Can France become new Islamic finance hub?

Islamic Finance

France is seeking to dislodge London and become Europe's new centre for Islamic finance, driving to attract billions in investment from Muslim countries.

The French government has recently approved changes to legislation to allow Islamic "sukuk" bonds to be issued and the Qatar Islamic Bank has applied to be the very first bank to begin activity in the reformed French system. It has come as a surprise to many that it has taken this long for France to make the necessary changes, offering products that comply with Sharia law and meet the needs of big investors mostly from Gulf countries, as it is home to Europe's largest Muslim minority. However, this hasn't stopped some criticism emerging over the decision.

"When rich Muslims are concerned, we welcome them. But when they are poor, we put them on planes and deport them. This is all very upsetting," said Socialist deputy Henri Emmanuelli.

Despite failing in its attempts to raise enough votes to veto the bill, French Socialist opposition is challenging the legality of the new legislation on Islamic finance before the Constitutional Council. "We must not allow principles of Sharia law, or the ethics of the Koran to be introduced into French law," said Emmanuelli. There are concerns that some of the regulations within Sharia law, such as not charging interest and not permitting investment in companies involved in alcohol, gambling and tobacco is strictly off limits, will harm the French economy.

France's far-right National Front has also denounced Islamic finance as a "community-based peril" resulting from immigration.

But supporters of the changes insist that money raised through Islamic finance could help spur France's nascent recovery with tools that are seen as financially sounder than the high-risk derivatives that led to the global financial crisis. Some industry analysts believe that France could tap into 120 billion euros in capital from Islamic finance by making adjustments to its tax and banking laws.

Elyes Jouini, an author of a report presented to the French government last year, said, "There are extremely important financial reserves in Gulf countries and south-east Asia and these countries are ready to invest anywhere but they have specific rules in terms of ethics and in terms of the choice of investment."

"If France wants to attract this capital to its economy, it must offer the possibility for these investors to do so according to the rules of Islamic finance."

Announcements could be made this week by French Finance Minister Christine Lagarde on promoting Islamic finance in the French economy, at a major conference in Paris.

But the news comes as a parliament task force was looking at measures to ban the wearing of the full Islamic veil in France, suggesting that the French government would be well advised to take more care over the message it is trying to convey to the Muslim world.

28/09/09

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