The French government’s initiative to develop Islamic finance dates at least as far back as 2007, when Christine Lagarde, the French minister of the economy, recognized the need to start pushing for local initiatives via both Paris-Europlace and French Treasury.
Since then Shariah compliant funds have been recognized in France. At Lagarde’s request, a committee was set up to identify potential areas of the French regulatory system which hinder the development of Shariah compliant financing in the French market.
These three years of work resulted last August 2010 in what amounts to a huge step for France in efforts to develop a conducive framework for Shariah compliant modes of financing. This came in the form of fiscal instructions where the contracts of Murabahah, Ijarah and Istisnah are now on a par with other modes of financing with regards to tax.
Despite being a clearly different environment, France is in a sense following similar steps to the UK, which abolished double stamp duty for Islamic mortgages in 2003, and Victoria in Australia, which removed double stamp duty from Islamic mortgages in 2004. With regards to insurance models, aspects of Takaful work in a similar manner to the French mutual insurance.
Another fiscal instruction of August 2010 was made to facilitate the issuance of Sukuk. Yet the difficulty with this one is the non-existence of trust under French law. The closest to trust in the French framework is the fiducie. And the structure in tax bill supporting Sukuk uses fiducie in a manner that leading finance Shariah scholars would disagree with.
The problem remains that French assets cannot be used in a listed Sukuk using a trust and that the equivalent to the SPV used in Sukuk, named Fonds Commun de Tritisation in France, can only hold receivables. Receivables are non-compliant from the standpoint of Islamic finance: they amount to intangible assets. No financial transaction is deemed compliant without underlying tangible assets.
Key Islamic finance scholars who have functioned in the common law framework are yet to find ways to adapt to the French framework. Regions where Islamic finance has developed function mainly under common law and a substantial difference in the speed of the development of Islamic finance between these regions is notable.
In fact, there are no internationally recognized Islamic finance Shariah scholars in the French-speaking world, a primary impediment to the development of the field in this French-speaking context.
Although some French-speaking Shariah scholars who are familiar with the French landscape are working hard to develop their knowledge in Islamic commercial law and conventional finance, and are additionally working at understanding the impediments to Shariah compliant transactions in the local civil law context, they are lagging behind their Middle Eastern, Southeast Asian and UK based counterparts functioning in the common law framework for numerous reasons.
Huge steps have been made towards making France attractive to investors with a preference for Shariah compliant modes of financing, and the difficulties mentioned remain, as the growing pains of a French version of Islamic finance emerges, one that fits within the civil law framework.
A question remains, why is it that France, with a population of about five to six million Muslims, lags behind the UK and other countries developing Islamic finance? The historical and political links of France with the Middle East and North Africa would surely open doors for France to develop Islamic finance.
Excellent French banks have overseas regional branches that offer Shariah compliant products to customers globally from their offices in the GCC and in Southeast Asia. So why is it that the progress is taking so long to reach the French territory?
The answer lies somewhere at the junction of all these points. France has had strong ties to the Middle East, but its strongest ties have been to countries where Islamic finance is yet to develop or is still at embryonic stages. It is not the GCC countries leading Islamic finance that France has been closest to in its history but other Middle Eastern countries which have up to recently had an ambiguous relationship with Shariah compliant finance.
And North Africa itself is not an area that France can turn to develop its expertise in Islamic finance for similar reasons to those blocking the development of Shariah compliant modes of financing in France — fear of radical Islam and assertive secularism.
It is development at the level of this world view that holds most certainly the key to success for the development of Shariah compliant modes of financing on the French horizon.
Anne-Sophie Gintzburger
Altran Financial Services
Email:
[email protected]
Anne-Sophie Gintzburger is a PhD candidate at Ecole Normale Supérieure. She previously completed research on the topic of Islamic finance in Malaysia and the GCC at the Australian National University.