Britain and France lead on Islamic finance in Europe

Germany has been a desert as far as Islamic banking is concerned and analysts remain sceptical about the market potential for such products in Europe's largest economy.

Part of the reason is the majority of Muslims in Germany are of Turkish origin and relatively secular in outlook. Their relatively low income is a further factor.

"In Turkey, Islamic banks have a market share of just five percent, and that hasn't increased in 40 years," said Rebecca Schönenbach, an Islamic finance specialist at the Raven Centre, a think tank on the subject.

"The biggest hurdle in Germany is the low income of Muslims, which amounts to €500 (Dh2,305) per head per month on average. They don't have much left over to invest. And those who do save tend to invest their money in Turkey, in conventional ways."

In addition, Germany's tax system makes certain forms of Islamic finance unattractive. As Sharia forbids a bank from charging interest, property finance takes the form of the bank purchasing the property outright and selling it in portions to its customer at a slightly higher price.

Under German law, such a deal would be treated as two transactions and hence would be liable to property purchase tax twice, making it far more expensive than conventional mortgage banking.

Britain has modified its banking rules to give leeway to Islamic finance. Whether Germany will follow suit remains to be seen.

"The financial administration [in Germany] has done nothing to address the tax treatment of Islamic products," said Zaid El Mogaddedi, the managing director of the Institute for Islamic Banking and Finance in Frankfurt.

He pointed out Britain and France had done far more than Germany to promote growth in Islamic finance.

"German politicians have been very reticent in this respect and this is a special hindrance to the development of Islamic finance in Germany," said Mr El Mogaddedi.

"The UK and France are far more business-oriented and pragmatic and Germany is missing the trend to open up to the growing interest in Islamic Finance.

(The National / 06 Sept 2012)

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

France’s First Sukuk Hampered by Debt Crisis

Jan. 25 (Bloomberg) -- France’s efforts to sell the nation’s first Islamic bonds and attract Shariah investors from the oil-rich Persian Gulf are being hindered by Europe’s debt crisis as borrowing costs rise.

The euro region’s second-biggest economy, which put in place the legal framework to allow banks and other private issuers to sell Islamic bonds in 2009, had its top AAA credit rating cut by Standard & Poor’s on Jan. 13 on concern policy makers are failing to address the effects of the debt crisis. Yields on two-year French government notes have climbed 10 basis points since the one-step reduction, according to data compiled by Bloomberg.

“Just because the legal framework is in place doesn’t mean the economic and financial situation is conducive to an issuance of sukuk in France,” Jawad Ali, the Dubai-based global deputy head of the Islamic finance practice at law firm King & Spalding, said in a Jan. 19 interview. “Investors aren’t looking at Europe and saying there are a lot of opportunities. They are looking at Europe and saying there is a lot of uncertainty.”

The cost to protect France’s debt from default is almost twice that of Germany, the largest economy in the euro area and the only one to retain a stable outlook on its AAA status from, S&P.

(Bloomberg, 25Jan2012)

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