研究ノート

Role of Palestinian Islamic Banks in
Financing Economic Development
Abdalrahman Mohamed MIGDAD

Ⅰ. Introduction
Banks are one of the important bases of modern economic systems, they play
an important role in the economies of countries. Palestine and other Muslim
countries, have large populations that rejected traditional banks, so Islamicbanks have the opportunity to serve as their financial mediators. The rejectionof traditional banking is in short due to operation with interest, speculation, andinvestment in un-permissible trades in Islam. One of the reasons why Islamicbanks have developed, is because they presented the alternative that satisfies
conservative Muslim populations across the world, as well as non-Muslims thatwant to explore a new financial system, or do not trust the traditional financial
system, or simply find Islamic banking as the better alternative. The Palestinian
economic system includes four Islamic banks, two of which operate in Gaza andthe West Bank, and the other two operate only in Gaza. Two of those banks arerecognized by the Palestinian Authority (PA). However, all banks actually exist
and have an effect on the local Palestinian economy, for that reason all Islamicbanks will be addressed to point out their role in economic development.
Additionally, the data provided by the Palestinian Monetary Authority (PMA)
will also be utilized to have a different view on the role of Islamic banks ineconomic development in Palestine.
1. Why Islamic finance is important in Palestine
The importance of focusing on the Islamic finance industry in Palestine has anumber of justifications that include the failure of the Palestinian government toachieve development and sustainability through the Palestinian financial system.
Anne Le More and Sara Roy (2008, 1, 1999), describe how the Palestinian living
condit ions have been g radua lly deteriorat ing despite t he high level ofinternational support since Oslo 1945. The Palestinian leadership bears
77研究ノート

responsibility for the deteriorating Palestinian living conditions notibly becauseof non-transparancy, and because of the nature of the authoritarian repressive
administration (More 2008, 4).
Another important problem are the “Palestinian capitalists”. The governmentsof high risk countries, and those at conflict are generally repressive regimesthat exercise “narrow development” that cause conflict because the elites (in thePalestinian case the ‘capitalists’) who use the wealth of the country to financefamily business and private accumulations, this is made easy for them because
the financial systems are weak (Addison, Billon and Murshed 2001, 3).
Abdel-Shafi describes the Palestinian economy as a “Myth”, and concludes
with the importance of cooperating with civil society institutions and private
financial institutions to direct funds where they are necessary (2015, 16, 25).
The relevance of development to Islamic banks is represented in the fact that
Islamic banks serve the purpose of financially including large numbers ofPalestinians across the country, especially those that reject conventional
financial institutions. They also exist as important financial institutions withlarge pools of savings, thus, a great investment ability.
2. The problem of financing economic development
In the aftermath of the OSLO agreement with the Palestinian Liberation
Organization (PLO), and Israel that resulted in the creation of the PA, a numberof banks were established including Islamic banks, but ever since 1993, no realdevelopment has existed (More 2008, Makhool 2002). One important problem is
wea k f i n a nci ng a nd i nvest ment i n Pa lest i ne . A not her problem is t he
Authoritarian PA, and the Israeli occupation and segregation of land. Anotherimportant problem is that all banking transactions go through Israel. Those
problems directly affected developmental economic projects to be mainly small
and labor intensive projects rather than large capital intensive projects that
depend on modern technology. Additionally, large portions of the small projects
are privately funded, and in some cases, entirely depend on self-funding.
3. Research goals
This paper aims to analyze the importance of the Islamic banks in employing
deposits in economic development and investment in the most necessary sectorsthat help elevate the Palestinian economic condition. Sectors such as Industries
78Role of Palestinian Islamic Banks in Financing Economic Development

