2020 has been a challenging time for Islamic finance in France. The sector had to face the COVID-19 crisis at the beginning of the year, and more recently, had to bear the government’s thesis of anti-separatism, meaning no business for Muslim individuals as customers per se. Yet, two main market segments remain active in the French market: home finance and life/death insurance.
Review of 2020
There is no correlation thus far between the growing French Muslim population, putting more graduates and potential savers on the job market and the rise of the Islamic finance sector in France, especially when compared to the UK — three million Muslims in the UK vs. six million in France — yet there are many more providers, banks, funds, asset managers in the UK compared to the handful of players in France.
Up to 80% of French Muslims have declared that they prefer eating Halal food and they participate in Friday prayers in mosques (source: IFOP). The level drops to 57% when it comes to expressing an interest in an alternative option for their savings, as they all have an account in a conventional bank. (source: AIDIMM).
In practice, there are a mere 10,000 retail clients who benefited from Islamic finance products overall in France, which is a huge gap from the potential of one million customers that market studies infer to.
We suggest that a good proxy to understand the French market trend is not comparing to any European countries but to a North African country to better grasp what is at stake and what type of timeline we should have in mind.
Home finance in France (comparison with Morocco)
There are eight participative banks that operate in Morocco, all of them offering home mortgages through a network of around 150 retail agencies with north of 80,000 client accounts. In France, it is mainly Chaabi Bank with its network of 18 agencies that directly offer an account and a home finance solution, along with the fintech platform, 570easi and its four branches (including the overseas territory in Réunion Island). Since 2014, around EUR250 million (US$296.14 million)-worth of mortgages have been distributed to circa 1,500 families, compared to the EUR500 million (US$592.28 million) originated by Moroccan banks in less than three years — a volume twice as large in half the time.
It is quite easy to understand if we relate the success of such markets to the strength of their distribution network and diversity. There are 6.5 times more Islamic branches in Morocco than in France, and also the fact that a whole ecosystem is in place throughout Morocco, with full banks participating in the evolution of regulation in cooperation with the central bank. The gap is actually not that great if you factor in the size of the market on the demand side and on the supply side: it should have been by a factor greater than 10!
Markets tend to follow simple rules: the demand and supply law, and the deeper the network, the more virtuous the cycle goes. The UK actually crossed the one billion Islamic mortgage size a long time ago, from the feats of one large player, HSBC Amanah, which exited the market a couple of years ago, leaving the local market open for the only fully-fledged Islamic retail bank, Al Rayan UK, whose mortgage book is half the size of HSBC’s and with its Tolkien RMBS Sukuk issued in 2017 raising GBP250 million (US$330.89 million).
Preview of 2021
Mortgages in the form of a true sale Murabahah are provided on average with a 30% downpayment taken from clients’ savings accounts (circa EUR80 million (US$94.76 million)).
In addition, more than EUR10 million (US$11.85 million) has been collected by the only sustainable and responsible investment Shariah compliant property fund available in the market, managed by Norma Capital and distributed by 570easi and its network (agencies, franchises and intermediaries). Despite the relative growth of the retail mortgage and savings segment, Takaful companies have been quiet and most of the local initiatives have faced some development issues (ie Swiss Life).
Fortunately, some start-ups are taking the lead in promoting new life/death Takaful:
• Death coverage by SAAFI and MUTAC, and
• A life insurance product based on a robo-advisory smart allocation by Conexcap (see IFN Volume 17 Issue 35)
Another major area for development is pensions, especially in the context of the PACTE Law, a French bill that creates a state-of-the-art unified regime for savings plans, including private pensions discussed in a previous IFN article.
A good test for the French market is the capacity of decision-makers to work in cooperation with start-ups. Interesting alternatives are emerging in the payment and neo-bank space, and in the insurance industry as well. And whether the mortgage or savings segment will get the scaling effect is still to be observed.