Microfinance in Algeria: Opportunities and Challenges

Publication Date: Jun 2006
Published by: Consultative Group to Assist the Poor (CGAP)
Document Type: Other (PDF)

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Can financial reforms tackle the regulatory obstacles to the development of microfinance in Algeria?

This paper argues that Algeria has the means to implement ambitious economic and social policies thanks to the excellent macroeconomic indicators, such as growth, inflation, fiscal balance, government debt, unemployment rate, etc.

The paper informs that the Government has undertaken major sustainable development work, including two economic recovery plans featuring government measures to support new businesses.

The paper makes the following points:

• Algeria has a rapidly changing financial sector that is still primarily government owned;
• Although the consumer credit market is emerging, financing for very small enterprises is inadequate;
• The government has initiated a series of legal, financial and technical reforms;
• There are genuine opportunities for developing microfinance;
• Banking legislation does not raise any obstacles, but the regulatory environment needs improving.

The paper recommends the following ways to develop microfinance:

• The adoption of different but complementary approaches, including the creation of finance companies that will build up their own networks of branches;
• The setting up of a bank to provide all types of financial services;
• Regulatory changes that would enable:
  • Setting up a network of banking transaction intermediaries,
  • Using cell phones;
• Introduction of a cooperative approach that would suit the social and cultural climate, especially in the rural areas.

The paper concludes by stressing the:

• Critical role of the Algerian Government in improving the regulatory environment;
• Interest of international investors in the development of microfinance in Algeria.