and agriculture are important to the Palestinians. This aim is derived from theessence of Islamic economics is which explained by Professor Asutay to beconcerned with human justice and human-centered economic growth anddevelopment (2007, 189).
This paper explains the contribution of Islamic banks in Palestine to thedevelopment of the Palestinian economy while focusing on the years 2014 and2015 to give an updated and clear picture. Additionally, exhibits the challenges
faced by the Islamic banks operating in Palestine, as well as the opportunities
associated with certain changes such as introducing legislation that favors
Islamic finance institutions.
4. Research methodology and hypothesis
This paper is being guided under few hypotheses. First is that Palestinian
Islamic banks have been able to collect savings increasingly over time. Second,
the Palestinian Islamic banks slightly contributed to development in general, butwere not able to contribute to long term and sustainable development in lively
sectors such as industries and agriculture which have a direct social effectespecially with regard to employment. Finally, The PA could play a positive roleby simply regulating financial Islamic transactions, and strengthening thefinancial system which is weak and allows for financial corruption.

Ⅱ. Overview of Islamic banks in Palestine
After the Oslo agreement between the Palestinian Liberation Organization(PLO) and Israel in the year 1993 and following the establishment of thePalestinian National Authority (PNA) in 1994 a number of financial institutions
were established, and were mainly banks. A number of commercial, Islamic,
and specialized banks formed the foundation for a banking system in Palestine.
The development of financial institutions in Palestine that now goes beyond
Banks, should have led to economic development over the past 22 years.
However, the economic situation underlines that such economic development has
not occurred.
The real efforts of establishing Islamic banks and later on Islamic financeinstitutions in an economic system that was built on Capitalism, and still
operates in accordance with capitalism principles where Interest “Riba” is a79

研究ノートpart of all transactions faced many challenges. Those challenges were difficult
to overcome. Despite all that, the establishment of an Islamic finance andbanking industry in Palestine was of the essence to serve the needs of theconservative Muslims that wish to live a life described as Sharia compliant, andsuch Muslims in Palestine represent the vast majority of the population. With
the existence of Islamic banks and financial institutions in Palestine, they could
provide financial solutions for Muslims that find themselves in critical financial
situations.
Islamic banks in Palestine has continued to grow, which explains the worthinessof this industry even in Pa lestine. This a lso indicates that the ma rket
continually demands the services of Islamic banks and financial institutions.
However, Islamic banks in Palestine find difficulties in coping with the capitalist
system that governs the world financial relationships, and more importantly thecapitalist system that governs the operations of the Palestinian government.
They need to cope with capitalism while keeping all their transactions sharia
compliant.
Under such difficult circumstances, Islamic financial institutions in Palestine
would be found operating with accordance to some of the weaker jurisprudence
scholarly views, not according to the consensus of Muslim scholars in certain
financial matters. This is also true in many other countries where the Islamic
finance and banking industry operates, and sometimes, some Islamic financial
institutions weather in Palestine or in other countries would fall into some
suspicions when executing certain Islamic financial transactions.

Ⅲ. How Islamic banks fit in the Palestinian system?
In Palestine, there is still no regulatory procedures that govern Islamic banks
transactions separately from the traditional transactions. The Palestinian
Principal Law enforced in 2002 is based loosely on Islamic Sharia; however, thebanking system is a combination of both conventional and Islamic modes.
Sharia compliant financial transactions as all financial activities are governed
under the same legislation, regulated by the Palestinian Monetary Authority(PMA), fall under the Law of Jordan of 1966 and the PMA Law of 1997.
Islamic finance institutions that operate in Palestine count-on the Muslim
population’s desire to live a halal life where investment, banking, and insurance80Role of Palestinian Islamic Banks in Financing Economic Development

are all sharia compliant. One of the awareness sessions on the work of Islamic
financial institutions in Palestine was titled “Do you want to live a relieved life,
your bank and insurance are Halal?”, and in Islam, when the Islamic alternative
is available, it has to be chosen over any other alternative. In Palestine, literacy
rates are high, and the peoples understanding of Islamic teachings is also
relatively high, which is partially a reason why Islamic financial institutions
have a firm ground to stand on, indeed the industry has been growing overtime, and growth opportunities remain open.

