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A growing demand for Islamic finance in Europe 17 November 2021

Kader Merbouh is the Director of the Islamic Business Center at Financia Business School. They recently established a partnership with the Al-Ghazali Institute from the Grand Mosque of Paris. We asked him about what this partnership signifies for the future of Islamic finance on the Old Continent.  

How would you qualify the demand for Islamic finance in Europe?

The demand for Islamic finance solutions in Europe could be qualified as a significantly untapped and undervalued potential market. As early as 2013, the European Central Bank indicated in a report that Islamic finance seemed to have good potential to develop on the continent. Indeed, with a potential market of 15 million people according to Pew Research Center, the strengthening of religious practice, and significant purchasing power as well as European law allowing freedom of establishment and the provision of services, there is no doubt that potential is present. With this socioeconomic data, we believe that even if the observed growth is slow, it is no less certain over time. The most daring and those who are able to position themselves first will benefit from a pioneering advantage in the European market for Islamic finance.

With such a wide population of European Muslims, demand for Islamic financial services used to be latent, implicit, and hidden. European Muslim communities used to have little information about Islamic finance and know little about it. With the development of the internet, information started to spread throughout the last decade and today, customers are much more aware of the availability of Islamic financial products in recognized Islamic financial hubs such as the GCC or Malaysia. 

Muslims in Europe have started to become more vocal in their demand for such products and their requests have become more explicit and better articulated. Having said that, in all Muslim communities around the world, analysts point to an interesting fact: about 20 percent of Muslim customers have a natural preference for Islamic financial products, even though such products are less price competitive and of worse quality; 50 percent tend to prefer Islamic products if and only if price and quality match those of equivalent conventional products; and 30 percent have little or no interest in Islamic financial services. The same would likely apply in Europe. Finally, it must be emphasized that the most desired Islamic financial product is a mortgage, in order to acquire (with Islamic financing) the family’s main house. Following that, holding an Islamic current account, an Islamic credit card, using Islamic insurance, and some Islamic savings solutions come next.

Companies are taking more and more seriously the social action of their financing. Is Islamic finance included in this movement of accountability?

Corporate Social Responsibility (CSR) is very relevant for Islamic financial institutions as there are a number of facets of Sharī'ah compliance that can be assessed from a CSR perspective such as donations to Islamic charities and interest-free loans. The relationship between CSR and the financial performance of Islamic banks has been examined by many researchers such as Mallin et al. who used a comprehensive CSR index covering ten dimensions on a sample of 90 Islamic banks operating in 13 countries. These authors noted good adherence to CSR in general as well as to the CSR elements of AAOIFI standards. The CSR Disclosure Index showed that Islamic banks engage in a whole range of social activities.

Islamic finance is a subset of ethical finance and therefore social action as well as accountability, responsibility, focus on the real economy, transparency, fairness in contractual dealings, balance and sharing are all embedded in the Islamic financial value proposition. Does this mean that Islamic financial is social by nature? The answer is no. A financial institution can be perfectly in compliance with Islamic principles without necessarily having a social focus or a clear CSR agenda. Islamic finance adheres to certain constraints, which are its 5 pillars: ban on interest, speculation, and unlawful sectors, plus profit-sharing and asset-backing. So long as one complies with these principles, one is deemed in compliance with Shari’ah. Having said that, we’ve seen a clear and recent trend whereby Islamic financial institutions, under the guidance of the Islamic Development Bank Group, increasingly focus their attention on impact financing, with social housing, access to food, education and healthcare, microfinance and microinsurance, infrastructure and water-related sectors rising high on the agenda.

How did this certification in Islamic finance that you offer come about?

We’ve been offering Islamic finance higher education and certificate programs in France for more than a decade now. It all started when French authorities, under the leadership of Mrs. Lagarde who the was the French Minister of Finance, wanted to see Paris grow as a major hub for Islamic finance in Europe, in order to compete directly with London, Luxembourg, and Dublin. This initiative did not survive President Sarkozy’s defeat at a later election and the initiative slowly vanished. 

We used to deliver these programs at a top-ranked university before transferring the program to Financia Business School in Paris.

We believe a business school is far better equipped, mentally and technically, to serve the executive education needs of our student constituency, which is more eager to learn usable, tangible, and on-the-ground Islamic financial concepts and techniques rather than going through more theoretical and academic learning experiences, somewhat detached from what is actually practiced in business. We are happy that Financia Business School was clairvoyant enough to launch such programs in Islamic finance, in the form of an MBA and an Executive MBA.

Specialized certificates in Islamic finance will be delivered in two places – Paris and Geneva – in tandem with the Al Ghazali Institute, itself attached to the Grand Mosque of Paris.

There is a “French touch” in the Islamic financial industry, which speaks pretty nicely to financial institutions established in French-speaking Muslim countries, especially on the African continent.

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