In Lebanon, Islamic finance refers to the activity of banks licensed by Banque du Liban under Law 575 of 2004, which take deposits and provide financing without interest according to Sharia, supervised by their own internal Sharia supervisory board.
Why Law 575 of February 2004 set everything in motion
Before 2004, Lebanese banking law offered no status for an institution that refused interest. Law 575, promulgated in February 2004, allows Banque du Liban to grant specific licences to Islamic banks, subject to the same general prudential rules as other lenders.
Minimum capital and share structure
The law requires minimum capital of 20 million dollars and a nominal value of 100 dollars per share. Only fully fledged institutions may operate: the text does not provide for simple Islamic windows opened inside a conventional bank.
Investments that must stay in Lebanon
Islamic banks must keep at least half of their assets in Lebanon as local investments and placements. Investment deposits carry a minimum term of six months, which is consistent with the profit-and-loss participation logic of mudaraba.
One Sharia board per bank, no central authority
Unlike Bahrain or Sudan, Lebanon has not created a national Sharia authority. Each bank appoints a board, usually three specialists in Islamic law and banking, which issues a public annual report to the board of directors and the general assembly.
The central bank committee dedicated to Islamic banks
Banque du Liban set up a committee to define the regulatory framework for these institutions: reserve requirements, treatment of investment accounts, governance. An independent Sharia auditor and a governance committee complete the set-up inside each bank.
The institutions that emerged after 2004
Lebanese Islamic Bank is described as the first locally licensed Islamic bank, in 2005. Others followed, often subsidiaries of Lebanese or Gulf groups, such as BLOM Development Bank, Al Baraka or Arab Finance House, the latter listed as an Islamic bank on the official register.
Why real estate is a sticking point
The central bank bars Islamic banks from direct property investment to avoid speculation, and large projects need its approval plus a Council of Ministers decree. Yet real estate ijara and murabaha precisely require the bank to hold the asset.
Double taxation of murabaha sales
In a murabaha the bank buys the asset and then resells it to the client: two transfers of ownership. Without tax neutrality, each one can trigger duties and VAT, making the product more expensive than a conventional loan with a single deed.
No sovereign sukuk to invest in
Conventional banks park liquidity in Treasury bills, which Islamic banks cannot hold because those bills pay interest. According to industry participants, legislation barring private ownership of state property prevents structuring sukuk backed by public assets.
Effects of the banking crisis that began in 2019
Lebanon's financial collapse froze access to foreign currency deposits and weakened the whole system. For an Islamic bank the question is specific: losses on investment accounts fall under profit-and-loss sharing, whereas current accounts remain a guaranteed liability.
What to check before opening a compliant account
A saver should distinguish a current account, based on an interest-free loan, from an investment account exposed to losses. It is wise to read the latest Sharia board report, the profit-sharing ratio and the withdrawal restriction policy applied by the bank.
Which reforms could change the picture?
Practitioners regularly mention three projects: tax neutrality for double sales, a legal framework for public sukuk and more flexible land rules. Without these legal and fiscal adjustments, compliant products remain costlier, whatever the demand from Lebanese customers.
Specialist external source
The Banque du Liban website gathers basic circulars, the list of supervised institutions and the texts governing the activity of Islamic banks.