Ⅳ. T
 he current role of Islamic banks in contributing toeconomic development
I n order to clearly understa nd the role of Islamic ba nks in economic
development, the size of Islamic banks in the Palestinian economy needs to beunderstood. To achieve this, the current status of all banks in Palestine is
explained through showing the accumulation of deposits, the investment
directions and priorities, and the size of credit facilities. After that show theeconomic development achieved by the existing financial system and thecontributions made by Islamic banks.
1. The current status of all Banks in Palestine
The number of banks that operate in Palestine as of the year 2015 are 16
according to the PMA, this does not include the Islamic National Bank and thePalestinian Production Bank that operates in Gaza, and are not yet recognizedby the PMA. Among the 16 banks are 2 Islamic banks; Palestine Islamic Bank,and the Islamic Arab Bank. There are 33 branches for both banks that spreadin the most active cities in the West Bank and the Gaza Strip. Although thedeposits in the Palestinian banks altogether reached 9.7 billion USD up to theyear 2015, (PMA 2015) they have failed to provide necessary facilities to financeinvestments – especia lly long term investments. Table (1) exhibits thepercentage of annual change in credit facilities provided by all Palestinian banks
including Islamic banks.
Table (2) explains the distribution of credit facility by type. those credit
facilities are provided by all Palestinian banks combined from the year 2010 to
the first quarter of 2016.
81

研究ノートTable 1: Customer deposits in Palestinian banks (million US$)
Year
2010
2011
2012
2013
2014
2015
2016 1st Q

Deposits
6.802.4
6,972.5
7,484.1
8,303.7
8,934.5
9,654.6
10,054.7

Credit facilities
2,885.9
3,552.6
4,199.3
4,480.1
4,895.1
5,824.7
6,137.3% change in credit facilities
-23
18
6.6
9.2
19
5.3

Data Source: PMF, Quarterly Statistical Bulletin, 1st Quarter 2016. Issue 12 (PMA 2016)
Table 2: Distribution of credit facilities by type (million US$)Type of credit facility
Loans
Overdrafts
Finance leasing
Total

2010
1,978.0
900.4
7.5
2,885.9

2011
2,531.7
1,010.3
8.7
3,550.7

2012
2,950.3
1,238.1
10.9
4,199.3

2013
3,207.7
1,258.5
14
4,480.1

2014
3,853.8
1,021.0
20.3
4,895.1

2015
4,639.8
1,155.4
29.5
5,824.7

2016
4,906.8
1,200.1
30.4
6,137.3

Data Source: PMF, Quarterly Statistical Bulletin, 1st Quarter 2016. Issue 12 (PMA 2016)

Table (3) shows the distribution of credit facilities among the main economic
private sectors in Palestine. The table shows that most facilities are directed to
the real estate and construction sector as well as the local and foreign trade
sector. G enera l ly, i nvest ment i n econom ic i n f rast r uct u re t hat ser ved
development in the long run such as transportation is minimal. Additionally,
providing facilities to agriculture and livestock economics sectors is also weakdespite the fact that it contributed in economic development on the social level,and plays a good role in economic diversification and economic inclusion.
Table 3: Main sectoral distribution of credit facilities (million US$)
Economic sector
Real estate and construction
Land development
Mining and manufacturing
Local and foreign trade finance
Agricultural and livestock
Tourism, hotels and restaurants
Transportation
Business and consumer services

2010
331.6
76.7
257.9
392.2
45.3
47.9
19
457.5

2011
411.5
29.7
303.7
489.6
33.7
50
22.6
295.3

2012
589.5
41.7
173.8
503.2
35.1
57.9
22.7
267.4

2013
650.4
57.1
222.2
612.3
38.3
58.9
21.8
242

2014
790.1
41
257.2
744.6
46.5
59.9
30.2
374.4

2015
952.5
128.5
264.3
941.9
73.3
72
20.2
402

2016
872.3
107.7
262.5
855.5
73.2
74.7
24.8
449.5

Data Source: PMF, Quarterly Statistical Bulletin, 1st Quarter 2016. Issue 12 (PMA 2016)

