Islamic Finance in National Accounts Palestine Amina Khasib

Islamic Finance in National Accounts- Palestine Amina Khasib

Banks in Palestine 15 Banks 304 Branches Conventional Banks All Banks in Palestine 2016 622 ATM 3 Banks 15% 46 Branches Islamic Banks 16% ATM 98

Performance of Islamic Banks Total Assets 70% 58% 60% 55% 52% 50% 40% 36% 34% 38% 47% 41% 30% 20% 10% 9% 8% 10% 11% 12% 0% 2012 2013 Islamic Banks 2014 National Banks 2015 Arab&Foreign Banks 2016

Performance of Islamic Banks Direct Credit Facilities- Net 60% 52% 48% 50% 39% 40% 41% 46% 42% 44% 43% 46% 40% 30% 20% 10% 9% 11% 12% 13% 14% 0% 2012 2013 Islamic Banks 2014 National Banks 2015 Arab&Foreign Banks 49% of Total Assets 2016

Performance of Islamic Banks Customers’ Deposits 100% 80% 59% 57% 52% 49% 48% 32% 34% 38% 40% 9% 9% 10% 11% 12% 2012 2013 2014 2015 2016 60% 40% 20% 0% Islamic Banks National Banks Arab&Foreign Banks

Performance of Islamic Banks 2009, 2016 1. 7 billion 243 million 23 million 0. 6 billion 86 million 3 million Total Assets Shareholders' Equity Net Income Before Tax

Performance of Islamic Banks compared with Jordan 15. 1% Palestine 10. 8% Share of Islamic Banks from Total Assets

Islamic Banks’ share of the Market 16, 0% 12% 14, 0% 12, 0% 11% 10, 0% 12% 11% 10% 15% 14% 13% 12% 11% 9% 10% 8% 8, 0% 6, 0% 4, 0% 2, 0% 0, 0% Net assets Customers' Deposits 2014 Credit facilities 2015 2016 Net Income Shareholders' Equity

Uses Of Funds…Types 3, 7% 0, 1%3, 7% 1, 4% Murabaha (Mark up) 5, 1% Mudarabah (Profit sharing) I Jar All (Leasing) Qard-E-Hasan (Interest-Free Loans) Estisna' 86, 0% others

Uses Of Funds…Sectors Other; 21% Tourism, Hotels and Resturants; 2% Consumption; 1% Public Sector; 30% Agriculture; 1% services; 2% Trade; 11% Real Estate & Land; 26% Manufacture; 6%

Measurement of Output for Islamic Banks National Accounts

Finance and Insurance Survey Banking activity • Annual Survey for financial intermediation and Insurance (1994 -2016). • All enterprises engaged in the activities classified under category K according to ISIC, 4 including money exchangers. • # of financial intermediation enterprises and insurance enterprises was 53 enterprises and holding companies (Establishment census 2012). • Money exchangers sample size is 122 enterprises.

Finance and Insurance Survey Banking activity # of enterprises and employed persons Compensation of employees Fixed Assets in financial Intermediation enterprises Output for Principal and secondary activities for financial enterprises Production Inputs and Investments in financial and real assets

Finance & Insurance Report

Finance and Insurance Survey Questionnaire

FISIM (SNA 2008) Conventional Banks • FISIM is calculated only on Loans and Deposits- like instruments • FISIM formula applied independently to each side ü Borrowers: Implicit services to borrowers= (r. L- rr)× Loans ü Depositors: Implicit services to depositors= = (r. D- rr)× Deposits • FISIM= (r. L- rr)× Loans + (r. Drr)× Deposits Islamic Banks • Equivalent terms are Financings and Funding • Returns on financings (r. Fin) substitute r. L • Distribution of Profits to depositors/ investors (r. Fund) substitute Rd • FISIM= (r. Fin –rr)×Financing + (r. Fund –rr)× Funding Qu banks 2016. docx

Finance and Insurance Survey Questionnaire

Finance & Insurance Report

Total Output of IB is 10% of total Output of Islamic Banks 2016 10% FISIM 21% Commissions 69% Money. Exchange

Challenges for Islamic Finance • Large share of clients do not know about the services offered by Islamic Banks, they don’t know the meaning of Murabaha, Mudarabah and Musharaka. • Majority of people are unware of the difference between Islamic Banks and Conventional Banks (only the name). • Islamic banks succeeded in attracting deposits, but were not able to channel them into long term investment: invested mainly in Murabaha (short term investment) which is low- risk method and provide rapid returns (Cash)

Challenges for Islamic Finance • Other methods (Musharaka and Mudarabah) are highly risk, and not all firms want to give up part of their profits to their Partner (Islamic Bank). • Islamic banks still play a minor role in the Palestinian Economy. Their assets represent less than half the percentage of total banks assets, and 10% of total branches. • The Sharia Control Committee of Islamic banks should include consultants in the field of finance to give Fatwa based on understanding banking concepts.