Islamic “Shariah-Compliant” Banking Takes Root in Europe by Soeren Kern
http://www.hudson-ny.org/2130/islamic-shariah-compliant-banking-europe
The European Union is emerging as a major center of Islamic finance, based on Islamic Shariah law, and which critics say amounts to “financial Jihad” by Islamists intent on Islamifying the West.
The spectacular growth prospects for the Islamic financial services industry in many European countries is being fuelled by Muslim mass immigration; despite a difficult economic climate on the continent, Islamic banking is growing faster in Britain, France and Germany than it is in many Islamic countries in the Middle East and Asia.
The key role that Europe is playing in establishing Islamic finance in the West was the central theme of the 8th Islamic Financial Services Board Summit, an annual conference that promotes Islamic banking around the world. Hosted by the Central Bank of Luxembourg from May 10-13, 2011, it was the first time the event was held in a European country.
Proponents of Islamic finance depict the Islamic banking system as a morally superior alternative to the Western banking model. Structured around a strict code of ethics and based on the Koran and Islamic Shariah law, Islamic banking is (in theory) supposed to make it possible for Muslims to conduct financial transactions while observing Islamic prohibitions against charging interest (riba), risk or uncertainty (gharar) and/or investing in forbidden (haram) products and activities such as alcohol, entertainment and gambling.
Critics of Islamic finance, however, point out that although there are some practices in conventional capitalist finance that do not involve charging interest (for example, venture capital or investing in stocks) or risk or uncertainty (for example, investing in government bonds), it is impossible to have a financial and banking system that avoids both. As a result, much of contemporary Islamic banking is shrouded in a variety of deceptive legal fictions and subterfuges (hiyal) that enable Muslims to engage in business transactions that circumvent and evade Shariah prohibitions on interest.
Because of this, critics say the expansion of Islamic finance to the West is primarily a political strategy, one that has a highly ominous objective: It is designed to legitimate and institutionalize Shariah law (a religious legal code that is diametrically opposed to Western values) in the West. One of the main aims is to shield Muslim communities in the West from mainstream society, and to create Islamic parallel societies controlled by Shariah in Western countries, as well as to attract ever greater revenues with which to promote the expansion of Islam.
The profits derived from Islamic banking operations in the West are often funnelled into Islamic charities linked to Islamists at war with the West. The Islamic concept of zakat demands that a tax of 2.5% of revenue be donated to Islamic charity. Among the eight categories of individuals who are eligible to receive zakat are “fi sabil Allah,” an Arabic expression meaning “in the cause of Allah.” It is a term often used by Jihadists (holy warriors) proclaiming a “jihad fi sabil Allah” or “struggle for the cause of Allah.”
The Islamic finance industry is valued at $1.14 trillion and growing at a rate of 10% a year, according to the Global Islamic Finance Report 2011. Britain has emerged as ground zero for Islamic banking in Europe, and London as the main center for Islamic finance outside the Muslim world.
With $19 billion in reported Islamic banking assets, Britain’s Islamic finance sector ranks number one in Europe, and number nine in the world; it dwarfs those sectors of some states where Islam is the main religion, including Pakistan, Bangladesh, Turkey and Egypt, according to a new report titled “The City UK Islamic Finance 2011.”
More than 20 banks in Britain offer Islamic finance products; and there are five British Islamic banks. Islamic funds managed in Britain have combined assets of $300 million. In addition, there are 55 colleges and professional institutions offering education in Islamic finance in Britain – more than anywhere else in the world.
The growth of Britain as a center for Islamic finance has been helped in recent years by the British Government, which has extended tax relief on Sharia-compliant mortgages to companies and has eased the trade in Islamic bonds known as sukuk. There were five Sukuk listings at the London Stock Exchange (LSE) in 2010 and one in early 2011, bringing the aggregate total at the LSE to 31 listings worth nearly $20 billion.
France, which has the largest Muslim population in Europe, has implemented a series of tax and legislative changes to boost the Islamic finance sector. Although French banks control only a negligible share of the Islamic banking sector, the French government believes the sector in France is worth up to €120 billion ($170 billion) and hopes Paris will take 10% of the global market by 2020.
These plans have run into some political opposition. In October 2009, the Constitutional Council, France’s highest court, threw out an amendment that was tacked on to a draft bill on the financing of small firms to give legal rights to holders of sukuks “to conform with the ethical principles of Muslim law or Shariah.” Critics said it amounted to the “the introduction of Shariah into French law.”
