Facing a sharp decline in investment and persistent difficulties in mobilizing domestic savings, the Algerian government is turning to Islamic finance as a new tool to revive growth, a move that also exposes the structural limits of its ability to restore confidence in the conventional banking system.
Chaired by Prime Minister Sifi Ghrieb, the government on Wednesday reviewed a draft executive decree aimed at extending the interest rate subsidy mechanism to Islamic finance products.
The stated goal is to establish “equal treatment” between different financing instruments and stimulate strategic investments through public support.
This measure forms part of the authorities’ broader strategy to reinvigorate a slowing economy and capture idle savings estimated at several billion euros. By including Islamic loans in the scheme, the government hopes to attract citizens reluctant to engage with conventional banking, which many perceive as incompatible with religious principles.
Confronted with weak productive investment and continued dependence on hydrocarbons, Algiers is presenting Islamic finance as an alternative to mobilize new capital.
However, results remain modest. By the end of 2022, Algeria counted 294 specialised branches managing about 594 billion dinars (about €4 billion), a negligible sum compared to the country’s needs in infrastructure, industrialization, and economic diversification.
In practice, the policy reflects more a substitution logic than a genuine reform. Rather than fundamentally transforming a financial system dominated by state-owned banks and weakened by a lack of transparency, the authorities are favouring a “Sharia-compliant” approach driven mainly by utilitarian motives.
The rollout of Islamic products, the planned issuance of sovereign sukuk, and the push for digitalized financial services appear designed more to enhance the sector’s image than to tackle the underlying causes of underinvestment, namely bureaucratic red tape, regulatory instability, and a deep trust deficit among foreign investors.
Behind the rhetoric of “diversifying financial instruments” also lies
a political calculation. Amid ongoing social discontent, high unemployment, and widespread distrust toward the state, Islamic finance serves as a tool of legitimisation, allowing the government to project responsiveness to the religious values of a predominantly Muslim population.
This orientation also aligns with a broader regional trend. Tunisia, Morocco, and Egypt have already implemented similar frameworks within more open and better-regulated institutional environments.
Algeria, by contrast, remains characterized by tight state control over the economy and limited financial integration at the international level.
MK/te/lb/gik/APA