Foreign trade is basically consumer based, therefore, trade is a profitable andrelatively safe sector to invest in. Real estate in Palestine, especially in Gaza ismostly on the rise, rarely do the values of real estate fall, which also makes it aprofitable area of investment. However, this area has limited contribution to82Role of Palestinian Islamic Banks in Financing Economic Development

economic development and elevation of unemployment. On the other hand,
sectors such as agriculture and industries that have a much bigger effect onelevating unemployment and participating in economic development, are least
invested in.
The accumulation of deposits in Islamic banks is much smaller than in
traditional banks. The proportion of Islamic banking transactions is less than
9% of the total Banking sector in Palestine, and the estimated demand forIslamic banking services is 20% (PIF 2014). Within Islamic banks, Murabaha1 is
the form of financing mostly used because it is relatively short term, andcontains low risk rates. 89% of the AIB financing is for Murabaha contracts,
which is about 220 million USD, the remaining were for Mudaraba 2 , Ijara 3 ,Istisna 4 , and Musharak a 5 . (AIB 2014) The PIB gave 98% of financing toMurabaha contracts, and the remaining 2% were given for Ijara and Istisnaa
contracts in the year 2013. (PIB 2013) As for the INB that only operates inGaza, and is not recognized by the PA or the PMA, 60% of its financing is for
Murabaha, Musharaka, and installment contract. (INB 2014)
2. Islamic banks contribution to development
Islamic banks that operate in Palestine are mainly two. Those two were
established with the establishment of the PA. After that two other banks were
established, however, were not recog nized by the PA . the reasons a recontroversial, where the banks management point out political rivalry andconflict between the Palestinian political parties, and the PA, being governed by
one of the rivals, represented by the PMA pint out legal and technical issues
that relate to the inability of the banks to meet certain criteria. Table (4) shows
the banks year of establishment, the number of branches, and the official status.
Table 4: Islamic banks that operate in Palestine - 2016
#
1
2
3
4

Bank Name
Palestine Islamic Bank
Islamic Arab Bank
Islamic National Bank
Palestine Production Bank

Number of branches
21
11
4
1

Year established
1995
1995
2008
2013

Official status
Recognized
RecognizedNot recognizedNot recognized

Data source: Palestine Islamic banks annual reports 2016

The Palestinian Islamic banks have with no doubt contributed to thedevelopment on many people’s lives, and also have economic contributions even
if only from the theoretical perspective. Deposits in Palestinian Islamic banks
83

研究ノートhave increased year after year, table (5) shows the increase from 2014 to 2015.
Islamic banks rely heavily on individual deposits, managed under current
accounts, in developing the bank and increasingly participate in local economic
activities.
Table 5: Deposits in Islamic Banks (millions US$)Bank name
Palestine Islamic Bank
Islamic Arab Bank
Islamic National Bank
Total

Deposits
Current accounts
2014
134.4
134.3
29.7
298.4

2015
154.9
158.2
31.7
344.8

General Investment deposits
2014
2015
55.2
47.2
27.8
51.2
--83
98.4

Data source: Palestine Islamic banks annual reports 2016

Most of the investment by Palestinian Islamic banks is local investment thatis relatively safe and low risk. All the banks invest in real estate, a market with
continually increasing prices as demand continually increase. This market could
face some drops in the prices, but usually is for short periods of time. Other
forms of investment are precisely three; investment in associate companies,
investment in other Islamic banks, and investment with different partners using
Musharaka as clear in table (6).
Table 6: Islamic Banks investments (million US$)Bank name
Palestine
Islamic Bank
Islamic
Arab Bank
Islamic
National Bank
Total

2014
2015
R e a l E s t a t e General otherR e a l E s t a t e General other
Total
Total
Investments Investment
Investments Investment
0.8

2.9＊

3.7

0.8

4.8＊

5.6

15.3

9.2＊＊

24.5

15.1

7.3＊＊

22.4

z

3.7＊＊＊

15.5

12.9

3.7＊＊＊

16.6

27.9

15.8

43.7

28.8

14.8

44.6

Data source: Palestine Islamic banks annual reports 2016
• ＊ investment in associate companies• ＊＊ investment in other Islamic banks• ＊＊＊ general financial investments and investment by“Musharaka”

