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Country report: Unpopularity of Islamic banking in Lebanon

Country report: Unpopularity of Islamic banking in Lebanon

March, 2014
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Beirut-based Lebanese Islamic Bank started offering Shariah compliant services in 2005 by offering adequate and effective Shariah compliant alternatives to conventional banking products and services.

However, ethics alone may not be enough to help the industry reach its full potential. Competing with conventional finance may prove difficult when there is no global standard in Islamic finance. Many institutions look to a set of guidelines, but banks and Shariah boards cannot be forced to comply with a set of standards.

Moreover, the industry in Lebanon faces legal impediments and obstacles, including but not limited to:

1. Islamic banks are subject to double taxation of their financing operations because they act as merchants. They must acquire an asset prior to selling it to their customers.

2. The initial capital required of Islamic banks upon their establishment is not sufficient to overcome the challenges facing the spread of Shariah
compliant financing in Lebanon.

3. Islamic banks are not allowed to accept deposits for a period of time less than six months, which is a large burden in att racting customer
deposits.

4. Clients are not drawn to nonguaranteed deposits, whereby they have a guarantee as per the conventional thinking way.

Nevertheless, the restriction on conventional banks preventing them from offering Islamic windows impedes the growth of Shariah compliant banking in the country. Only independent Islamic banks can offer Islamic banking services and products.

However, experts have emphasized that with the right approach, Islamic banking can thrive in the country, such as introducing the concept of Islamic banking into Lebanese universities, or having the central bank issue Sukuk on behalf of the government. Such bonds will enable Islamic banks to invest their excess liquidity in those papers, and find opportunities to invest and place their money.

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Published: March 2014
Publication: Islamic Finance News
Title: Country report: Unpopularity of Islamic banking in Lebanon
Practice: Corporate and M&ABanking & Finance, Commercial
Authors: Johnny El Hachem

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