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Monday 3 September 2012

Islamic Banking Knocks Germany’s Doors



CAIRO – Turkey's Kuveyt Turk investment fund plans to open the first Islamic bank in Germany in October, amid hopes of overcoming the bad effects of the ongoing euro crisis and get a share of the successful Islamic banking pie.
"The idea of an Islamic bank is that it adheres to Islamic investment guidelines and principles," Zaid el-Mogaddedi, founder and director of the Institute for Islamic Banking and Finance (IFIBAF) in Frankfurt, told Deutsche Welle on Saturday, September 1.
Istanbul-based financial institute Kuveyt Turk would open the first Islamic bank of its kind in Germany next October.
Germany Tastes Islamic Finance
The bank was introduced as many Europeans hope to sign on to a banking institute that offers only transactions backed by tangible assets rather than highly speculative financial management which caused the ongoing euro crisis.
"You have to see that it in the Islamic financial system are also mechanisms that mimic the interest rate effect - though it is not the same," said Martin Schulte, an Islamic banking expert at the Association of Foreign Banks in Germany.
"Money is fruitless, that is to say that simply transferring money does not create economic value," he said.
"It is a medium of exchange, which itself has no economic power."
Conventional banking, however, is partly based on the concept that lending money is a service in itself that is worthy of compensation.
"But in the Islamic understanding it is possible to develop products that are economically useful and complement the conventional banking business from a macro perspective very well."
Islam forbids Muslims from usury, receiving or paying interest on loans.
Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.
Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.
Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.
Failing?
Introduced years ago in different European countries, experts hope German new Islamic funds to be more successful than that of UK and France.
"The decisive point will be whether the Islamic banks offer an attractive product portfolio and good services," El-Mogaddedi from the Institute for Islamic Banking and Finance, said.
Also “whether the communication is clear enough to bring Muslims and non-Muslims to the bank as an attractive alternative,” he added.
A study published in 2012 by the Stresemann Institute found that "Islamic finance" had failed in European countries because Muslim customers had lower income levels and thus little investment potential.
But El-Mogaddedi said the failure of Islamic financial products in Europe came down to bad marketing.
Staying reluctant for years to taste the booming industry, an Islam-conform investment fund was established in Germany in May 2012 by the Malaysian asset manager CIMB Principal.
The fund was approved by the German Financial Supervisory Authority (BaFin).
Germany has between 3.8 and 4.3 million Muslims, making up some 5 percent of the total 82 million population, according to government-commissioned studies.
The new Islamic finance targets Germany’s roughly 4 million Muslim residents, along non-Muslims.
Islamic banking is one of the fastest growing financial sectors in the world.
Islamic financial products got their first major boost after the 9/11 attacks on the United States.
Many Arabs withdrew their money from the US at the time, and some of those funds, according to Abdullah, ended up in Malaysia and the Gulf states.
A second boost came during the international financial crisis, when Islamic financial products actually showed profits.
The Dow Jones Islamic Market Titans Index, which tracks the 100 biggest Islam-compliant businesses in Europe, the US and Asia, has nearly doubled over the last five years.
The Shari`ah-compliant system is now being practiced in 50 countries worldwide, making it one of the fastest growing sectors in the global financial industry.
Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets amounting to $1.6 trillion (1.2 trillion euros).
(On Islam / 01 Sept 2012)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

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