Ⅴ. Challenges faced by Islamic banks in Palestine
Islamic banks in Palestine operate under an unfavorable financial system that
does not recognize the Islamic principles and addresses all financial matters84

Role of Palestinian Islamic Banks in Financing Economic Development

similarly under one law. Islamic banks being a minority try to find different
mechanisms to avoid un-Islamic financial transactions. All banks in Palestine
operate under the PMA, as a central bank, the PMA deals with Islamic bankswith accordance to the unified system.
The limited facilities provided by Islamic financial institutions for investment
in agriculture, industries, and general long term investment, especially in Gaza,
could be related to the following few points that also represent challenges to
Islamic banks that force them to invest safe and for short-term.
–P olitical economic stability: The lack of political, security, and economic
stability have weakened investment opportunities.
–G eographic connectivity: The Israeli siege over the Gaza strip has
disabled any kind of connection between Gaza and the West Bank, andbetween Gaza and the outside world.
–L ack of experience: The new Islamic banking experience in Palestine, andthe absence of legislation that fits and organizes its relationship withcommercial banks and the PMA taking into account the specificity andobligations of these banks that do not bind commercial banks.
–P ublic trust: The continuation of such status might have already shook
the trust of the Palestinian public in the performance of Islamic financial
institutions, which makes them grow weaker.
All the challenges previously mentioned led Islamic banks to direct the
majority of their investment into direct credit financing. Investment in direct
credit financing as shown in table (7), and further explained in table (8) is much
more that investment in other economic activates as previously shown in table (6).
Table 7: Direct credit financing (million US$)Bank name
Palestine Islamic Bank
Islamic Arab Bank
Islamic National Bank
Total

Direct credit financing
2014
353
247.1
45.9
646

2015
446.3
311.4
51.4
809.1

Data source: Palestine Islamic banks annual reports 2016

Direct credit financing methods take many forms and extend to different
periods of time. Table (8) exhibits the different types of direct Islamic financing
methods used by Palestinian Islamic banks in 2014 and 2015. It is very clear
from the table that the financing method “Murabaha” is the most used by all85

研究ノートIslamic banks in Palestine. In fact, it is the most uses and known on aninternational level.
Table 8: Direct credit financing methods and value (million US$)
Method of investment

Murabaha
Mudarabah
MusharakahInstallment sale
Ijarah ending with ownership
Istisnaa
Islamic credit card
Qard Hassan6
Current exposed accounts
Musawamah Financing(subtracted) others
Total

Palestine
Islamic Bank
2014
2015
333.7
412.3
5.6
7.3
1.6
2.4
--5.3
5
4
5.8
0.022
9
2.1
2
0.86
1.3
2.2
4.4
2.382
3.3
353
446.3

Islamic Arab
Bank
2014
2015
219.4
271.6
7.6
8
1.9
3.5
--15
24.6
2.8
3.4
----1
0.98
--0.6
0.68
247.1
311.4

Islamic National
Bank
2014
2015
44.5
52.3

----4.1
-2.7
45.9

----3
-3.9
51.4

Data source: Palestine Islamic banks annual reports 2016

Reflecting from the exhibited numbers in table (8), all Islamic banks invest
heavily in Murabaha financing, and minimally in other forms of financing.
Murabaha financing represents about 87 – 96% of the total investment in direct
credit financing by each bank in 2014 and 2015.
Islamic banks invest in different economic sectors directly or by providing
credit financing to beneficiaries from those economic sectors. All Islamic banks
directly invest in real estate, and provide financing through different Islamic
financing methods as clear in table (8) for beneficiaries to build or develop new
or existing economic projects in agriculture, truism, production industries,
fishery, trade, and other private credit financing.

