Islamic finance in the oPt
Chapter 4 provided an insight into the restrictive conditions framing Palestinian development. In doing so it highlighted how policies of a rigid nature under the occupation and through the implementation of a ‘development’ programme have continued to limit self-organisation. In this chapter, Islamic finance will be discussed in the context of its ability to support local interaction and selforganisation based on its normative values within the rigid stable attractor, particularly the role of Islamic banks which are confronted with policies that (1) have little relevance to the oPt’s situation, (2) restrict their interaction with the local population and (3) challenge the long-term sustainability of Islamic banks.
As previously highlighted, in the modern era a domestic financial sector plays a vital role in the development of a given state by obtaining deposits and investing in initiatives that help build capacity and growth. It can also move finances around to address areas of need, investment or potential productivity. However, this process through a number of reasons mentioned has largely avoided the Palestinian people. What this means is that since Mandate Palestine, conditions and policies have affected the links between Palestinians and the formal financial sector. This has restricted local development by removing the foundations for self-organisation. For example, in Chapter 4 a lack of support and investment in the agricultural sector was emphasised due to its potential for supplying sustainable resources and employment for Palestinians. However, banks operating in the locality have remained reluctant to invest in this industry because of concerns regarding reliability of crop production under the unstable conditions, which strengthens concerns about repayment. Similar conditions exist in the financial sector in Lebanon, which allowed for more informal mechanisms to emerge. However, as this and the following chapters will show, all forms of investment and funding are heavily scrutinised. Before the occupation, early attempts to stimulate agricultural production came in the form of an ‘Agricultural Mortgage Bank’ which was set up in 1935 with the goal of providing long-term loans to the sector, supporting ‘improvement and development’ (Nadan, 2005: 9). Nevertheless, this venture was unable
to convince investors (Arab banks) of its benefits and it remained a highly selective profit-oriented process that occasionally appealed to banks because of political interests or in the name of the Arab cause (Nadan, 2005: 9-13). Of course, the Arab Revolt of 19361 destabilised the situation in Mandate Palestine and this uncertainty escalated leading up to 1948, which deterred both institutions from lending and farmers from paying back loans. Such issues increased Palestinian reliance on informal moneylenders, who for Nadan (2005: 1) maintained their comparative advantage over banks as they could ‘easily utilise collateral on loans (crops and lands); they ignored the law of maximum interest rate and they had good information about borrowers’. To this end, because of the conditions, informal financial networks that included families, friends or businesses became an integral source for Palestinians. However, over the following decades these informal networks became increasingly challenged by concerns over their lack of transparency. Between 1948 and 1967 the banking law in the West Bank was administered under the Jordanian Banking Law, which oversaw eight Jordanian and foreignowned banks, totalling thirty-two branches (Bahu et al., 1995: 5) throughout the territories.2 From the onset of the occupation in 1967 up to 1993, the links between formal finance and Palestinian society were severely hampered and the local banking sector was almost non-existent. Israel became the sole legislator which resulted in the imposition of approximately 180 military orders that directly affected the financial sector, placing it under stringent control and restricting its activities (Abu-Rub and Abbadi, 2012: 126). All banks (Arab, Palestinian and foreign) were closed within two months following the occupation and thirty-six branches of Israeli commercial banks were put in their place (Samara, 2000: 29). However, they had little incentive to invest in Palestinian production and Palestinians had little interest in using Israeli banks. According to Laurence (1988: 52-54) what interaction did exist involved small-scale credit loans for trade, and letters of guarantee to fulfil trade commitments to Israeli companies, which often occurred at an inflated cost. As Sayigh (1986: 50) affirms, even when access to finance was available an abnormally high interest charge was applied. Not only did Israel’s military orders sever Palestinian financial links with other Arab countries, it also declared the Israeli shekel as legal tender in the West Bank (although the Jordanian dinar continued to circulate and the US dollar became more important) while simultaneously controlling the import and export of currency into the territories (Bahu et al., 1995: 8). In the case of the latter, it limited the flow of currency to banks in the oPt, but in the case of the former, as noted in Chapter 4, the situation was far more problematic. First, the imposition of the shekel ensured Palestinians were unable to gain from the seigniorage attached to money production; this reduced their ability to plan a development strategy through the banking sector, which instead constituted a ‘resource transfer from the occupied Palestinian territory to the countries whose currencies are used in the Palestinian economy, namely Israel, Jordan and the United States of America’ (UNCTAD, 2009: 13). Second, even when Israel