Apr 17 2012
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Paris seeks to become Islamic finance hub in Europe
USD 147 million value of Islamic funds in France
Great potential for Islamic instruments in financing infrastructure projects
A report prepared by KFH-Research stated that new global markets are seeking to join the main players in the Islamic financing industry and services, such as France. France is working relentlessly to make numerous legal and organizational reformations to facilitate the offering of Islamic financial services and products.
The report added that there is great potential for growth in the field of Islamic financial services in France, since France seeks to become a hub for Islamic banking in Europe. It noted that 1.5 million clients are willing to use Islamic banking tools and products, which equals USD 18.2 billion. In addition, French authorities have offered strong support to develop Islamic banking services, not to mention the high number of Muslims living there who seek Islamic banking services. However, the report mentioned that some legislations need to be amended.
The Islamic finance industry has grown by more than 10% per annum over the past decade to reach approximately USD1.3tln in 2011. Growth has been mainly driven by growing demand for ethical and Shariah-compliant products and services, encouraging demographics and a regulatory push given domestic demand in Muslim countries but also new territories such as the Far East and Europe, many of which are currently in the midst of implementing appropriate regulatory and legal reforms that would facilitate the provision of Islamic financial products and services.
in the country. In December 2007, Paris Europlace, the organisation promoting the city's credentials as a financial centre, set up an Islamic Finance Commission. Since then, the French market regulator, Autorité des Marchés Financiers (AMF), has issued two positions allowing Shariah-compliant investment funds and sukuk listing, the Paris stock exchange has created a sukuk segment and four tax regulations (Murabahah, sukuk, Ijarah, Istisna) have been published, confirming a tax treatment on par with conventional operations.
In 2008, the French Ministry of Economy, Industry and Employment and the AMF announced significant tax and regulatory changes aimed at boosting Islamic finance in France. These changes relate to the listing of sukuk in France and the tax treatment of Islamic financial transactions so as to create a level playing ground. Later in 2008, France witnessed the establishment of the first Shariah Committee for Islamic finance which comprises members of Audit, Compliance and Research in Islamic Finance (ACERFI).In 2009, the amendment of Article 2011 of the French Civil Code relating to the formation of trusts was interpreted as an important step towards permitting the issuance of sukuk out of France.
Key players in France such as BNP Paribas, Societe Generale and Union de Banques Arabes et Francaises have been involved in Islamic financial transactions over the last ten years. However, these transactions have been relatively small corporate investment banking, trade finance and real estate financing deals. France has a stable and diversified real estate market and a total of USD3bln-worth of related Shariah-compliant transactions have been undertaken since 2005.
Three are large players which have a presence in France, namely National Bank of Kuwait (NBK), Tejerat Bank (TB) and Qatar National Bank. Conventional bank Credit Agricole also offers some Islamic products and services.
In 2011, Chaabi Bank, through its 17 branches across France, launched Islamic deposit account to its customers. The bank plans to open its Shariah-compliant deposit account to small- and medium-sized enterprises (SMEs), thus addressing a latent need of small businesses for Islamic banking products. Chaabi also aims to offer corporate finance and mortgage products by the end-2012.
Meanwhile, after postponing its plan to launch Islamic operations in France due to the financial crisis, Bahraini-based Al Baraka Bank plans to launch such operations during the first half of 2012 to cater to the retail banking requirements of the Muslims in the country. The group also plans to launch five branches which will be opened as subsidiaries in the form of joint ventures with selected French investors.
A recent survey by the French institute IFOP (sponsored by the Muslim association AIDIMM and consultancy IFAAS) shows a potential of 1.5 million customers for retail Islamic banking products, representing a EUR14bln (USD18.2bln) market -- EUR7bln (USD9.2bln) market for savings products and a EUR7bln market for financing products.
AMF's note published in July 2007 has allowed the possible creation of Islamic funds under French regulation. As at end-2011, USD147.2mln or 3% of European Islamic funds were domiciled in France.
Given the credit crunch and lack of liquidity to finance the economy, there is an opportunity for the French government to issue sukuk for monetary policy and fiscal management purposes and to support economic growth. The government could also issue sukuk to finance its infrastructure projects, namely highways and energy and sustainable development. In November 2011, Paris Europlace launched the French Sukuk Guidebook to assist those parties interested in learning about the possibility to issue or list sukuk in France whether using International Law or French Law.
La Compagnie Française de Conseil et d'Investissement & Associés said that it is about to distribute a Family Takaful fund in France. The actual launch of the product is expected in April, after the market regulators' approval, which might propel Islamic finance to the forefront of the public debate for the first time in France. The longer-term outlook for the industry remains positive, given that takaful is a viable alternative to conventional insurance.
Efforts have also been taken by the French government to promote and develop Islamic finance and make the country an Islamic finance hub of Europe. In line with this aspiration, there are a number of institutions offering Islamic finance programmes in France, including Reims Management School, Paris-Dauphine University, Grenoble, and French Institute for Islamic Finance. Reims Management School Group led the way, offering the first Certificate in Islamic Finance in France, entitled "Islamic Banking and Finance". The objective is to respond to increasing interest in Islamic finance by offering professionals and students the possibility to study how Islamic banks and capital markets operate. Apart from catering to the increasing demand for education, training and awareness in Islamic finance, this will also encourage innovation and drive the performance of the Islamic finance industry moving forward.
France has the largest Muslim population in Europe and in any western country, estimated at between 5% and 10% of the country's 65.6 million citizens. This alone presents an opportunity for the development and growth of Islamic finance in France. Given the country's large Muslim population and growing awareness for ethical finance, there are vast opportunities for France to play an active role in the Islamic finance industry. The country's large young population (64.7% is between 15-64 years old) and high ratio of urban population (85%) will continue to provide growth opportunities for Islamic banking and takaful segments.
For French banks and businesses more generally, the Islamic financial industry represents not only a major source of liquidity and finance but also a means of achieving strategic and symbolic differentiation through operational and geographical diversification, gaining a foothold in new markets and a springboard for targeted growth.
The development of Islamic finance will provide an opportunity for France to play a more active role in the field of Islamic finance in the region, as well as to tap excess liquidity and new markets from the Middle East. However, France will have to overcome some challenges which include:
- Changes in legislations to take into consideration the Islamic financial system will need strong political will and takes time to be accepted and implemented
- Lack of understanding and awareness of Islamic finance
© Press Release 2012
© Copyright Zawya. All Rights Reserved.
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