Europe's Approach to Islamic Banking: A Way Forward - Wbiaus.org

TrakicFurthermore, Al-Mogaddedi (2008), president of Islamic Banking and FinanceInstitute in Frankfurt, is of the view that Germany has tremendous potential fordevelopment of Islamic banking and finance, but the obvious obstacle is the presentGerman legal and financial system which is not yet ready to accommodate Islamicfinance. He further states that German banks have been engaged in Islamic bankingand finance but predominantly outside Germany. The best examples are DeutscheBank that has been issuing “sukuk” together with Saudi Arabian banks since 2005 orDresdner Kleinwort which is subsidiary of Dresdner Bank, operated in Bahrain in2007.France is the European country which hosts the biggest Muslim population inEurope, of approximately 5 million. Unfortunately, the Islamic banking and financehas simply been left out from the agenda. Some of the Islamic bankers are of theview that one of the reasons for very poor initiative for development of Islamicbanking products by Muslim population in France is that majority of the Muslimpopulation represents working class whose basic banking needs are satisfied byconventional French banks. On the other hand, some scholars are of the opinion thatthe main obstacle for the introduction and development of Islamic finance in Europeis the constant reluctance by the central bank, Banque de France, to issue licensesto Islamic banks since they operate their banking business on the different basisfrom their conventional counterparts (Cowan, 1996).Nevertheless, recently the French government changed its attitude about Islamicbanking and finance due to the fact that Islamic banks have been left out almostuntouched by the global financial crisis. Another reason that has driven Francetowards Islamic banking and finance is their wish to attract foreign investments. Inother words, France wants to become the European hub for Islamic banking andfinance for two reasons, namely to suit the needs of large local Muslim populationand to attract the big investors from Gulf countries. The then French FinanceMinister Christine Lagarde (now Head of International Monetary Fund) has openlydeclared that Paris has a huge potential for Islamic banking and finance and not onlyLondon. In line with that the French parliament has already approved certainadjustments to banking laws in order to allow the competitive development of Islamicbanking and finance. This of course did not pass without strong criticism from somepoliticians who are accusing the French government of introducing Islamic law intotheir own French legal system. However, those are certain minority views andIslamic banking and finance is paving its way ahead in France. In light of that,Islamic Bank of Qatar is the first bank that has applied for license to operate Islamicbanking and finance in France.7. ConclusionThe current EU legal regime is not suitable for the incorporation and operation ofIslamic banks. A credit institution, by virtue of its definition under the EU Directive2006/48/EC (European Banking Code), cannot accommodate the definition ofIslamic bank. The national laws of many EU countries are not Islamic bankingfriendly. The legislators, at both EU and national level, should amend the laws to suitthe needs of Islamic banks, or at least, they could make some concessions for theIslamic banks. A successful example, where the legislators at the national level didmake some legislative amendments to place Islamic banking industry at the level30