The islamic finance and savings market - France (2024)

1.2 A growing global market

A market gaining in value

The market for Islamic financial services continues to grow, reflecting sustained interest in these services, particularly in countries with large Muslim populations and among investors seeking Sharia-compliant solutions. Indeed, the market is growing steadily: in ****, the sector was worth $*.** trillion. In ****, it recorded significant growth of **.*%, reaching $*.** trillion. However, this momentum slowed somewhat in ****, with a *.*% increase taking the market to $*.** trillion. In ****, growth reached *%, for a total market of $*.** trillion.

Evolution of Islamic financial services market size France, **** - ****, in trillions and % Source: ****

An increasingly less concentrated market

The distribution of Islamic finance assets across regions illustrates an increasingly diversified and globalized industry. In ****, the GCC (***) region will hold over **% of global Islamic finance assets, underlining its central role in the sector. This predominance is mainly due to the significant growth and importance of the Islamic banking sector in this region. In addition to the banking sector, the GCC's Islamic finance landscape includes developing ṣukūk markets and growing interest in Islamic insurance, although these segments still remain modest in comparison with the banking sector.

The East Asia-Pacific region is a key market, accounting for just over **% of global Islamic finance assets in ****. These assets ...

1.3 The European market

The European market for Islamic finance is not yet highly developed. However, a number of European countries have positioned themselves sooner or later to meet growing demand. This is particularly true of the United Kingdom, which set up its own Islamic bank in ****: the Islamic Bank of Britain, which became Al Rayan Bank in ****. That same year, it issued a sovereign sukuk worth £*** million[***].

Luxembourg is the second most advanced country in the sector after the UK. It was the first to issue a sukuk, in ****. Its central bank has joined the Islamic Financial Services Board (***), and there are some ** Islamic finance funds domiciled in the country[***].

Finally, Germany also plays a significant role in Islamic finance in Europe. Saxony-Anhalt was the first federal state to issue a sukuk, and in ****, Germany set up its own Islamic bank: the Kuveyt Turk Bank [***].

Although France is still a minor player in the sector, it is the country with the largest Muslim population in Europe, and therefore with the greatest growth potential; followed by Germany.

Source: ****

1.4 The domestic market

Estimating the national market

It is difficult to give an estimate of the Islamic finance and savings market in France. The latest figure dates from ****, and estimated the potential French market at *** billion euros, including * billion in savings from the general public[***]. Nevertheless, other data can be used to estimate a high and low end of the market in ****.

Firstly, Islamic finance accounts for *% of global financial assets [***].

Calculation details: percentage of financial assets corresponding to Islamic finance worldwide x total assets in France = *.** x *,***.* = **.** billion euros.

We can therefore estimate the Islamic finance market in France at around **.** billion euros. Nevertheless, it is interesting to look at the financial assets held by households, since this branch represents the majority of the Islamic finance market.

To do this, we can estimate the market according to * different criteria:

as in the previous calculation, we can estimate the market by taking *% of total household financial assets. According to INSEE, total household financial assets in **** will amount to ***.* billion euros[***]. This gives us: *.** x ***.* = *.*** billion euros. We can also look at the potential market, using the figure for the proportion of Muslims in France. Indeed, the target clientele for Islamic finance is people of ...

2.1 The Muslim population, driving demand

The Muslim population in France

Islamic finance, like Islamic savings, was created with the aim of ensuring an economic order in line with Islam and its rules. In this sense, it is primarily aimed at Shariah-compliant individuals, i.e. the Muslim population. In order to assess the demand for Islamic financial products and savings, it is therefore necessary to quantify the Muslim population, even though ethnic statistics are not permitted in France.

France is the European country with the largest Muslim population. It is the second most popular religion, after Catholicism. In ****, the Pew Research Center estimated this population at *.* million, or *.*% of the French population. And this share should continue to rise, reaching **.*% of the population in **** (***)[***].

Share of Muslim population France, **** vs *****, % of French population Source: ****

Religious practice

According to an IPSOS survey, the practice of the Muslim religion varies widely in France. Not everyone has the same relationship with religion, and not everyone applies the rules in the same way. It emerges that *% of French people who claim to be Muslim are atheists, **% are believers but not religious, and **% are both believers and religious.

Practice of the Muslim religion in France France, ****, in Source: ****

Young people, the new ...

2.2 The attractions of transparency and social justice: a new clientele?

Islamic finance and savings offer products that respect the rules of social justice and transparency: loss sharing, prohibition of chance or interest... These criteria are similar in many respects to the ESG criteria of finance. Today, so-called green finance is booming in popularity, and more and more French people want to invest their money in socially and environmentally just assets. In fact, in ****, half of all French people place a high priority on environmental and social impacts in their investment decisions.

"What place do you give to environmental and social impacts in your investments?" France, ****, in % Source: ****

Among those who attach importance to social and environmental criteria, it's interesting to look at age groups. Indeed, the younger generations seem to be more concerned, forming a significant growth potential.

Importance of environmental and social issues by age group France, ****, in Source: ****

However, despite the population's strong interest in this type of investment, only **% of French people have ever invested in a responsible investment fund.

