IslamOnline.net & News Agencies

France's recently-announced readiness to clear hurdles to Islamic finance reflects a desire to jump on the wagon of the globally-booming industry, analysts believe.

"It's a strong signal and the players are listening," analyst Emmanuel Volland of the ratings agency Standard and Poor's told Agence France Presse (AFP) on Tuesday, July 22.

France has recently announced plans to adjust its economic and legal frameworks to accommodate Islamic banking activities.

Economy Minister Christine Lagarde has briefed Gulf investors on steps "to make (their) activities as welcome in Paris as they are in London and elsewhere."

The government is expected to announce fiscal and legal adjustments to accommodate the Shari`ah-compliant industry before the end of July.

The modifications will facilitate the issuance of Islamic bonds (Sukuk) and structured real estate transactions.

Islam forbids Muslims from usury, receiving or paying interest on loans.

Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

France, home to seven million Muslims, the biggest Muslim minority in Europe, currently does not offer Islamic banking services.

Challenges

Volland noted that Lagarde's address to the Gulf businessmen was "the first time that a representative of the state has said publicly that she is favorable to the development of Islamic finance."

Islamic finance is one of the fastest growing sectors in the global financial industry.

In defiance of the credit crunch, the global Islamic finance market has grown about 15 percent in each of the past three years, and is now worth about $700 billion worldwide. Its assets are predicted to grow to $1 trillion by 2013.

Renowned world banks like Citigroup, HSBC and Deutsche Bank, as well as financial capitals like London, Tokyo and Hong Kong, are all going into the Islamic banking business.

Analysts believe France wants a main share of the Islamic finance cake by attracting some of the Gulf-based investments currently flowing to London and other European capitals.

They maintain that France's road to establish a leading position in the Islamic finance industry would need more than fiscal and legal adjustments.

The government pronouncements "are not in themselves sufficient to ensure the blossoming of Islamic finance here," Anwar Hassan from the US credit rating agency Moody's told AFP.

He explained that Paris should not be content simply to reduce "legal or fiscal irritants" but should, for example, issue sukuk just as Britain plans to do next year.

Experts also believe that the challenge is not purely technical or limited to establishing an infrastructure receptive to Islamic finance.

Hassan says that convincing the French public of the soundness of Islamic finance would be a real test.

But he believes that offering Islamic banking would provide an attractive alterative to French companies currently penalized by increasingly costly bank credit.

The task, contends the expert, will be to show that Islamic finance offers "an ethical, modern finance alternative."