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Summary of our market study
Islamic finance, a sector that emerged in the late 1950s, adheres to Sharia law, which prohibits interest and the financing of illicit industries. It has been expanding at an annual rate of 10-12% since 2010.
In 2020, the Islamic finance sector reached assets worth 3633 billion euros.
The market remains concentrated in Muslim-majority countries in the Middle East and Southeast Asia.
Islamic finance has established a foothold in Europe, notably in the UK with 5 licensed Islamic banks, and in other countries such as Luxembourg and Germany, which issue sukuks and host Islamic finance funds.
France has untapped potential due to the size of its Muslim population (8.8% in 2017, expected to reach 12.7% by 2050).
France's development in this sector faces obstacles linked to the public's apprehension of Islam and limited understanding of the principles of Islamic finance.
There is a certain reticence about financial products described as "Islamic". The structure of Islamic finance differs from that of conventional finance, with unique instruments such as Murabaha, Ijara, Istisna, Salam, Mudaraba and Musharakah replacing traditional loans and interest-bearing accounts.
Key players in the Islamic finance landscape
Leading banks in the MENA region Banks in the Middle East and North Africa (MENA) region have established themselves as powerhouses in the Islamic finance market.
Among the most important banks are
- Al Rajhi Bank: from Saudi Arabia
- Dubai Islamic Bank
- Kuwait Finance House.
- Qatar Islamic Bank
- Al-Inma Bank, Saudi Arabian bank.
- Abu Dhabi Islamic Bank
- Bank Al-Bilad and Bank Al-Jazira: Saudi institutions
- Al Baraka Banking Group: Bahraini origin
Despite their efforts to penetrate the Islamic finance market, French banks remain marginal.
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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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