The islamic finance and savings market - France

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.

Inforamtion

• Number of pages : 30 pages
• Format : Digital and PDF versions
• Last update : 22/02/2023

Summary and extracts

List of charts

• 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?"
• Strong emphasis on environmental and social issues by age group
• Anti-religious acts in France
• Is there a clear difference between Islam and Islamism?
• Share of the Islamic financial sector
• Participation of IDB member countries
• Breakdown of outstanding loans to individuals
• Breakdown of sharia-compatible fintechs
• S&P Global 1200 and S&P Global 1200 Shariah indices
• Number of SRI-labelled funds and total assets under management