Germany, home to 4 million Muslims, just got its first lender that adheres to Sharia law. Charging interest is prohibited, but some analysts see little difference to the way normal banks operate.
If, according to the Koran, trade is permitted but charging interest is the work of Satan, that would make most Western bankers more than a little devilish.
Chairman, Kuwait Finance House and Kuwait Turk Mr. Hamad Abdul-Mohsin Al-Marzouq announced the launch of the first subsidiary to provide full Shari’ah compliant banking services in Germany effective July.
Mr. Al-Marzouq added in a press release that the German economy is the main nerve of Europe’s economy and the largest. Establishing an Islamic bank in Germany copes with and reiterates the global interest in Islamic banking in which KFH occupies the headlines.
The U.K. government's decision to issue a sukuk -- a bond that complies with Islamic Sharia law -- raises an interesting question: What if the U.K. and other non-Muslim countries switched fully to Islamic principles in finance?
I think the world might be a better place.
FWU Group, a Munich-based financial services company, has issued a $20 million five-year Islamic bond backed by insurance policies, a small but rare example of an asset-backed sukuk from a European firm.
FWU, which offers takaful (Islamic insurance) solutions, used a structure known as wakala. The sukuk is the first tranche of a $100 million programme rated BBB- by Fitch, and arranged by EIIB-Rasmala, a venture between London-based European Islamic Investment Bank and Dubai's Rasmala Group.
While lenders in the United States and Europe have downsized their exposure in banking in compliance with Islamic law, Islamic financial institutions in Southeast Asia and the Middle East and Africa (MEA) region are taking over the initiative.
According to global consultancy Ernst and Young, worldwide investments done in line with Islamic law, known as Shari'ah, will reach 1.8 trillion U.S. dollars globally in 2013.
FWU AG Group, a Munich-based financial services company, recently issued a US$55,000,000 Sukuk – the first ever Sukuk issuance by a German corporate and the largest ever Sukuk from a European Corporate. This is also the first Sukuk to utilize a computer software programme and intellectual property rights under an Ijara structure.
Turkey's Kuveyt Turk investment fund plans to open the first Islamic bank in Germany in October 2012, Financial Times Deutschland reported on Wednesday.
Kuveyt Turk plans to open its first branch, following the principles of sharia law, in Frankfurt-am-Main in cooperation with Ernst & Young auditing company and Norton Rose law firm.
Small and medium-sized Islamic banks may need to merge if they want to become bigger regional players capable of filling the funding hole left by shrinking Western banks, the head of Islamic finance at Deutsche Bank, told Reuters.
"There are mismatch challenges," Salah Jaidah said on the sidelines of the Euromoney Islamic finance summit in London.
"Their size, their appetite for long term funding, their ability to finance at competitive pricing. I see this as a big challenge and not happening already now," he added.
Takaful that is an Islamic mode of insurance is emerging worldwide as a very viable model and being used successfully as engine of growth in a number of Muslim countries.
Pak-Qatar Takaful Chief Executive Officer, Pervaiz Ahmad stated this while speaking at the Lahore Chamber of Commerce and Industry (LCCI) on Saturday. He said that Islamic mode of Banking and all its tools are making place in Pakistan, when compared to conventional mode of banking, though it is a highly untapped market as yet.
Sovereign Germany might be disappointed that its recent Eurobond offering was not fully subscribed. Perhaps in hindsight, had it instead opted to issue a debut Eurosukuk for the same amount, the story might well have been different.
Sukuk issuers, whether conventional entities such as HSBC Middle East or Goldman Sachs (both of which tapped the sukuk market in 2011, or Islamic banks, agree that market conditions in the sukuk space is more favorable than in the conventional space. And this confidence and appetite for Sukuk is backed by rising demand from big institutional investors in the Middle East and Asia.