Institutional reform and economic value creation in Algeria's islamic financial industry

Abstract

This study investigates the empirical relationship between systemic transformations and the expected economic gains of localizing Islamic finance institutions in the Algerian economy. The study uses a structured questionnaire distributed electronically and in paper form to academics, researchers, Islamic banking practitioners, takaful staff and specialists in Islamic finance. Out of 430 questionnaires distributed between November 2024 and April 2025, 329 valid responses were retained, yielding a response rate of 76.5%. The statistical analysis was performed using SPSS and included descriptive statistics, expert validation, reliability testing, exploratory factor analysis, correlation, multiple regression, mean-comparison tests, sensitivity analysis and future scenario assessment. The results show excellent sampling adequacy (KMO = 0.938), strong internal consistency (Cronbach alpha = 0.945), and a five-factor structure explaining 67.456% of total variance. The correlation between systemic transformations and expected gains is strong and statistically significant (r = 0.829; p < 0.001). Multiple regression confirms that legal and Islamic financial industry requirements, accounting and supervisory requirements, complementary requirements and current challenges explain 68.7% of the variance in expected economic gains (R² = 0.687; F = 178.345; p < 0.001). The findings indicate that the effective localization of Islamic finance in Algeria cannot be achieved through isolated banking products alone. It requires a coherent legal, Islamic finance, supervisory, accounting, institutional, human-capital and technological transformation agenda capable of converting Islamic finance from a fragmented practice into a development-oriented ecosystem.