Studies in Islamic Finance, Accounting and Governance series
Edited by M. Fahim Khan and Mario Porzio
Chapter 11: The French Licensing Authority Faced with the Globalisation of Islamic Finance: A Flexible Position
Christophe Arnaud1 Under Islamic principles, Shari‘ah law (prescribed in the Qur’an) defines the framework within which Muslims should conduct their lives. The overarching principle of Islamic finance and banking products is that all forms of interest are forbidden. The Islamic financial model works on the basis of risk sharing. The customer and the bank share the risk of any investment on agreed terms, and divide any profits or losses between them. In addition, investments should only support practices that are not forbidden.2 Moreover, an Islamic credit institution3 is not permitted to lend to other banks at interest. Islamic banking assets have been growing at a rate of just under 20 per cent a year since 2000 and are currently worth about US$5000bn globally. The United Kingdom, where the Muslim population is three times less than in France, is home to five licensed Islamic banks, the only licensed ones in the European Union, and lists £5.5bn in sukuk, or Islamic bonds, on its stock exchange. Since 2003 the United Kingdom has been reforming laws to ensure that Shari‘ah-compliant investments are not prone to higher levies than their conventional equivalents. Up to 2008 in France, and although some financial institutions seem to be willing now to enter into a licensing process for this purpose, the development of Islamic finance has concerned mainly investment banking and not retail banking, but this situation could evolve: even though France has a Muslim population of about 6m, only a handful of French banks,...
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