Take-off delayed: Despite favourable demographics, France lags behind its European neighbours in the development of the Islamic finance industry. Photograph: Shutterstock.
Islamic Finance in France
November 30, 2014 | Updated at September 27, 2017
With approximately 5 million residents, France has a large Muslim population, more than any other European country, originating mostly from the Maghreb countries (Algeria, Morocco, and Tunisia). However, despite the favourable demographics, France is falling behind its European rivals in courting the Islamic finance industry. As the United Kingdom basks in the success of its maiden sovereign Sukuk issuance and other European countries (particularly Ireland and Luxembourg) showing similar commitment, many analysts are asking where is France, in Islamic finance? Researcher and French entrepreneur, Ezzedine Ghlamallah, explores Islamic finance in France and how the industry can penetrate the market.
Many people wonder why it seems so challenging to develop Islamic finance in France: this alternative finance, based on ethical principles and collaborative approach, in a market which has the largest Muslim population in the Western world, as a proportion of households.
The explanations can be multiple. First, there is a lack of political will, since the efforts of Christine Lagarde, when she was Minister of Economy and Finance in 2008. In fact, a real political will has been one of the main ingredients to the industry’s development, in all the countries where the Islamic finance has grown substantially: new laws, direct commitment via sovereign Sukuk issuance. Another factor is that the Islamic finance market is relatively underdeveloped in the countries of origin of Muslims in France: Algeria, Morocco, and Tunisia.
The strengths of the French market
The strengths of the French market are far from being negligible. Paying attention to the banking rate of French Muslims: they have great financial literacy. Also, 41% of French Muslims are "practitioners" (actively practice their religion), according to pollster IFOP, presenting an opportunity to the financial sector in the country to tap into an increasingly devout market. Another example of the vibrancy of the French market is that the halal food sector is estimated at Euro 5.5 billion (Paris Halal Trade show) - the social practice of Islam in France has evolved into the search for a friendly form of consumerism, based on universal ethics and values. An producer or manufacturer able to offer efficient and compliant products would have great opportunities for development. This emerging market in the field of halal economy may represent a significant opportunity for the development of Islamic finance and Takaful insurance in the country.
There are also two universities offering education in Islamic finance: Strasbourg University with an Executive MBA and Master’s; and the University of Dauphine with an Executive Master’s, supporting students and professionals from various markets in developing their understanding and knowledge in Islamic finance.
The legal framework is also becoming more conducive: for example, the French financial regulator - Autorité des marchés financiers (AML) – issued a statement on the development of the Islamic asset management industry in the country as early as 2007, noting that Mudabarah structures can be supported. The AML also authorized the purification process of asset managers’ (i.e. distribution of certain income to charities), provided that it was mentioned in the fund’s prospectus and their was transparency for the investors. However, it is natural that the French authorities underscore their position in relation to asset management, especially since the country is one of the largest players globally, in the sector. On taxation, the countries regulators and authorities have found that there was no need for changes to tax legislation, with Islamic finance products on parity with conventional products, ensuring the taxation is levied on the economic substance rather than form.
Moreover, insurance law includes statutes that are fully compatible with Takaful without it being necessary to further legislate or amend. France is ranked by Swiss Re Sigma (Journal) the fifth largest insurance market. The 2013 annual report of the French Federation of Insurance Companies (FFSA) reported Euro 188 billion of premiums across all markets in France. The global Takaful market represents Euro 11 billion in 2014 so far. If Takaful solutions were able to capture even 2% of the market, France will become the second largest market worldwide after Saudi Arabia. This would also be a great way to differentiate from London and Luxembourg who have made the choice to issue sovereign sukuk to attract middle-eastern investors.
These are all reasons why the European Central Bank said in a report published in June 2013 that Islamic finance seemed to have a good potential to develop in France.
Conclusion: A limited offer
Nevertheless, on the supply side, the products offered are very limited: one bank is now offering Shariah compliant financing operations. Indeed, the Chaabi Bank, a subsidiary of the French Moroccan bank offers a Murabaha solution for real estate financing and deposit accounts. Regarding insurance, there is no general Takaful solution. Only family Takaful solutions exist with two life insurance contracts: Salam of Swiss Life and Amâne Exclusive Life of VITIS LIFE.
To enable the emergence and development of a real market for Islamic finance and Takaful in France, it is necessary to invest in the creation and delivery of new products to meet the needs of the customers. Education will be key in demystifying the industry and providing further direction to its development in the country.