Islamic banking was first launched in Germany and in the eurozone in 2015 when the Federal Financial Supervisory Authority, BaFin, granted a full banking license under German law for the provision of deposit and credit business to KT Bank, the first bank with a Shariah compliant business model in the region. Despite the strenuous political climate in the country, driven by increasing right-wing tendencies and the refugee crisis, the market responded enthusiastically and was immensely curious of this then-unknown faith-based banking model. The media exposure about the pioneering first Islamic bank, with a well-known Turkish-Kuwaiti background, amounted to more than 1,500 publications in leading national news and business media. The bank itself registered an incessant flow of client inquiries.
The introduction of Islamic banking in a country like Germany seems to respond to needs arising out of the increased influx of Muslim immigrants. Germany, with its current Muslim population of around 4.7 million, is, alongside France and the UK, classified as one of the predestined western key markets for Islamic finance. During the last three years of operational business development and analysis of its value-based methodology, it became apparent that Islamic banking does not only fulfill the requirements of the Muslim community, but also the ethical standards of the majority of German society. The Shariah compliant finance model is currently being established as a new field of socially responsible investment (SRI), which is in high demand after the financial crisis. European markets are becoming increasingly aware of the universally ethical qualities of Islamic banking’s Quran-based values, thus attracting value-conscious clients of all beliefs.
Review of 2017
In 2017, KT Bank officially declared the completion of the founding and establishment phase of the bank in the German market after two successful years of market introduction. The bank’s key topics in 2017 were the achievement of a growing client base of Muslims and non-Muslims, an 80% asset growth and the further optimization of the process management as well as the development of the retail, corporate and institutional product portfolio and up-to-date services.
A focus was set on product competitiveness and diversity from advancing the variety of deposit products to offering refined Shariah compliant import financing products, which saw an increased demand from importers in the Halal food industry. The strategic enhancement of online infrastructures like account opening and the mobile banking app was also one of the main topics of the bank in 2017. Foreign currency transactions with major currency pairs and excellent exchange rates were introduced, and Germany’s upward trend in the property market increased the call from GCC investors for Shariah compliant real estate opportunities. 2017 was also the year of expansion of Islamic banking to North Rhine Westfalia, which is the German federal state where most Muslims live. In addition to the three branches in Frankfurt, Berlin and Mannheim, KT Bank also opened its fourth branch in Cologne which is soon to be expanded.
Further, the historically low interest rate boosted the general appeal for investments into participation accounts, which had their profit-loss sharing scheme in the participation pool updated in 2017, in favor of longer terms and higher amount deposits and thus in favor of the client. The profit rates were, and are still, outperforming those of the conventional fixed deposit sector, thus making Islamic saving opportunities more attractive to all Germans.
Preview of 2018
KT Bank, Germany’s first fully-fledged Shariah compliant bank, as of today remains the only financial institute to single-handedly evolve the Islamic banking segment in Europe. A steady growth course is being anticipated in 2018, with a financing portfolio of currently more than EUR100 million (US$116.13 million). The market will see a lot of new products and services, among them new developments in the Sukuk and Takaful area. One highlight will be the launch of a credit card with an installment option, a product unheard of in Germany that is running successfully in the Islamic banking sector in Turkey. It serves as an Islamic alternative to overdraft and is anticipated to also attract a lot of non-Muslim clients.
A traditionally important and Shariah compliant form of commodity investment for Muslims that is also gaining importance among commercial banking systems is physical gold collecting. With KT Bank’s parent bank in Turkey running 20% of all gold accounts in the country, this expertise will be transferred into the German market in 2018 with the physical gold account as a new investment product featuring several gold savings plans. Another target in 2018 will be the further advancement of the Islamic online direct banking structure as there is strong demand from currently out of more than 70 countries to open Shariah compliant accounts in Germany.
Conclusion
Islamic banking in the eurozone has already proven to be an enrichment to western conventional business ethics within the finance industry and was acknowledged by the finance ministers of the G20 states for its positive effects on national economies and benefits to society. Post-financial crisis, the world community is generally more aware of value-based finance models, banking regulations and undue risk-taking. Islamic banking thus captures the contemporary economic zeitgeist and can help to shape a cultural change in the eurozone banking industry in favor of the SRI segment.
Ahmet Kudsi Arslan is the chairman of the management board at KT Bank. He can be contacted at [email protected].