Islamic finance in France offers strong potential, key obstacles persist

The French market presents a strong potential to become a thriving market for Islamic finance but has yet to capitalise on this opportunity, Moody's Investors Service said in a Special Comment. According to the rating agency, the obstacles relate less to the legal changes that would be necessary and more to social and political aspects.
"France's Muslims constitute the biggest Islamic community in the Western world and the major French banks have strong roots in the Muslim world. However, despite this, these institutions' share of the burgeoning Islamic financial industry remains negligible," said Anouar Hassoune, a Moody's Vice-President/Senior Credit Officer and author of the report.
"The French financial and banking system does not, as yet, offer access to a range of alternative products and services in line with Islamic principles, despite offering the necessary advantages to develop a thriving market as well as the potential to become a testbed for innovative ideas and techniques."
Moody's believes that the introduction of Islamic financial services would offer obvious benefits for the French economy in general and for French banks and businesses, not only as a source of liquidity and finance but also as a springboard for targeted growth and increased diversification.
"In addition, French law appears to be sufficiently flexible and open — give or take a few adjustments — to accommodate Islamic financial principles and products without any major upheaval. The example of the UK — and moves from foreign Islamic banks to apply for licences in France — shows that legal and fiscal adjustments can give rise to a thriving Islamic finance market," Hassoune observed.
Moody's explained that the main area of hindrance relates more to symbolic social and political aspects that, to date, mean that France has been unable to develop an 'industrial' version of Islamic finance. "On the one hand, France is seeking to attract surplus oil wealth from the Gulf region, but at the same time is running the risk of erecting barriers to establishing its own market for Islamic finance," Hassoune concluded.
The report describes the key legislative, regulatory, technical and commercial changes that would be necessary for the successful introduction of Islamic finance in France, as well as examining the social and political obstacles to be overcome and the lessons to be drawn from the UK's experience in this area.