Ⅵ . Conclusion and recommendations
The paper pointed out that Islamic banks play an important role in economic
development in Palestine. However, Islamic banks have a bigger potential togrow at a higher rate. The proportion of Islamic banking transactions is lessthan 9% of the total Banking sector in Palestine, and the estimated demand forIslamic banking services is 20%. (PIF 2014)
Deposits in Palestinian banks reached up to 10,054 million USD in the firstquarter of 2016. Financing facilities reached to 6,137.3 million USD during the86Role of Palestinian Islamic Banks in Financing Economic Development

first quarter of 2016, which accounts for 61% of total deposits. The paper findsthat financing that targeted the main economic sectors such as agriculture andindustries was minimal. Financing that targeted real estate and foreign trade
was about 3 – 4 times more than financing for mining and manufacturing, andabout 10 times more than financing for agriculture and livestock according to
the estimates of the PMA during the first quarter of the year 2016.
With regard to Islamic banks, the paper concluded that the bank’s total
investment in real estate and few other investment activities reached 44.6
million USD where the Islamic Arab Bank had the bigger share of 22.4 million
USD The majority of the pooled deposits in Islamic banks were directed todirect credit financing which reached up to 809.1 million USD in the year 2015,
where the Palestine Islamic Bank gave out 446.3 million $, and the Islamic
Arab Bank gave out 311.4 million USD, and the remaining 51.4 million USD
were given by the Islamic National Bank.
Reflecting back to those numbers by Islamic banks, it would be safe to saythat the role of Islamic banks in financing economic development in Palestine isvery small. Some of the main reasons are the unstable economic and politicalsituation in the Palestinian Territories, the Israeli siege on Gaza, and the Israeli
geographical segregation and discriminatory policies in the West Bank. Other
reasons concern the limited experience of Islamic banks in Palestine, and theabsence of legislations that address the differences of Islamic banks fromtraditional banks. Finally, the public trust in Islamic banks is a key player in the
success of Islamic banks, and must always be heavily accounted for.
All those difficulties lead all Islamic banks to invest heavily in the financing
method Murabaha, as it is characterized with low risk, high and fast return,and guarantees a continues short-term flow of money within the banks. The
percentages of Murabaha financing ranged from 87% to 96% of Islamic banks
total investment in direct credit financing.
Despite the low contribution of Palestinian banks in economic development,
and the very low contribution of Islamic banks in economic development in
Palestine, that should not be a reason to undermine the potential and future
effect of those banks in development, and more effort should be put into
resolving the challenges of the Islamic banks to enable them to operate in abetter and more favorable legal and financial environment.

87

研究ノート

1. Recommendations for the PA, and the PMA
The Palestinian governments success in helping local Palestinian banks growcreates a local financial alternative for the government away from politicalinternational loans that lead to nothing but subordination. To achieve that the
PA should consider the following:–T he economic, political, and security situation must be stabilized. Herecomes the role of the Palestinian government, and the specialized
authorities within to create a favorable environment in order for Islamicbanks to consistently grow, and increasingly play a bigger role ineconomic development.
–T he PA should regulate the relationship between the PMA and the
traditional banks differently from the PMA relationship with Islamicbanks.
–T he PMA with management and Sharia councils in each of the Islamicbanks cooperate to point out the needs of the banks and should introduce
laws and regulate Islamic finance transactions, as well as empower andencourage this industry because it is capable of making a difference.
2. Recommendations for Islamic Banks
The existence of Islamic banks counts on including more and more of theconservative Palestinians in the local financial system, However, the is not a
problem because the demand is already higher than what the Islamic banks arecapable of offering. The demand of Islamic banking is two times more that the
proportion of Islamic banking transactions from the total Banking transactionsin Palestine.
The following are important recommendations for Islamic banks:– I slamic banks should pay more attention to feasibility studies for projects
that are likely to be financed, especially small projects run by lessexperienced beneficiaries.
–A dditionally, Islamic banks should increasingly pay more attention tofina ncing methods a nd projects that have the potentia l to create
employment and sustainability.
–S hort term debt financing methods such as Murabaha should be used lessto allow for the use of trade based methods such as Mudaraba andMusharaka. Transactions and projects based on Islamic finance methods
88Role of Palestinian Islamic Banks in Financing Economic Development

