Summary of our market study

Islamic finance, a market that adheres to Sharia law prohibiting interest and funding illicit industries, has shown robust growth since the 2008 financial crisis, evolving rapidly with an annual expansion of 10-12% from 2010 and a significant surge to 17% growth by 2021. In 2020, despite the COVID-19 pandemic, the Islamic finance sector continued to grow, reaching assets worth €3633 billion. This market remains concentrated in Muslim-majority countries in the Middle East and Southeast Asia, with countries like Iran, Saudi Arabia, and Malaysia accounting for 95% of global assets.

Even though Islamic finance has established a presence in Europe, led by the UK with 5 licensed Islamic banks and other nations like Luxembourg and Germany issuing sukuks and hosting Islamic finance funds, France holds untapped potential due to its sizeable Muslim population of 8.8% as of 2017, expected to increase to 12.7% by 2050. However, France's development in this sector faces hurdles linked to public apprehension towards Islam and a limited understanding of Islamic finance principles. Despite these challenges, the Islamic finance market differentiates itself through a spectrum of Sharia-compliant products and has witnessed the rise of specialized fintechs catering to this niche demand while traditional banks have struggled to establish a foothold in France.

The Contemporary Landscape of Islamic Finance in France

Islamic finance, a sector born in the late 1950s and fashioned by the principles of Sharia law, has seen widespread adoption, particularly in regions with significant Muslim populations. As a segment that prides itself on risk-sharing, the prohibition of interest, and strict adherence to ethical financing, Islamic finance has burgeoned into a market with a remarkable growth trajectory. It has been embraced notably in the Middle East and Southeast Asia, with a compound annual growth rate (CAGR) reported at approximately 8 to 10 percent until 2026.

France, as the European nation with the largest Muslim population—estimated at 5.7 million individuals, representing approximately 9 percent of the population—exhibits sizeable potential for the Islamic finance market. This population is projected to approach nearly 13 percent by the mid-21st century. The inclination towards Islamic finance is notably pronounced among younger Muslims, a cohort increasingly determined to align their financial decisions with their faith. Moreover, the demand for transparency and social justice has seen an uptick within the broader French populace, paralleling the ethical tenets of Islamic finance. Over half of the French population now factors sustainability into their financial considerations, with the younger demographics showing an even greater predilection for socially conscious investments.

Despite the auspicious conditions, Islamic finance in France contends with societal challenges. The specter of Islamophobia, fueled in part by fear and political rhetoric, serves as a deterrent to the acceptance and growth of Islamic finance. Thus, even though many French citizens distinguish between Islam as a religion and Islamism as a political ideology, there exists a degree of hesitancy associated with financial products labeled as "Islamic." The structure of Islamic finance differs from conventional finance, with unique instruments such as Murabaha, Ijara, Istisna, Salam, Moudaraba, and Mousharakah substituting for traditional loans and interest-bearing accounts. The presence of Sharia Boards and the bank's role as an intermediary owner underscore the commitment to Sharia-compliant transactions. The dominance of Islamic finance remains in predominantly Muslim countries, with Saudi banks, such as Al Rajhi and Al-Inma Bank, and other Middle Eastern banks leading the fray. Despite efforts by French banks, like Crédit Agricole and Société Générale, to offer Islamic financial products, the market has yet to establish a robust foothold in France.

Key Players in the Islamic Finance Landscape

As the Islamic finance sector continues to flourish, several pivotal institutions and fintech platforms have emerged, each contributing uniquely to the industry's growth and catering to the demand for Sharia-compliant financial solutions. The entities described below stand out as mainstays in this specialized market, providing an array of services and products that align with the principles of Islamic finance.

The Islamic Development Bank (IsDB) At the forefront of the Islamic finance movement is the Islamic Development Bank (IsDB). The IsDB champions developmental projects and financing in Muslim countries and communities, upholding the principles of Sharia law in its financing structures. With membership limited to countries within the Organization of Islamic Cooperation (OIC), the IsDB has become a beacon for Islamic finance, boasting operating assets over US$16 billion and a substantial subscribed capital of US$70 billion.

