A Study of Islamic Banks in the MENA Region:
Evidence from Lebanon
1. Introduction
Over the past two decades, Islamic finance has witnessed unprecedented growth. According to Shoaib
(2007), the field of Islamic finance is developing and rapidly expanding, with banking assets growing at
15 to 20 percent annually to reach about $750 bn (Shoaib, 2007). In Malaysia, Islamic banking assets
have grown at an average annual rate of 18 percent since 2000 (Aziz, 2006). Even in non-Moslem
countries, the growth of Islamic finance is on the rise, since Islamic banking is emerging as a rapidly
growing industry, receiving wide recognition by both Muslims and non-Muslims alike (Iqbal and
Molyneux, 2005).
Though few Moslem countries (namely Pakistan, Sudan, Iran) have completely Islamized their
economies, most other Moslem nations follow a dual banking system with both conventional and Islamic
financial institutions (Zaher and Hassan, 2001), thus appealing to different customer preferences. It is
important to mention that Islamic banks perform the same essential functions as conventional banks;
however, they do so in accordance with the rules and principles of Islamic Sharia(Iqbal and Mirakhor,
2007), thus providing an alternative to finance that addresses the religious orientation of large segments of
the population.
Despite all signs of progress and growth related to Islamic banking and finance around the world, this
area of finance has not witnessed the same growth signs in Lebanon, a developing middle-eastern nation
enjoying a relatively advanced, well-managed banking system. Lebanon has, so far, adopted the dual
banking system with conventional and Islamic banks, though conventional bank deposits ($115 bn)
exceed by far those of Islamic banks ($300 million). Out of 54 financial institutions in Lebanon, only four
are Islamic in nature, and one of the four is said to be closing down next year. It seems evident that the
demand for Islamic banking and finance is not on the rise in Lebanon, though this country is perceived as
the financial hub of the Middle East, and an open market to any new financial innovation or trend.
Therefore, the question that begs itself is: why is it that Islamic finance is not flourishing in Lebanon
while it is growing almost everywhere else? This is an issue that requires some investigation since there
have been no published studies about it. Though the author was able to find some studies about Islamic
finance tools available in Lebanon, no published studies were found that address the reasons behind
Lebanese customers’ preference of conventional vs. Islamic banks, nor was the author able to find any
published studies that delineate the characteristics of Islamic bank clients in Lebanon.
Hence, the questions addressed in this paper are:
Q1. What are the factors that cause Lebanese clients to prefer patronizing an Islamic bank as opposed to a
conventional bank?
Q2. What is the general profile of Islamic bank clients, and how is it different from that of conventional
bank clients?
By addressing these two questions, the researcher hopes to figure out why demand for Islamic banks in
Lebanon is not prospering as it is in other Middle-Eastern countries, and furthermore, investigate the