such as Musharaka and Mudaraba that are applicable in the Palestinian
economy have the potential to participate in solving the problem of
unemployment, and strengthen small and medium contracting companies
as well as craftsmen in different sectors.
Depositors have trust in the Islamic banks, and the key word for most people
is “Islamic”. There is a trust-based relationship that must continue, and must
increasingly be strengthened, especially with question marks on how different
are Islamic banks from other conventional banks. Islamic banks must not lose
the public trust to guarantee a consistent flow of deposits that enables thebanks to have an increasing ability to invest more and have a stronger role ineconomic development. To keep the trust of clients, the following are important
to consider”– Strengthen Shareia monitoring councils in all Islamic banks by appointing
Shareia scholars who are trusted by the Palestinian public.
– Employ professionals with an Islamic finance background that understandand believe in the value of Islamic banking, because part of the problems
faced by Islamic banks was most employees come from a conventionalbanking background.
– I sla mic ba nks should a lso activate their socia l role that includes
supporting local organizations and providing financial services such as
Qard-Hassan which is simply a loan with no interest or added charges
usually given to needy people, and to be paid back over a certain periodof time.

89

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Role of Palestinian Islamic Banks in Financing Economic Development

注1	Mudaraba: A pre-Islamic, Arabic type of financing, in which one individual provides
start-up capital to another who will do the actual work (BusinessDictionary).
2	Murabaha: An Islamic type of financial transaction in which a person with property/anasset to sell will rent/lease it to another interested buyer at a fully disclosed rate ofprofit. This is similar to a rent-to-own situation in which the owner maintains fullproperty rights over the asset until the buyer has paid off the note for the asset in full(BusinessDictionary).
3	Ijara: An exchange transaction applicable in Islamic regions. It is trading a specified
asset available in for a payment where the ownership of the asset is not transferred.
This is similar to a type of mortgage loan with no requirements for down payment, suchas a rent-to-own arrangement in the United States (BusinessDictionary).
4	Istisna: is an order to produce or manufacture a product, where the payment is made up
front.
5	Musharaka: Islamic principal that is applied to join ventures where interest is not
charged by the creditor of the loan, instead and agreement is made between thecreditor and the buyer as to the share the creditor will get from the profit made fromthe venture. This also applies to any losses made in the business (BusinessDictionary).
6	Qard Hassan, is a loan with no interest, usually given to those in need, and it is paidback in small quotes

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研究ノートAbstract

Role of Palestinian Islamic Banks in
Financing Economic Development
Abdalrahman Mohamed Migdad

Islamic banks theoretically play a role in financing economic development in
Pa lestine. However, the practica l role they play in fina ncing economic
development is very small, despite the larger available potential for growth.
This paper analyzes the role of the Palestinian Islamic banks in financing
economic development in Palestine especially in 2014 and 2015. To achieve thisgoal, the Palestinian bank’s 2015 financial reports were utilized as well as thePalestinian Monetary Authorities (PMA) 2015 report on the Palestinian financial
sector. This in addition to reviewing the latest literature to incorporate moreviews on Islamic banking.
Islamic banks have succeeded in collecting deposits continually, but were notsuccessful in financing economic development. On the other hand, the demandon Islamic banking is two times more than the proportion of Islamic banking
transactions from all banking transactions in Palestine. So Islamic banks still do
not have the capacity to play a more noticeable role in financing economic
development in Palestine, and have also failed to provide enough credit facilities
which confirms their weak role in financing economic development.
The PMA should strengthen the financial system in Palestine, and introduce
new law to regulate Islamic finance transactions separately from traditionalbanks transactions. This has the potential to ensure higher levels of security for
Islamic banks, driving them to expand their operations. On the other hand,
Islamic banks should focus on medium to long-term planning as well as use
partnership based financing which allows them to play a bigger role in financing
economic development in Palestine.
Keywords: Islamic banks, Islamic finance, Economic development, Palestinian
economy92