Palestine has witnessed an increase in demand for Islamic finance, with the entire assets of its three fully-fledged Islamic banks growing from US$1.16 billion in 2014 to US$3.4 billion in 2020, surpassing the annual rate of the nation’s typical banking sector, and proving to be a vital contributor to the government’s financial inclusion objectives.
Review of 2021
The Palestine Monetary Authority (PMA)’s Fintech Advisory National Board formed in January 2021 is tasked to develop the fintech sector that is based on monotheism fintech. In the same year, the regulator jointly launched the official strategic framework for monotheism financial services to strengthen Shariah finance’s role in promoting financial inclusion, with a specialization in encouraging Islamic banks to adopt digital transformation and develop methods integrating fintech. The PMA is actively seeking to boost Islamic financial inclusion by developing financial technologies and infrastructure for the payment systems in Palestine, in addition to supporting entrepreneurs, innovative concepts and emerging firms.
Unfortunately, when talking about financial innovation in the MENA region, very few people would think of Palestine as a fintech hub. This perception is understandable given the uncertain political reality in the country due to long years of conflict, occupation and severe restrictions imposed on the Palestinian economy. Of course, the inexistence of a sovereign national currency and the lack of an independent monetary policy are among the main obstacles that have hindered the development of an enabling environment conducive to fintech innovation.
Of course, the inexistence of an autonomous national financial sector, and therefore the lack of a free-cash connected approach, squares off with the measures and are among the foremost deterrents that have ruined the advance of an empowering atmosphere contributory to fintech development.
Islamic banks were able to prove themselves by coming into the Palestinian market and providing their merchandise to fulfill demand; the entire assets of Islamic banks tripled from US$1.16 billion in 2014 to US$3.4 billion in 2020, achieving a compound annual rate of 19% that is almost five times that of the 4% achieved by traditional banks.
The assets of monotheism banks in Palestine accounted for 17% of the entire assets of the banking industry in 2020. Studies and indicators show that there is a high demand for Islamic financial services and a niche between demand and supply which needs accumulated offerings and bigger liquidity to fulfill the current and future demand.
The PMA, in accordance with its future plans, sought to integrate fintech into the Islamic industry and encourage monotheism banks to adopt methods for digital transformation and investment, in addition to developing a spread of solutions to inject short-term Islamic liquidity to assist Muslim financial service suppliers manage liquidity in accordance with Shariah; adopting a periodic external Shariah audit on Islamic banks and specialized Islamic disposition establishments; developing the role of the arbitrator for Shariah management and altering them to review and approve new merchandise; and supplying guidance for the Islamic finance sector on those merchandise, with the aim of developing new financial services that meet the growing demand.
Preview of 2022
The Palestine Capital Market Authority (PCMA) and the PMA are compelled to complete this strategic framework, and therefore the International Finance Corporation provided support for these efforts which are within the development and growth of the finance and banking sector in Palestine.
It is worth noting that in spite of the challenges, the PMA has overseen the satisfactory allocation of most of the duties allocated to any autonomous establishment — separated from the aptitude to issue national financials.
The PMA has been able to guarantee the viability and solidness of the financial division by following universally accepted standards.
Currently, there are around 60% of grown-ups (aged above 15) in Palestine that have bank accounts and skills in managing account administration like investment and borrowings.
In terms of growth, the PCMA has been able to manage the execution of the non-banking monetary fund division’s enumeration protections, financial dealings, contract funding and securities exchange companies.
The challenges of access to financial services do not appear to be entirely restricted to individuals. In fact, the SMEs in Palestine still face obstacles in accessing normal funding opportunities through banks and credit institutions.
It is believed that varied tech-enabled funding decisions, such as crowdfunding and peer-to-peer lending, can play a huge role in filling the annual determinable SME funding gap of US$630–900 million. This is a big role for fintech start-ups in achieving Palestine’s ambitions of financial inclusion through digital technology.
About 65% of Palestine’s population consists of the youth and those who are tech-savvy (aged below 29) and this provides fertile ground for the adoption of innovative tech-enabled solutions in financial services, in addition to raising awareness on the importance of financial inclusion in Palestine through harnessing, developing and investment in fintech solutions.
Dr Said Sabri is CEO of Sabri & Partners Services. He can be contacted at [email protected]