Leading MENA Banks Middle Eastern and North African (MENA) region banks have established themselves as powerhouses in the Islamic finance market, leveraging their regional expertise and substantial assets to dominate the sector. Prominent banks include:

  • Al Rajhi Bank: Hailing from Saudi Arabia, Al Rajhi Bank makes its mark with substantial assets, distinguishing itself as a leader in Islamic banking.
  • Dubai Islamic Bank: As a prominent player based in the United Arab Emirates, Dubai Islamic Bank offers a comprehensive portfolio of Sharia-compliant products.
  • Kuwait Finance House: One of Kuwait's stalwarts, Kuwait Finance House, has positioned itself as a significant contributor to the industry.
  • Qatar Islamic Bank and Al-Inma Bank: Representing Qatar and Saudi Arabia respectively, these banks infuse the market with a variety of Shariah-compliant banking services.
  • Abu Dhabi Islamic Bank: Another key entity from the United Arab Emirates, this bank extends its Islamic financial services beyond regional boundaries.
  • Bank Al-Bilad and Bank Al-Jazira: These Saudi Arabian institutions further cement the nation’s role as a pivotal market for Islamic finance.
  • Al Baraka Banking Group: From Bahrain, this group operates with a network that facilitates Islamic banking transactions across borders.

French Contenders and Fintech Innovation

Despite their efforts to penetrate the Islamic finance market, French banks like Crédit Agricole, Société Générale, and BNP Paribas serve primarily Middle Eastern and Southeast Asian populations, with their Islamic finance operations in France remaining relatively marginal. Nonetheless, France is also witnessing the evolution of fintech in the Islamic finance market.

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Summary and extracts

1 Market overview

1.1 Definition and scope of the study

Islamic finance refers to a segment of the financial industry that specializes in offering financial products in accordance with Koranic law. Sharia law prohibits excessive risk, the concept ofinterest (riba), and the financing of activities deemed illicit, such as the market for alcohol, pornography, pork and pork by-products, and so on. Thanks to very specific legal and financial systems, Islamic finance today offers its customers a wide range of products.

Born in Malaysia at the end of the 50s, the Islamic finance sector is expanding rapidly in the Muslim countries of the Middle East and South-East Asia. In the wake of the 2008 crisis, banks' and organizations' interest in new financing methods led to a rebound in the sector's growth worldwide(10 - 12% annual growth from 2010). Today, market growth is even more sustained(17% growth by 2021), and the number of players is increasing.

Despite a solid foothold in Europe, mainly in the UK, Luxembourg and Germany, Islamic finance is struggling to find its place in the French market. Yet France is the European country with the largest Muslim population (8.8% of the French population) , and fintechs are multiplying to offer customers halal products. The relaxation of the legal framework in the wake of the crisis, encouraged by some of the country's political figures, has given this segment of the finance industry its first wind. But fear of Islam remains the main obstacle to the development of Islamic finance and savings.

Today, the development of sustainable finance and growing public interest in the fight against global warming are forcing the financial sector to reinvent itself. Responsible investment funds are proliferating, emphasizing transparency, respect for the environment and social justice. These are precisely the values promoted by Islamic finance. So the craze for ecologically and socially responsible products is a double-edged sword: a potential new clientele as well as new competitors.

1.2 A growing global market

A market gaining in value

In ****, Islamic finance represented more than *,*** billion euros in assets worldwide, or *% of all financial assets. This market experienced sustained growth at the turn of the century (***), and particularly over the last two years[***]. The market is expected to grow at a CAGR of *.*% until ****.

Global ...

1.3 The European market

The European market for Islamic finance is not yet highly developed. However, a number of European countries have positioned themselves sooner or later to meet growing demand. This is particularly true of the United Kingdom, which set up its own Islamic bank in **** Islamic Bank of Britain, which became Al Rayan ...

1.4 The domestic market

Estimating the national market

It is difficult to give an estimate of the Islamic finance and savings market in France. The latest figure dates from ****, and estimated the potential French market at *** billion euros, including * billion in savings from the general public[***]. Nevertheless, other data can be used to estimate a ...

2 Demand analysis

2.1 The Muslim population, driving demand

The Muslim population in France

Islamic finance, like Islamic savings, was created with the aim of ensuring an economic order in line with Islam and its rules. In this sense, it is aimed above all at Shariah-compliant individuals, i.e. the Muslim population. In order to assess the demand for Islamic ...

