The development of takaful in Algeria has been slow as the sector faces a number of challenges including the lack of a comprehensive legal framework for Islamic finance.
The issue has emerged as the country plans to update its insurance law. In addition, for several months now, the authorities have been working to develop Islamic finance. As part of this, the state-run Banks and Financial Institutions Association plans to introduce a range of Islamic financial products under a new framework, reported Gulf Times.
The association’s director Boualem Djebbar said that the move comes as the relatively oil-rich country has been struggling with low oil prices since mid-2014. The government is looking for new funding sources for infrastructure and other public projects and to revive the economy.
A broader and modernised Islamic finance industry would see the growth of Shariah-compliant loans, corporate and sovereign sukuk, Islamic financing for small and medium enterprises, Islamic microfinance, as well as takaful.
A legal framework should be introduced and laws amended in order to enhance the operational efficiency of takaful businesses, build healthy takaful funds, safeguard the interests of participants, ensure uniformity with Shariah principles, promote fairness and transparency to protect the interests of participants, said Mr Fares Djafri, a researcher working on Islamic finance at University of Malaya in Malaysia.
He said that the absence of retakaful companies and an Islamic interbank market may constrain the introduction of Islamic insurance in Algeria. As takaful operators might not be able to cover all the risks alone, they need to cede the risks with other takaful or re-takaful operators.
Currently, Algeria has only two full-fledged Islamic banks – Al Baraka Bank and Al Salam Bank Algeria. Together with Islamic windows of conventional banks such as Gulf Bank Algeria and Trust Bank, Islamic loans are estimated at around one quarter of all loans in the market.
At present, there is one takaful company in Algeria. This is Salama Insurance Algeria, a subsidiary of Salama-Islamic Arab Insurance headquartered in Dubai. In June 2016, Al Salam Bank Algeria said that it had signed a protocol agreement to set up what would be the country’s second takaful company.