Despite its outstanding amount estimated at more than 2,800 billion dollars, Islamic finance only represents a little more than 1% of traditional finance. In other words, its activity remains relatively marginal.
This form of finance is essentially practiced in the countries of the Middle East which, with some 2,000 billion dollars, represent nearly 70% of its total outstanding amount.
In addition, over the past five years, there has been a significant acceleration in its outstanding. According to the Islamic Corporation for the Development of the Private Sector, this growth is not expected to slow down in the coming years. It estimates, in fact, that the financial outstanding of Islamic assets will reach 3,693 billion dollars in 2024.
What are its real prospects for the development of Islamic finance?
Islamic finance is not just for the 1.5 billion Muslims. Several Western countries are interested in it because it has interesting characteristics in terms of transparency and banking regulation.
On this point, the United Kingdom acts as a precursor. The Financial Services Authority has thus created standards for these new financial products and has opened a specific department dedicated to Islamic finance. In 2004, the Islamic Bank of Britain opened its doors, a first in Western Europe.
In Germany and France, which together have nearly 9 million Muslims, Islamic finance has yet to penetrate the traditional banking market. In other words, no large German or French bank offers its clients the opportunity to invest in so-called “Sharia-compatible” products, i.e. products that comply with Islamic law.
However, some initiatives have emerged. In Germany, the Turkish Islamic bank Kuveyt Türk has established itself in Frankfurt and other major German cities such as Berlin by marketing banking products such as “Sharia-compatible” mortgages.
In France, there is currently no Islamic bank stricto sensu. However, many “traditional” credit institutions now offer banking products and solutions that comply with the principles of Islamic finance.
What limits to the development of Islamic finance in the world ?
Despite encouraging development projections in the countries of the Middle East and North Africa, Islamic finance is still struggling to find an echo in Europe for several reasons.
All banking establishments marketing so-called “Sharia-compatible” products must be validated by an Islamic organization in charge of this control: the Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI).
However, the imprint of religious principles backed by Islamic products can be “embarrassing” in the process of integration and standardization of this type of product in the traditional financial system. As Ada Di Marzo points out (Les Échos, 10/12/2012), “The limits to the development of this activity today are rather linked to supply and not to demand”.
In addition, Islamic finance products that must take the form of financial products (conventional loans, term accounts and passbook accounts being prohibited), must, like each financial product marketed in France, have an authorization issued by the Financial Markets Authority (AMF).
Finally, in most European countries, the economic and social concerns linked to the public debt crisis, which the euro zone experienced, and that caused by the Covid-19 pandemic, seem to have pushed the question of the integration and development of Islamic financial practices within conventional banks.
Islamic banks would be more stable and efficient than conventional banks
An American university study published in September 2012 proposes to compare the efficiency and stability of Islamic and conventional banks. This study reveals in particular that the operating costs of Islamic banks are higher than those encountered in conventional banks.
However, they have superior financial intermediation services (proportion of services provided by financial intermediaries not invoiced to customers) and have better quality assets on their balance sheets. These last two elements partly justify the better resistance of Islamic banks in the face of the financial crisis.
In 2007, Lehmann Brothers Bank had a leverage ratio of 30:1. In other words, the amount of debt of the American bank was thirty times greater than the amount of its equity. At the same time, most Islamic banks operating in North Africa and the Middle East had a leverage ratio of 10:1.
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