This attraction to more social and responsible finance may therefore constitute a new demand for Islamic finance products. Indeed, while Islamic finance is not directly linked to the environment, it is based on transparency, risk and loss ...

2.3 French people still reluctant, fear of Islam

Numerous initiatives and attempts to develop Islamic finance were supported by French authorities and politicians, particularly at the time of the **** crisis. Such was the case with Christine Lagarde, then Minister of the Economy, who relaxed the legal rules governing Islamic finance to encourage its development. Nevertheless, the French remain wary of this type of finance, and banks fear being associated with Islam at a time when France is facing terrorist attacks. Indeed, many French people are still afraid of the word "Islamic". In ****, Nice town hall forbade an insurer in the city to put "Islamic finance" on its window at the risk of creating public order disturbances[***].

Is there a clear difference between Islam and Islamism? France, ****, in % of yes Source: ****

While **% of French respondents seem to know the difference between the terms "Islam" and "Islamism", the figures drop to **% and **% for supporters of far-right parties. Indeed, the discourse of these political parties accentuates the development of Islamophobia. At the same time, anti-Muslim acts in France are on the rise (***), while anti-Christian and anti-Semitic acts are on the decline.

Anti-religious acts in France France, **** - ****, in number of acts Source: ****

3.1 Islamic finance sectors

The Islamic finance market can be broken down into * sectors:

Islamic banking , which accounts for **.*% of Islamic finance assets. The capital market, which accounts for **.*% of assets. The insurance market, known as Takāful, which represents a small share of the market: *.*%.

Share distribution of the Islamic financial sector World, ****, in Source: ****

The Islamic capital market is divided between Islamic funds and Ṣukūk. Sukuks are the equivalent of bonds in conventional finance, but in the Islamic system, as interest is forbidden, it becomes an expected profit with virtually zero risk. These types of bonds must be backed by an underlying asset. These products are issued by Islamic banks, governments or companies. Ṣukūk issuance was legalized in France in ****, but remains marginal[***].

3.2 A specific value chain

Although the overall structure of the market is similar to that of conventional finance, some players play a different, even new role in the sector. Islamic finance has seen the emergence of Shariah Boards, responsible for ensuring product compliance. Banks (***) also play a different, more engaging role.

The Shariah Board, a monitoring tool

The Shariah Board verifies and certifies that Islamic finance tools and products comply with Koranic law. Since Shariah compliance is the reason for the origin of Islamic finance, banks must set up a Shariah Board to certify the products they then offer to their customers[***]. The Shariah Board takes the form of a bank-independent committee of Islamic finance experts. It is present in some major banks offering Sharia-compliant products, as well as in some developing fintechs.

The Shariah Board can also exist on a larger scale, in Muslim countries, to regulate Islamic finance institutions on a country-wide scale. Examples include Indonesia, Kuwait, Malaysia, Pakistan, Sudan and the United Arab Emirates.

The bank as intermediary owner

As interest is forbidden in Islamic finance, banks and fund providers are remunerated via a legal-financial stratagem that complies with Islamic law. The contribution of funds must always be linked to an underlying ...

3.3 The main market players

The Islamic Development Bank (***)

Like many other multilateral development banks, the Islamic Development Bank (***) is a prerequisite for joining the IDB[***].

Participation of IDB member countries World, ****, in Source: ****

The IDB's various actions are based on financing structures that comply with Koranic laws, and the organization presents itself as a leader in Islamic finance.

Major MENA banks

The main players in this sector are the major banks in Middle Eastern countries. Among them, the most important are the following:

Source: ****

French banks and Islamic finance

Despite some difficulties in establishing themselves on the market, several banks have an Islamic finance window and offer adapted products.

Crédit Agricole CIB: this French bank offers a range of products that comply with the rules of Islamic finance. These include Islamic syndicated loans, project and structured finance, trade finance, Ijara and Mouhabara financing... [***]. Société Générale : the bank offers ***% halal investments via its subsidiary SGAM AI to the Middle East and Europe. BNP Paribas: obtained a sharia-compliant asset management license[***].

However, these offerings are mainly aimed at the Middle East and South-East Asian populations, and are still largely marginal in France. Chaabi Bank is the only Islamic bank to offer its products ...

4.1 Sharia-compliant products

The main products of Islamic finance

Conventional finance and savings are based on the principle of monetary interest. This principle, known as Ribâ in Arabic and referring to usury, is formally prohibited by Sharia law. With this in mind, Islamic financial systems have developed precise mechanisms to circumvent these prohibitions. These can be divided into * main categories: on the one hand, financing instruments (***).

Murabaha: this is a transaction between the bank and the individual. Instead of lending money to the individual at a certain rate of interest, the bank buys the asset in the individual's place. It becomes the owner of the asset for a short time. The asset is then sold back to the individual at a predefined premium and according to a known schedule. In this sense, there is no interest and no transaction without an underlying asset. Ijara: this transaction is very similar to classic leasing. The creditor rents an asset that he has previously purchased to a customer, who, at the end of the contract, has the option of buying back the asset. However, under an ijara, there is no penalty for late payment, as this would place the debtor in a weak position. The creditor retains ...

