As part of its global strategy to set up 20 Islamic leasing companies in member countries over a period of five years, Islamic Corporation for the Development of the Private Sector (ICD) has been mobilizing resources and partners over the past year in order to launch an Ijarah company in Palestine. The ICD provides us with an exclusive insight into the new rentor.
ICD established this venture in partnership with the Palestine Investment Fund (PIF) and the Palestine Islamic Bank. The US$12 million company is the first Islamic leasing company in Palestine and cater to SMEs in various economic sectors in the Palestinian market.
Palestinian SMEs in the West Bank and Gaza Strip constitute the backbone of the Palestinian economy, as they represent over 95% of all registered enterprises, generate over 55% of the GDP and account for over 80% of all private sector job opportunities. Despite their economic significance, SMEs in Palestine are severely underfunded and under-banked, and typically have to rely on internally generated funds and shareholder loans and additional equity contributions to support growth and expansion.
Combined with the lack of a mature private equity industry, this reality implies a substantial financing gap in the Palestinian SME space. Ernst & Young (EY) estimates that this gap stands at about US$1.2 billion presently.
Currently, there are eight registered leasing companies in Palestine, six of which are operational, and all of which are almost entirely focused on consumer auto-leasing activities. Against this backdrop the planned Ijarah company has a clear first mover advantage. It also has an advantage in terms of being the only fully Shariah compliant leasing company in the market.
From a commercial perspective, capitalizing on the tremendous discrepancy between demand for, and supply of, SME leasing facilities is a sure way to secure profitability and sustainability in the near to mid-term. However, there are a number of challenges that need to be addressed to ensure that the commercial potential of this venture is fully captured. To start with, the Palestinian Leasing Law needs to be ratified. Additionally, Palestine still lacks a moveable assets registry. Despite the presence of a strong and capable body, the Palestine Capital Market Authority (PCMA), the absence of these key regulatory ingredients to regulate leasing companies represents immediate challenges that need to be addressed in the near future.
ICD, with the help of its local partners, is working to mobilize efforts to have the needed regulatory reforms adopted by the Palestinian government as soon as possible.
In terms of capacity building and knowledge transfer, ICD and its partners have engaged Ijara Management Company (IMC), a fully-owned ICD consulting and leasing company management specialist, to lead the set up operation and to plan and execute the needed capacity building measures at the company.