Islamic finance has moved through several phases throughout the years.
Marketing the Islamic finance idea
Since the 1980s, meetings were held with businessmen on Islamic finance, lectures were given in universities, articles and books about Islamic banking have been published, and Islamic banking courses have been introduced in the universities.
Review of 2014
Establishment of Islamic finance institutions
The result of the above marketing efforts was the establishment of the Palestinian Finance House Corporation in 1994, and many other Islamic banks such as: Cairo Amman Bank Islamic branches, Arab Islamic Bank, Palestine Islamic Bank and Al Aqsa Islamic Bank. Later on in the 2000s, the Palestine Islamic Bank acquired Cairo Amman Bank Islamic branches and Al Aqsa Islamic Bank. So now there are only two Islamic banks currently operating in Palestine: Arab Islamic Bank and Palestine Islamic bank in addition to the Islamic National Bank in Gaza which is still not licensed by the Palestine Monetary Authority. Table 1 shows Islamic banks operating in Palestine as at the end of September 2014 whereas Table 2 shows different indicators of the Islamic banks.
Table 1: Islamic banks operating in Palestine as at the end of September 2014 | |||
Total | Palestine Islamic Bank | Arab Islamic Bank | |
Number of branches | 26 | 17 | 9 |
Number of offices | 2 | 1 | 1 |
Date of establishment | 1996 | 1995 |
Table 2: Islamic banking indicators as of the 30th October 2014 (US$ million) | |||
Indicator | % of Islamic banks to total banks | All banks operating in Palestine | Islamic banks |
Paid-up capital | 10.6 | 946.2 | 100 |
Net worth | 0.095 | 1,400 | 133 |
Deposits | 11.6 | 8,200 | 954 |
Credit facilities | 16.6 | 3,487 | 578.4 |
Total assets | 0.097 | 11,597 | 1,120 |
Islamic banks market share
Islamic banks represent about 10% of all banking activities i.e its banking share is still very low in spite of the rapid increase in the past years. Table 3 shows the growth of Islamic banks’ activities as a percentage of all banks’ activities.
Table 3: Islamic banking indicators in Palestine comparing 2012 and September 2014 | ||
Islamic banks indicators | % of total banks as of Sept 2014 | % of total banks as of 2012 |
Deposits | 11.6 | 6.7 |
Credit facilities | 16.6 | 10 |
Assets | 9.7 | 8.7 |
About 95% of all Islamic instruments used by Islamic banks in Palestine are in the form of Murabahah, as shown in Table 4. The table shows that Islamic banks concentrate on Murabahah because of its low risk and periodic cash flows.
Table 4: Distribution of Islamic banks’ investment according to instruments as of the 30th October 2014 | ||
Financing instrument | % of total Islamic banking facilities | Balance as of the 30th October 2014 (US$ million) |
Murabahah | 94.3 | 530 |
Istisnah | 0.006 | 3.5 |
Mudarabah and Musharakah | 2 | 11 |
Ijarah Muntahiya Be Tamleek | 3 | 16.6 |
Others including Salam | 0.001 | 1.2 |
Total | 100 | 562 |
Islamic insurance
In the area of Takaful, there are two companies currently operating in Palestine as follows:
a. Al Takaful Palestine Company in the West Bank.
Table 5 shows selected financial data of the company and it is evident from the table that there is an annual increase of about 12% in all its activities.
Table 5: Financial data of Al Takaful Palestine Company (US$ million) | |||
Percentage increase | 2013 | 2012 | |
Assets | 12.5 | 23.997 | 19.275 |
Investments | 12.6 | 11.362 | 9.051 |
Equity | 10.443 | 9.140 | |
Number of branches | 11 | ||
Number of employees | 11.97 | 91 | 76 |
b. Al Multazem Insurance Company in Gaza.
Established in 2008, its assets as of 2012 reached US$13.15 million, compared with US$10.3 million in 2011. It distributed profit to shareholders of 9% and 2% as shares in 2012.
Micro Islamic finance
There are about nine microfinance institutions providing Islamic finance besides conventional finance with a total of 71 branches.
Role of UNDP (DEEP) in Islamic finance
The IDB in Jeddah provided the United Nations Development Program (UNDP) called Deprived Families Economic Empowerment Program (DEEP) with US$15 million to be invested according to Islamic Shariah. DEEP in turn provided this amount to microfinance institutions to use them in financing according to Shariah. These institutions used the amount on a Murabahah basis only. DEEP also prepared and approved a manual in Arabic and English which contains the following:
a. Practical procedures for every Islamic financial instrument.
b. Forms for every instrument.
c. Practical accounting procedures for every instrument.
d. Training workshops for employees of these Islamic institutions.
The training workshops were conducted for about 30 working days during 2014
Preview of 2015
Islamic finance in Palestine has very good prospects. The people are starting to understand the advantages of dealing with Islamic finance institutions and this was apparent from the rapid growth of these institutions. It is expected that Islamic finance will grow in Palestine in the coming year at a rate of not less than 10-12% annually. A new Islamic bank is expected to start business in early 2015. Islamic banks therefore need to increase their marketing and promotional campaigns regarding Islamic finance and they need to concentrate their marketing strategies on the difference between Islamic finance and conventional finance as there is generally a misconception in this regard.
Conclusion
Islamic finance in Palestine started in the early 1990s and has come a long way since then.
The share of Islamic finance institutions’ activities in Palestine is about 10% of total financial institutions’ activities in Palestine.
Dr M Hisham Jabr is the director of research and development at Agility Management and Finance Consulting. He is also a professor of finance and banking at An Najah National University and Birzeit University. He can be contacted at [email protected] .