Four Islamic banks are currently licensed to operate in Lebanon: Al-Baraka,  Arab Finance House, Lebanese-Islamic Bank (unit of Credit Libanais), and BLOM Development Bank (a unit of BLOM Bank). All four focus mostly on retail banking and concentrate on consumer finance.

Al-Baraka Bank has been in the market since 1992, while the others are more recent entrants to the sector.

"We are holding conferences and forums to inform people about Islamic banking," Arab Finance House general manager Fouad Matraji told Zawya Dow Jones in an interview.

Bankers from three of the country's four Islamic banks agree that Lebanon is still an infant market for this specialization, but they all say it is developing fast and will play an important role in Lebanon's financial market.

But it is not an easy task in a country where the commercial banking sector plays a major role in the economy and regularly records growth even while other sectors are lagging behind.

Total assets of commercial banks rose 7.6 percent year-on-year to $74.3 billion at the end of October 2006, which is almost three-and-a-half times the national GDP.

At less than $250 million for the two larger Sharia-compliant banks, the assets of Islamic banking in Lebanon are a tiny fraction of the sector's total.

The total assets of Al-Baraka Lebanon stand at $130 million, Mahmassani said.

Matraji said the total assets of Arab Finance House are $100 million. He said the bank achieves a yearly profit of 7-8 percent and expects a return on equity between 12 and 14 percent in 2007.

Islamic banks are expansion-minded in Lebanon and Al-Baraka and Arab Finance House both have capital increases in the works.

In a recent general meeting of Al-Baraka, shareholders agreed on a capital increase of 150 percent to $50 million.

Mahmassani said the capital increase will help the bank develop its expansion plans, which include setting up new branches and expanding its activities, including devising investment funds.

According to Matraji, Arab Finance House is currently the largest Islamic bank in Lebanon in terms of capital.

"Our capital is $60 million and expected to become $100 million in 2007," he said.

Khodr Temsah, general manager of Lebanese Islamic Bank, said the bank will soon increase its capital to $50 million to fund its expansion.

Mahmassani declined to estimate the market share of Al-Baraka in Lebanon, saying there are no official statistics.

"The market share of Al-Baraka is relatively low with respect to the overall banking market, but we expect to occupy 50 percent of the Islamic-banking market share in 2007," he said.

Matraji said he expects Arab Finance House  to have 15 percent to 20 percent share of the country's Islamic banking market. However, he said it is still early to speculate on total market share.

The size of global Sharia-compliant assets is estimated today at up to $400 billion, whereas the potential market for Islamic financial services is believed to be closer to $4 trillion, meaning that Islamic finance currently has only a 10-percent market share among the Muslim community globally and still has a long way to go, according to a report by Standard and Poor's in October.

There are around 800 branches of commercial banks in Lebanon compared to only eight branches of Islamic banks.

The Islamic banks have an ally in the Banque du Liban. Governor Riad Salameh said during the launch of a new certification program for Islamic banking professionals in October that the Islamic finance industry "is not restricted to Muslim countries and could benefit from Western and Middle Eastern experience as well."

Islamic banks in Lebanon have already led several development initiatives in producing new Sharia-compliant products that found their way into other regional markets.

With further development of specialized competencies in the sector, banks said they could use Lebanon as a base for cross-border expansion, despite the size limitations of the local market. Arab Finance House said it might open up a Sharia-compliant bank in Syria by the end of 2007, with capital of $100 million. A major shareholder in the new Syrian bank will be Qatar Islamic Bank, which also owns 70 percent of Arab Finance House.