2.2 The attractions of transparency and social justice: a new clientele?

Islamic finance and savings offer products that respect the rules of social justice and transparency: loss sharing, prohibition of chance or interest... These criteria are similar in many respects to the ESG criteria of finance. Today, so-called green finance is booming in popularity, and more and more French people want to ...

2.3 French people still reluctant, fear of Islam

Numerous initiatives and attempts to develop Islamic finance were supported by French authorities and politicians, particularly at the time of the **** crisis. Such was the case with Christine Lagarde, then Minister of the Economy, who relaxed the legal rules governing Islamic finance to encourage its development. Nevertheless, the French remain wary ...

3 Market structure

3.1 Islamic finance sectors

The Islamic finance market can be broken down into * sectors:

Islamic banking , which accounts for **.*% of Islamic finance assets. The capital market, which accounts for **.*% of assets and is the fastest-growing sector: **.*% by ****. The insurance market, known as Takāful, which represents a small share of the market: *.*%.

Share distribution of ...

3.2 A specific value chain

Although the overall structure of the market is similar to that of conventional finance, some players play a different, even new role in the sector. Islamic finance has seen the emergence of Shariah Boards, responsible for ensuring product compliance. Banks (***) also play a different, more engaging role.

The Shariah Board, a ...

3.3 The main market players

The Islamic Development Bank (***)

Like many other multilateral development banks, the Islamic Development Bank (***) is a prerequisite for joining the IDB[***].

Participation of IDB member countries World, ****, in Source: ****

The IDB's various activities are based on financing structures that comply with Koranic laws, and the organization presents itself as a leader ...

4 Offer analysis

4.1 Sharia-compliant products

The main products of Islamic finance

Conventional finance and savings are based on the principle of monetary interest. This principle, known as Ribâ in Arabic and referring to usury, is formally prohibited by Sharia law. With this in mind, Islamic financial systems have developed precise mechanisms to circumvent these prohibitions. These ...

4.2 Focus on Islamic vehicle financing

Estimating the number of potential customers

To estimate the size of potential demand, we look at the car credit market in France. In ****, ** million French people claimed to have at least one consumer credit outstanding[***]. We can therefore estimate the demand for car loans in France as follows: *.** * ** = *.* million French people ...

4.3 The failure of the big banks and the deployment of online platforms

Big banks in trouble in the Islamic finance segment

Several major banks entered the Islamic finance sector after the **** crisis, as it offered interesting prospects and an alternative to conventional finance. However, while a number of banks now offer Islamic financial products, many have abandoned their activities in the sector due ...

4.4 Financially attractive products

Islamic finance and savings products appear to offer higher returns than conventional financial products. In fact, Standard & Poor's has developed the S&P Global **** Shariah Index, alongside its S&P Global **** index. This index includes all the Shariah-compliant components of the S&P Global ****. The S&P Global **** represents around **% of ...

4.5 Competition from environmentally and socially responsible funds

Socially and ecologically responsible funds are rapidly multiplying in France to meet an increasingly concerned demand. These funds are increasingly competing with Islamic finance funds, as they target an identical segment of the population (***) albeit a broader one, since the target population is not originally linked to a religious cult. So, ...

5 Regulations

5.1 Fundamentals of Islamic finance

Islamic finance is based on Sharia principles. Among the most important are

Prohibition of interest-bearing loans (***). Prohibition of excessive risk (***): transparency is at the heart of Islamic finance. Activities directly linked to activities with unknown values and outlets linked to chance and speculation are prohibited. Underlying real assets: Islamic finance, unlike ...

5.2 Financial regulations

Tax breaks following the **** crisis

On December **, ****, a number of tax breaks were introduced in France to encourage (***) and the tax deductibility of sukuk remuneration" [***]. The aim was to attract investment from the Middle East.

Full information on the tax treatment of Islamic finance products (***) is available here: bofip.impots. ...

6 Positioning the players

6.1 Market segmentation

  • Société Générale
  • Crédit Agricole Groupe
  • BNP Paribas Banque Privée

List of charts presented in this market study

  • Global Islamic finance market
  • Global assets in Islamic finance
  • Share of Muslim population
  • Muslim religion in France
  • "How important are environmental and social impacts in your investments?"
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Société Générale
Crédit Agricole Groupe
BNP Paribas Banque Privée

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