Islamic Banking: A Mechanism for Financing Local Development in Algeria

Abstract

This paper aims to examine the interest and commitment of the Algerian legislator to Islamic banking through the adoption of Bank of Algeria Regulation 20-02 and Directive 03-2020, which regulate banking operations associated with Islamic banking and establish the rules for its practice. It assesses the potential of Islamic banking to contribute to the financing of local development in Algeria by supporting economic investments. Islamic banks, like their conventional counterparts, create substantial investment pools by channeling funds from savers, whether individuals or institutions with financial surpluses, to finance production and various development plans. In recent years, Algeria has increasingly turned towards economic development by leveraging Islamic banking to attract financial surpluses held by economic agents who prefer Islamic financing tools. This approach positions Islamic banking as an effective alternative financing method. This paper demonstrates that Islamic banking can play a crucial role in comprehensive local development by reviewing and elucidating the various Islamic financing instruments that are compatible with different types of investments.