SARG SEEKS ALTERNATIVE IN ISLAMIC BANKING

C O N F I D E N T I A L SECTION 01 OF 02 DAMASCUS 001157

SIPDIS

SIPDIS

NEA/ELA
TREASURY FOR GLASER/SZUBIN/LEBENSON

E.O. 12958: DECL: 03/15/2016
TAGS: ECON EFIN EINV SY
SUBJECT: SARG SEEKS ALTERNATIVE IN ISLAMIC BANKING

Classified By: Charge d'Affaires Stephen Seche, reasons 1.4 b/d


1. (C) Summary: This week, the Ministry of Finance used a
conference on Islamic banking to present these banks as a
viable alternative to Western financial institutions.
Conference participants agreed that potential demand for
Islamic banking in Syria is high, and significant enough for
Syrian private banks to be developing their own plans for
tapping into the market. Secular economic reformers likewise
are embracing the concept as a way to bring the transactions
of those who remain leery of both public and private banks
into the formal sector. However, members of the Damascus
business elite who attended the conference expressed concern
about the religious ideology of Islamic banking, and the
signal of support for that ideology sent by the SARG's
high-level participation. End summary.


2. (U) A two-day conference on Islamic Banking in Syria,
sponsored by the Ministry of Finance, concluded on March 14,
with government dailies announcing that a group of Saudi,
Kuwaiti and Syrian investors plan to establish the first
Islamic bank in Syria before the end of 2006. Islamic banks
with a starting capital of $100 million, more than three
times the amount required of private commercial banks, are
allowed to operate in Syria since President Asad signed
Legislative Decree #35, The Islamic Banking Law, in May 2005.
Minister of Finance Mohammad al- Hussein opened the
conference on a combative note, discounting US financial
sanctions (septel) and promoting Islamic banking as an answer
to US pressure. The conference had strong Islamic overtones,
highlighted by the presence of Syria's Grand Mufti, Sheikh
Ahmad Badr Eddin Hassoun, who shared the dais with Hussein
and characterized Islamic banks as a just alternative to
"unfair and monopolistic" US institutions.


3. (U) Many of the presentations that followed were equally
ideological and anti-Western. A representative of an Islamic
financial institution in the Gulf stated that Islamic banks
are a bulwark against an international capitalist system
whose constant quest for profits is tantamount to war against
the interests of the people. Another speaker opined that
Islamic banks provide their shareholders (depositors) with
"rewards in heaven" that are incomparable to the interest
earned on traditional accounts. Other presenters, while
making the economic argument that the approximately $1
billion global Islamic banking industry has posted returns on
equity that often exceed its competitors in the commercial
banking system, still stressed that the religious foundation
of Islamic banking is its main competitive advantage.


4. (C) The audience of predominantly Damascene business elite
responded skeptically to the more ideologically-based
presentations. Bassel Hamwi, General Manager of Audi Bank,
and Rateb Shallah, President of the Damascus Chamber of
Commerce, who participated as a speaker and moderator,
respectively, were visibly uncomfortable with some of the
ideas presented. Abdul Kadr Housrieh, an economist with
Ernst & Young and unofficial advisor to the government on
economic reform, worried that Hussein sharing the dais with
the Grand Mufti sent the "unfortunate" signal to proponents
of western-style economic reform that the SARG supported not
just the economic potential of Islamic banking, but its
religious ideology as well.


5. (C) Despite their misgivings about its sometimes troubling
ideology, secular contacts in the banking sector did express
guarded enthusiasm for the possible money-making and social
benefits of Islamic banking. Wissam Merhaj, a Deloitte &
Touche manager in Syria whose firm has several Islamic
banking clients, stated that the Islamic banks will appeal to
more devout Muslims and less affluent Syrians in rural areas.
Several contacts independently estimated that 70% of the
potential banking market in Syria would choose an Islamic
bank over a commercial bank if given the choice, although it
is unclear how they arrived at this percentage. The general
managers of both Byblos and Audi Bank told us they plan to
develop a line of Islamic banking services before the end of
the year to tap into what they view as a potentially
lucrative market. Housrieh, who helped draft the Islamic
Banking Law, stated his belief that Islamic banks will appeal
to the currently un-banked, bringing more financial
transactions into the formal sector, and spreading access to
badly needed capital.


6. (C) Comment: Even while expressing disdain for its
accompanying ideology and viewing it as something of a fad,

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our secular banking contacts uniformly agree that Islamic
banking will play well in Syria and are looking for ways to
get a share of the expected profits. The SARG, meanwhile, is
using its promotion of Islamic banking to burnish its Islamic
credentials and show that it has options in the face of US
pressure. The most positive take is Housrieh's, who believes
that Islamic banks will expand the formal banking sector and
help push Syria's centrally-planned economy toward a free
market by significantly expanding access to credit.
SECHE