Syria’s embryonic Islamic banking sector is up and running. In late 2007 the country’s first two sharia-compliant banks opened to the public and a further five have received preliminary licenses and are in the process of setting up shop. All are hoping to tap the finances of a population increasingly keen to express its Muslim identity in the last country in the MENA region to liberalize its banking sector, and the early indicators suggest they will find much success.
Cham Bank became the country’s first Islamic financial institution in August 2007 when it opened its services to the public from its branch and headquarters in Damascus. The bank, a $108 million joint venture between a number of key investment firms from Kuwait, Saudi Arabia and Syria, reportedly took $100 million in the first six months of operations.
The Syrian International Islamic Bank, a $108 million venture between Syrian and Qatari investors, opened to the public in mid-September and was the only Islamic firm to have published audited figures by the time of this publication. At the end of 2007 — after two and a half months of operations — the bank recorded assets of $254 million and customer deposits of $84.1 million. The bank had a total investment portfolio of $31 million. As an Islamic institution, SIIB does not extend credit but shares the investment risk with its clients.
SIIB general manager Abdel Qader Dweik said the bank had taken $261 million in deposits from its two branches in Damascus and Aleppo at the end of March 2008, its first six months of operations. “The results have exceeded all expectations and we plan to expand considerably throughout 2008,” Dweik said. “We feel the country is ready for Islamic banking services.”
SIIB’s end of year figures provide the first indicator of the potential market size of Islamic banks in the Syrian market. The figures are impressive when compared to traditional banks such as the Syrian Gulf Bank which began operating around the same time and recorded deposits three times less than the SIIB at $26.5 million and loans of $12.4 million.
Untapped market
Independent analysts have predicted Islamic banks could eventually snare up to 50% of Syria’s banking market. “There is a gap in the market that can only be filled by Islamic institutions,” Abdul Kader Husrieh, general manager of Ernst & Young Syria, said. “That gap is large and has waiting to be filled for some time now.”
A further five Islamic banks have been licensed and several will commence operations this year. These include Bank of Baraka-Syria, a $108 million venture of the Bahrain-based Al Baraka Banking Group; Dubai Islamic Bank, a $216 million venture in partnership with the state-owned Real Estate Bank; Noor Financial Investment Company, a $216 million venture being backed by the Kuwait-based Noor Investment Group and the Pakistan-based Meezan Bank; Tadhamon International Islamic Bank, a $108 million affiliate of the Yemen-based Hayel Saeed Anam Group and the Global House Group of Bahrain which recently outlined plans to launch Syria’s largest Islamic bank with a capital of $540 million in partnership with a number of large financial institutions from the Gulf and several Syrian businessmen.
On paper, Islamic banks have a number of advantages. Unlike sharia-compliant institutions in other countries, Syrian firms are entering the market at the same time as their commercial rivals, allowing them to sidestep the challenge of having to promote a relatively new concept in competition against well established commercial firms — a challenge Islamic banks in neighboring Jordan and Lebanon have struggled to overcome. Syrian authorities have also granted Islamic banks a wider range of investment activities than their commercial rivals, including being able to enter as partners into trade, industrial or other ventures. Given the difficulties commercial firms have experienced in providing long term credit, being able to act as an investment partner opens up new lending opportunities commercial firms can not access.
Challenges to growth
Not that it is all smooth sailing. Like other Islamic financial institutions around the world, public awareness about Islamic products remains low. A lack of qualified staff also looms as a major hurdle for Syrian firms. To put in place a long term remedy, Cham Bank has approached a number of universities in Syria in a bid to see them add sharia-finance courses to their business and economic faculties.
The higher cost often associated with Islamic banking also looms as an obstacle. While the newest members of Syria’s private banking sector say they plan to unveil competitive products, the experience in other countries has been one where customers have had to pay a premium for banking services that are deemed legitimate under Islamic law. Whether price-sensitive Syrians will be willing to do so remains to be seen. “What part of the Syrian personality is more dominant,” Jihad Yazigi, editor of The Syria Report, asked. “Is it their religious side or is it their trading side?”
