After several years of success in the UK and first attempts in continental Europe, Islamic banking is now about to enter the Austrian market. Islamic financing is said to be highly profitable: growth rates of 30 percent are predicted. So far, the roughly 400, 000 Austrian Muslims have no opportunity to invest their money in a “halal” way, but now the Austrian Standards Organisation has started to develop common standards for Islamic banking on behalf of the Islamic Information and Documentation Centre (IIDZ).
The process should be completed by summer 2010, when the first Islamic financial products are supposed to be available at Austrian banks.
Opportunities will increase for German Muslims to invest their money in a “halal” way. So far, Islamic banking is not available in Germany, although well established in the UK, where there is a smaller Muslim population. Now the banking supervision Bakin recently organized a conference on Islamic banking, and the first licence has been given out to an Islamic bank in Mannheim that will open in January.
Christian-Democrat local politician Reinhard Löffler praises the initiative. A believing Christian, he considers Islamic banking a potential third way between capitalism and socialism. The “ethical dilapidation” of the current banking system calls for innovative solutions.
Germany’s Muslims are finally getting a bank offering financial products that comply with Shari’a law. It is a market worth billions, and one that many major banks around the world have long discovered.
There are four million Muslims living in Germany. They eat, drink and pray in accordance with the precepts of the Prophet Muhammad. But when it comes to monetary transactions, the principles of the Koran have played hardly any role in Germany. That is about to change.
Early next year, the first Islamic bank in Germany to offer products that are in compliance with Shari’a law will open its doors. The bank, Kuveyt Türk Beteiligungsbank, will open a branch in the downtown area of Mannheim, a city in western Germany, and branches in other cities are also planned.
The regulators with Germany’s Federal Financial Services Authority, known as BaFin, recently issued a limited license to the subsidiary of a Turkish-Kuwaiti bank. It is only permitted to collect funds that are transferred to accounts in Turkey that conform to Islamic rules.
PCF (French Communist Party) member André Gerin has addressed a letter to François Fillon against changing laws to allow “Shari’a compatible” Islamic banking in France, claiming that accommodation is not appropriate and that this new banking calls into question “democratic and republican values.”
Le Monde reports that two laws which would have allowed for greater facility of Islamic banking have been censured in parliament. Two French banks, BNP Paribas and Calyon Crédit Agricole are already open in the Gulf States.
The first Islamic Finance created in France, Shariah Liquidités, has closed following a lack of satisfactory returns. Beginning a year ago in la Reunion as a subgroup of the Société générale, all 200 subscribers have been reimbursed.
Saving and investing in line with religious principles is important for many Muslims and an increasing range of financial products is now available to meet Sharia rules. There are 1.8 million Muslims in Britain and surveys show that about three-quarters are interested in the idea of running their savings and investments in keeping with principles laid out in the Koran. While Sharia products are in their infancy in the United Kingdom, the uptake is very rapid.
While trade and investment are encouraged, Sharia rules prohibit involvement in companies whose activities touch on a wide range of industries including alcohol, gambling, pornography, human cloning, arms and many forms of entertainment. Industries associated with pork are also out. However, the biggest difficulty for devout Muslims and those financial groups which aim to serve them is the principle of riba. Riba means that you cannot receive or pay interest, because Islam defines interest as a form of usury.
Interest is hard to remove from any financial transaction. The entire conventional banking industry, with products from mortgages through to credit-cards and deposit accounts, depends on calculating interest. The answer that Sharia-compliant accounts offer is to convert the interest normally paid into a form of profit or loss. Accounts or mortgages will often be marketed as offering competitive rates measured against non-Sharia, interest-based products, but the structure of the financial proposition is different. British banks have come up with a wide range of Islamic financial products such as accounts, mortgages, investment plans and credit cards, adapting to the strong demand among the Muslim population.
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The religion-based system’s attitude to risk stands it in good stead compared to Western banks.
Islamic finance is set to be a big winner in the current financial crisis, BDO Stoy Hayward said today.
The financial advisor claimed that the religion-based system retains large amounts of money available to borrowers. This is in contrast to mainstream lenders, many of whom depend on inter-bank loans for revenue and have therefore been forced to make cutbacks due to the frozen money markets.
Invented in the mid-20th century by muslims looking for a system of finance that was in-keeping with the tenets of their religion, Islamic finance also has a radically different attitude to risk than other forms of banking. Commonly, the system works on a “risk-sharing” model. For example, Islamic insurance works by policyholders paying into and claiming from a central pool, which is used by all – in contrast to the common Western model. With usury from loans banned by Islam, the leverage – or, more simply, the amount of money owed – by Islamic financial institutions also tends to be lower.
Speaking to FT Advisor Dan Taylor, head of banking at BDO Stoy Hayward, explained: “As the risk profile of Islamic Banks is generally lower than conventional western banks, this presents a more solid option for both retail and institutional investors and suggests that dealings with Islamic financial institutions will grow dramatically as people switch to more secure products in this environment.
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