continued... - Islamic Finance News

Islamic Finance news Guide 2008
Page 74
Sky’s the Limit for Islamic Banking in Lebanon
By Badih S Khatib
Lebanon is a small country marked by an open
multi-faith society with a Muslim population of
almost two million, but it has one of the most solid
conventional banking sectors in the greater Middle
East and a thriving Islamic banking sector.
In 1956, Parliament passed the Banking Secrecy Act which
essentially rendered Lebanon the tax haven of the Middle
East and attracted petrodollars from the Gulf countries in the
early 1970s. Naturally, the banking sector thrived and Beirut
became the fi nancial capital of the Middle East. It is this
experience and fi nancial background that brought the country
and its economy back to its feet in record time following the
end of the civil war and the devastating effects of the July
2006 war against Israel.
Today, the banking sector is still one of the most solid in the
world. Lebanese banks are becoming regional powerhouses
and spreading their presence and experience in the Middle
East, from Algeria to Iraq.
Islamic banking history
Islamic banking in Lebanon is relatively new as laws to
establish Islamic banks with all their different instruments
were passed only in February 2004 by Parliament under
legislation No 575, giving the Central Bank of Lebanon (CBL)
authority and supervision.
Shortly after, CBL circulated the fi rst executive circular which
paved the way for the establishment of the country’s fi rst
Islamic bank. In order to be issued a license, CBL stipulated
that an Islamic bank owned by a foreign entity must have
a minimum paid-up capital of US$100 million whereas a
Lebanese entity needed to put up only US$20 million.
Currently, there are four full-fl edged Islamic banks, with
another two pending approval. The four banks are:
• Arab Finance House, part of Qatar Islamic Bank
Network established at the end of 2004 and that has
now become the largest comprehensive Islamic bank
in Lebanon.
• Al Baraka Bank Lebanon, part of the Dallah Baraka
Network established in 1993 as a merchant bank and
operating under fi duciary laws and in compliance with
Shariah directives. In 2007, it became a full-fl edged
Islamic bank.
• Lebanese Islamic Bank, part of Credit Libanais Bank,
one of the largest conventional banks; and
• BLOM Development Bank, part of the BLOM Network.
www.islamicfi nancenews.com
Compared to other economies in the region, to have four
Islamic banks operating in an economy with two million
Muslims within three years is extraordinary. This proves that
Lebanon is becoming the hub for Islamic banking for the
Middle East (Lebanon, Syria, Jordan and Iraq). Local banks are
capitalizing on their know-how and their already established
regional channels to attract Islamic businesses.
On the other hand, it will be observed from the above
mentioned list that of the four banks, two are owned by
international Islamic entities and two by existing conventional
Lebanese banks.
“With land prices escalating and
real estate projects sprouting up
like mushrooms, Islamic banks
in Lebanon are trying to set up
special real estate funds in order
to capitalize on the booming
economies of the Gulf and attract
additional funds”
Foreign Islamic entities are trying to capitalize on the status
of the Lebanese banking sector, the soundness of the
economy supported by a strong deposit base and the liberal
economic laws with its most important Secrecy Act of 1956,
in order to open Islamic subsidiaries in Lebanon.
This is despite all the problems that the economy has been
facing and the repercussions from the political situation and
the July 2006 war with Israel.
Functions of Islamic banks
As Islamic banks in Lebanon are full-fl edged banks and
not merely Islamic windows, they are allowed to conduct all
Islamic transactions ranging from Murabahah, Mussawama
and Istisna to Mudarabah, Musharakah and Salam.
With land prices escalating and real estate projects sprouting
up like mushrooms, Islamic banks in Lebanon are trying to
set up special real estate funds in order to capitalize on
the booming economies of the Gulf and attract additional
funds.
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