4.2 Focus on Islamic vehicle financing

Estimating the number of potential customers

To estimate the size of potential demand, we look at the car loan market in France. In ****, ** million French people had consumer credit[***]. We can therefore estimate the demand for car loans in France as follows: *.** * ** = **.** million French people with a car loan.

Furthermore, as indicated in section *.*, the Muslim population is estimated at *.*% of the French population. We can therefore estimate the share of the Muslim population with a car loan: *.*** * **.** = *.*** million.

Potential demand can therefore be estimated at around *,*** million people. However, not all Muslims wishing to take out a car loan are necessarily interested in Islamic finance and Sharia-compliant loan schemes. it should be noted that this figure is an approximation of the maximum demand for this market. In addition, several other aspects come into play, particularly in the current context of environmental awareness.

Estimating potential market size

As the concept of riba is forbidden by Koranic law, Islamic finance offers other financing methods that replace leasing or rental with purchase option in conventional finance. Car loans and leases with purchase option in conventional finance are thus replaced by Murabaha and Ijara transactions (***).

Murabaha account for the majority of banks' business, and ...

4.3 The failure of the big banks and the deployment of online platforms

Big banks in trouble in the Islamic finance segment

Several major banks entered the Islamic finance sector after the **** crisis, as it offered interesting prospects and an alternative to conventional finance. However, while a number of banks now offer Islamic financial products, many have abandoned their activities in the sector due to a lack of customers outside Muslim countries.

This is notably the case forHSBC, which after the crisis had established a strong foothold in the sector, positioning itself as a leader. But as early as ****, the bank announced a slight withdrawal from this segment[***].

The development of online platforms

Faced with the difficulties faced by traditional banks, fintechs are experiencing increasing growth on a global and national scale. According to Mohamed Damak, Global Head of Islamic Finance at S&P Global Ratings, by **** there will be around *** fintechs specializing in Islamic finance worldwide, mainly in Asia and the Middle East.

Distribution of sharia-compliant fintechs World, ****, in Source: ****

Today, the only Islamic bank operating in France is Chaabi Bank, a subsidiary of the Banque Populaire du Maroc. While there is no French Islamic bank, several fintechs or online platforms have developed to meet French demand.

Sunna Kapital is a financial organization ...

4.4 Financially attractive products

Islamic finance and savings products appear to offer higher returns than conventional financial products. In fact, Standard & Poor's has developed the S&P Global **** Shariah Index, alongside its S&P Global **** index. This index includes all the Shariah-compliant components of the S&P Global ****. The S&P Global **** represents around **% of the world's market capitalization. If the two indices follow the same trends, the *-year return on the S&P Global **** Shariah index is **.**%, compared with **.**% for the S&P Global ****[***] index.

S&P Global **** and S&P Global **** Shariah indices World, **** - ****, index (***) Source: ****

4.5 Competition from environmentally and socially responsible funds

Socially and ecologically responsible funds are multiplying rapidly in France to meet an increasingly concerned demand. These funds are increasingly competing with Islamic finance funds, as they target an identical segment of the population (***) albeit a broader one, since the target population is not originally linked to a religion. So, while fear of Islam seems to be holding back the development of Islamic finance, some of the demand is turning to these SRI-labeled funds. At the end of ****, there were *,*** such funds in France, representing total assets under management of €*** billion[***].

Number of SRI-labelled funds and total assets under management France, **** - ****, in number of funds and billions of euros Source: ****

5.1 Fundamentals of Islamic finance

Islamic finance is based on principles derived from Sharia law. Among the most important are

Prohibition of interest-bearing loans (***). Prohibition of excessive risk (***): transparency is at the heart of Islamic finance. Activities directly linked to activities with unknown values and outlets linked to chance and speculation are prohibited. Underlying real assets: Islamic finance, unlike conventional finance and its derivatives, is necessarily linked to the real economy. All transactions must be based on an underlying real asset. Profit and loss sharing : when a transaction takes place, the various parties involved must bear the risks. An isolated player cannot bear the losses of a transaction alone. Prohibition on selling what you don't own: with the exception of the Salam contract, Islamic financial players cannot sell an asset unless they own it. Thus, the sale of an asset is always done on a cash basis. Prohibition on participating in the financing of illicit activities: these activities include alcohol, pornography, pork and pork by-products, drugs, tobacco, arms, etc.

Source: ****

5.2 Financial regulations

Tax breaks after the **** crisis

On December **, ****, a number of tax measures were introduced in France to encourage (***) and the tax deductibility of sukuk remuneration" [***]. The aim was to attract investment from the Middle East.

Full information on the tax treatment of Islamic finance products (***) is available here: bofip.impots.gouv.

Drawing up the balance sheet of Islamic banks

Since Islamic finance meets specific criteria, it is logical that the balance sheet of an Islamic bank should differ from that of a "conventional" bank.

6.1 Market segmentation

• Société Générale
• Crédit Agricole Groupe
• BNP Paribas Banque Privée