Islamic finance in Palestine goes back to about two decades ago, when the Palestine Finance House was established in 1994 as the first Islamic financial institution in the country, followed by four Islamic banks established in the late 1990s.
Islamic banks
The first Islamic banks in Palestine were: Arab Islamic Bank, Palestine Islamic Bank, Cairo Amman Bank Islamic branches (four branches) and Al Aqsa Islamic Bank. Palestine Islamic Bank then acquired Cairo Amman Bank’s Islamic branches in 2005, and followed up with the purchase of Al Aqsa Islamic Bank, resulting in only two Islamic banks today: Arab Islamic Bank and Palestine Islamic Bank. Table 1 gives a snapshot of these two banks. Total assets of Islamic banks represent about 10% of total banks’ assets, while deposits with Islamic banks represent about 10.6% of total deposits with the banking system. As for credit facilities, they represent about 12.5% of total credit facilities of the banking system. Owners’ equity represents about 9.3% of all bank owners’ equity.
Insurance companies
There are two Islamic insurance companies operating in Palestine as follows:
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Al Takaful Islamic Insurance Company operates in the West Bank of Palestine and was established in 2008 to provide all types of insurance based on Shariah principles. It provides insurance through 30 branches and 17 agents. Its insurance portfolio reached JOD20 million (US$28.05 million) by the end of 2014 with an increase of about 33% from 2013. The insurance portfolio represents about 14% of the insurance portfolios of all insurance companies operating in Palestine. Insurance growth in Palestine was about 5% annually, while for Al Takaful it was about 33% annually which means good prospects for Islamic insurance in Palestine.
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Al-Multazem Insurance Company operates in the Gaza Strip with four branches conducting all insurance and investment activities according to Shariah principles. It started operations on the 17th February 2008 with a capital of US$8.5 million as a shareholding company. The company is engaged with Islamic reinsurance companies. The company’s total assets reached US$17.4 million by the end of 2014 with its total owners’ equity reaching US$12.2 million. Its net profit of 2014 was US$765,000.
Table 1: Islamic banks in Palestine |
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Bank |
Branches and offices |
No of ATMs |
Assets as of end of 2014 (US$ million) |
Owners’ equity |
Deposits (US$ million) |
Credit facilities on an Islamic basis |
No of Employees |
Net profit before tax |
Arab Islamic Bank |
11 |
41 |
562 |
67.7 |
425. |
247.1 |
314 |
4.1 |
Palestine Islamic Bank |
19 |
45 |
595 |
67.5 |
455.9 |
353. |
461 |
7.5 |
Islamic National Bank* |
NA |
NA |
76.1 |
19.4 |
55.4 |
61.5 |
NA |
1.5 |
Total |
30 |
86 |
1233.1 |
154.4 |
937.1 |
661.6 |
755 |
13.1 |
*Operates only in Gaza, not licensed by the Palestinian Monetary Authority Source: Author’s own |
Table 2: Islamic microfinance firms in Palestine |
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Name of institution |
No of branches |
Total financing balance as at the end of 2014 in US$ |
Faten |
24 |
12 million |
Reef |
10 |
3.6 million |
Acad |
8 |
0.7 million |
Asala |
7 |
0.47 million |
Ibdaa |
3 |
5,000 |
Total |
54 |
16.361 million |
Source: Author’s own |
The Shariah jurisdiction commission of each company which consists of three people verifies all insurance policies, accounts and reinsurance treaties from an Islamic perspective.
Islamic microfinance firms
There are several microfinance firms in Palestine that offer Islamic finance, with some of them offering both Islamic finance and conventional finance. Table 2 shows the institutions which offer Islamic finance. The total number of beneficiaries from these institutions reached 9,055, ie about US$1,800 on the average for each customer.
Palestine Ijarah Company
The Palestine Ijarah Company was established as a shareholding company in October 2013 and started operations by the mid of 2014. The main shareholders are: Palestine Investment Fund, Palestine Islamic Bank and the Islamic Corporation for the Development of the Private Sector (based in Jeddah). The company offers different types of Ijarah such as for equipment, machines, vehicles, production lines, etc. All assets leased will be insured by Al Takaful Insurance Company. No financial data was available at the time of this article.
Conclusion
Different types of Islamic financial institutions are currently operating in Palestine: Islamic banks, insurance companies, microfinance firms, Ijarah company, etc. Their performance is still very low compared with conventional finance, but there is a very good prospect for Islamic finance in Palestine. It is expected by the beginning of 2016 that a new Islamic bank will be established. Existing Islamic banks are growing rapidly and Islamic insurance is growing at a rapid rate about 33% annually. Microfinance firms which were providing conventional finance have started to provide Islamic finance, encouraged to do so by the Deprived families Economic Empowerment Program (DEEP) executed by United Nations Development Program. DEEP made a manual for Islamic banking operations and accounting for each Islamic banking tool, and provided training for these institutions.
It is expected that Islamic banks will introduce more new Islamic financial instruments, and not concentrate only on Murabahah as the main financial instrument. New technology will be introduced and there will be more training courses for employees. New marketing strategies will also be introduced and new Islamic banks will be established.
Dr Hisham Jabr is the director of research and development at Agility Management and Financial Consulting. He can be contacted at [email protected].