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The December 2022 issue considered whether Islamic finance could channel Lebanon's hoarded cash into productive SMEs. It set out the defining principles of the system, including profit and loss sharing in place of interest, a tangible underlying asset and the prohibitions of riba, gharar and maisir, and described the main trade instruments (murabaha, ijara, istisna'a, salam) and equity instruments (mudaraba, musharaka).
The authors argued that Islamic banking had remained marginal in Lebanon because of regulation rather than lack of acceptance. The country had only four recognised Islamic banks, which concentrated on murabaha. Without a domestic bond market they could not issue sukuk, and rules requiring Sharia-compliant deposits to have maturities of at least six months, a 15% obligatory reserve, Article 5 of Law 575 of 2004 restricting real estate activity, and the absence of a distinction between operating and finance leases had curtailed their funding and their ability to offer partnership and leasing products.
With the banking crisis having pushed savers to keep cash at home, the issue proposed a two-tier Mudaraba industrial fund in which investors place capital with the fund and the fund finances SMEs as mudarib under profit-sharing contracts. To manage the higher risk to capital, the fund would require feasibility studies, standardised accounting and reporting, and management, payroll and governance oversight, which the authors presented as the product's distinctive feature.
Key findings
- Murabaha was cited as representing about 80% of Islamic transactions worldwide.
- The issue stated that 68% of users of Islamic finance worldwide were not Muslim, making such a vehicle relevant to Lebanon's multicultural investor base.
- It suggested that the return benchmark for mudaraba projects should be at least that of a consumer loan, around 11–12.5% a year.
- Mudaraba capital must be quantified in the contract, is not a liability of the mudarib, and losses fall on the capital provider unless caused by negligence or breach of agreed restrictions.
Archive: written in Dec 2022; figures and assessments reflect conditions at the time of writing.Summary of the paper; the full analysis is in the PDF.