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Islamic Finance news Guide 2008
The Syrian ‘Experiment’ on Islamic Banking (continued...)
May 2005, authorizing private investors to establish Islamic
banks. The requirements were similar to those for traditional
banks, which had been approved a few years earlier, except
for the minimum required capital of US$100 million instead
of the US$30 million for traditional banks.
“Foreign currency converted locally
by selling Syrian pounds can be
credited to the foreign currency
accounts but cannot be remitted
overseas in foreign currency”
Other laws include law no 15, which was enacted in 2007,
allowing the establishment of fi nancial institutions with a
focus on small loans and microfi nance. The establishment
of the Damascus Stock Exchange (DSE) in October 2006
was another milestone in the reform process.
Although the DSE is not expected to start trading until the
second half of 2008, its mere presence has encouraged
Syrian businesses to upgrade their accounting, fi nancial
and disclosure procedures. The new banking and fi nancial
laws include provisions for opening bank accounts by Syrian
citizens, in foreign currency and the possibility of transferring
funds overseas.
These laws confi rm Syria’s commitment to adopting forwardlooking
monetary and fi nancial policies. The opening of the
fi nancial sector to private investors has improved confi dence
of economic operators and stimulated competition between
newly established private banks.
Private banks have attracted many new customers and
considerable deposits; and public banks, in particular the
Commercial Bank of Syria, started modernizing and launching
new services including Visa, an electronic payment network,
bill-payment and e-banking.
Regulatory environment
CBS was established by Legislative Decree No 87 dated the
28th March 1953, which included the basic monetary system
of Syria. The bank started operations on the 1st August
1956 with its headquarters in the city of Damascus and 11
branches located in the provincial capitals of Syria.
CBS formulates and conducts monetary policy towards the
achievement of maximum sustainable long-term growth
and price stability. It has the important role of promoting
a safe, sound, competitive and a stable fi nancial market
through supervision and regulation of the nation’s banking
and fi nancial systems. It fosters the integrity, effi ciency
and accessibility of the domestic currency payments and
settlement systems, issue a uniform currency and act as the
fi scal agent and depository of the government.
In its capacity as a bankers’ bank, CBS requires the banks to
invest their required reserves, and their special reserves in
securities issued by the state or guaranteed by it, or to invest
a fraction of its surplus funds and a part of their deposits in
government securities.
The reserve requirements for conventional as well as Islamic
banks are the same. Banks are required to put 10% of their
capital with CBS, which is only refundable upon the liquidation
of the bank. In addition, all banks are required to keep 5% of
their deposits as cash reserves and there are no returns paid
by CBS on these reserves. However, as at the end of 2007, no
government securities were being issued.
As part of the initiatives by the government and CBS to
modernize the Syrian fi nancial industry, the central bank is
currently implementing the following activities.
(1) Establish a national automated clearinghouse for
interbank and international settlements. This is expected
to commence operations during the fi rst quarter.
(2) Establish an infrastructure for issuance and
management of short-term Treasury Bills and long term
government bonds. This is expected to commence in
2008. This applies only to conventional banking and as
at the end of 2007; there were no plans to develop any
such instruments for Islamic banking.
(3) Establish a national credit information bureau to
warehouse information on bad debt. This is still at the
conceptual stage and no real work has been done on
it yet. This could be a potentially lucrative business
opportunity while doing a great service to the banking
industry.
(4) Adopt rules and regulations to actively monitor moneylaundering
activities and to fully comply with Basel II.
One of CBS’ success stories in its efforts to reform the fi nancial
sector was the long-awaited reform of the forex regime. The
forex system has been relaxed over time from a stage where
it was a criminal offense to possess foreign currency to a
stage that it can be freely and legally be purchased and sold
through banks and money changers. Under the new system,
banks are allowed to make remittances overseas for all traderelated
transactions.
Foreign currency converted locally by selling Syrian pounds
can be credited to the foreign currency accounts but cannot
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