But in September 2010, the French government issued a series of new instructions (here, here, here and here) to facilitate the introduction of Islamic financial products. French Finance Minister Christine Lagarde said the introduction of these new instructions “marks an exciting new beginning for Islamic finance in the republic.”
In May 2011, the Dubai Export Development Corporation conducted an Islamic Financial Services Trade Mission to France. The Trade Mission included leading UAE companies in all areas of the Islamic Financial sector from advisory firms and specialists in structuring of products to Shariah scholars and investment banks.
Meanwhile, France has launched two graduate degree programs in Islamic Finance, one at the University of Paris and the other at Strasbourg University.
In Germany, which has the second-largest Muslim population in Europe after France, the potential for Islamic finance is huge. Germany’s 4.3 million Muslims, three-quarters of whom are below the age of 49, hold an estimated wealth in excess of €35 billion ($50 billion).
One of Germany’s biggest banks, Deutsche Bank, in June 2006 announced a joint venture with Ithmaar Bank of Bahrain and Abraaj Capital of Dubai to launch a $2 billion Shariah-compliant financial fund. In October 2009, Germany’s banking regulator, the Federal Financial Services Authority (BaFin), sponsored the first-ever Islamic finance conference in Frankfurt-an-Main. It also issued a banking license to Kuveyt Türk Beteiligungsbank (KTB), making it the first stand-alone bank to operate under Islamic banking principles in that country.
In February 2011, STOXX (owned by the Deutsche Börse) launched three Shariah-compliant indices in Europe. The new indices — the STOXX Europe Islamic Index and its two blue-chip sub-indices, the STOXX Europe Islamic 50 and EURO STOXX Islamic 50 – are designed to measure the performance of Shariah-compliant companies selected from the STOXX Europe 600 Index. The index will be supervised by three Shariah scholars. To be included in the index, stocks must pass two sets of screens.
In a first step, all companies with significant activity in one of the following sectors or activities are removed: non-halal food production; tobacco; alcohol; gambling; advertisement; hotels; non-Islamic banks, financial institutions and insurance companies; entertainment and music production; trading of gold and silver, as well as weaponry and arms manufacturers. In a second step, financial ratios of the remaining companies are screened: income from interest and non-Shariah compliant activities cannot exceed 5% of the company’s total income.
Belgium has held negotiations with the Nation of Brunei in its quest to establish a niche market in Islamic finance. According to Marc Deschamps of Belgium’s Foreign Trade and Investment Agency (AWEX): “Belgium will have to find a niche in the industry and we think that its private equity or more specifically, Islamic venture capital. Venture capital is part of conventional finance which is closest to Islamic and Shariah principles. In that context, Islamic venture capital should be a kind of product to launch through Belgium.”
In Italy, the government has produced a series of detailed market studies to promote Italy as a viable market for Islamic finance. The First European Forum on Islamic Finance was held in Milan in December 2009. This two-day event was designed to kick off a series of conferences in European capitals aimed at the creation of a European platform for Islamic finance.
In Sweden, the Export Credit Corporation said it may issue Islamic bonds or tap other Shariah-compliant financial instruments to boost trade with Saudi Arabia, its biggest trade partner in the Middle East and Africa. In May 2010, the Swedish Trade Council organized an Islamic finance delegation to Saudi Arabia to enable Swedish players within the financial services sector to get an understanding of business opportunities and meet directly with key players in the Saudi Arabian Islamic finance sector.
In Spain, where the unemployment rate has reached a staggering 21%, the Socialist government has been looking to Islamic finance as a means to promote investments from Muslim countries. In June 2010, the Madrid Stock Exchange hosted the First Conference on Islamic Finance in Spain to examine the “solutions Islamic finance offers for public and infrastructure projects through public-private partnership.”
In March 2009, the Instituto de Empresa business school launched the Center for Islamic Economics and Finance (CIEF), in collaboration with King Abdulaziz University in Saudi Arabia. The objective is to promote Islamic banking and finance in Spain and other European countries. CIEF Director José Luis Pérez Estévez says the center “makes a lot of sense in Europe” as it will let people know about the “ethical” financial system.
He said that at present, Europe’s knowledge about Islamic finance “is very limited,” hence “a lot of lessons could be applied.”
They could.
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