently hinders its implementation in the market.