By EMMA VANDORE – 2 days ago
http://www.google.com/hostednews/ap/article/ALeqM5hhLD72VsDDxkQMxJiecdrOgvT1ewD9595GJO0
PARIS (AP) — France is becoming the latest country to woo
Islamic banks, which avoided much of the damage from the subprime
mortgage crisis by following strict principles laid out in the
Quran — as the global financial crisis broadens the appeal of
Islamic finance.
French Finance Minister Christine Lagarde has promised to make
adjustments to the regulatory and legal arsenal to enable Paris to
become a major marketplace in Islamic finance.
At a recent forum in Paris, she said Western financiers could
learn a thing or two from the Islamic world as global leaders try
to establish "new principles for the international financial
system, based on transparency, responsibility and, I would like to
add, moderation."
"In this sense, Islamic finance is calling out to us," she
said.
Finance that complies with Shariah, or Islamic law, accounts for
around $700 billion of assets and is growing at 10 to 30 percent a
year, according to Moody's Investors Service.
That's grabbing the attention of governments eager to oil their
liquidity-strapped economies with money and deposits from the
Islamic world. Islamic finance is concentrated in the Persian Gulf
and Muslim parts of Asia such as Indonesia and Malaysia but is
spreading into North Africa and Europe.
Islamic banking does not have the scale to replace Western-style
finance, but in these cash-strapped times it is seen as offering
another alternative for raising money.
London has attracted the largest pool of Shariah-compliant
assets in the West and desire to compete with Britain's ailing
financial center is motivating Paris to get in on the act. The
country has some 5 million Muslims, but does not offer
Islamic-based retail banking, and the country's secular traditions
may present an obstacle to a French version of the Islamic Bank of
Britain.
Moody's ratings agency noted in a November report that Islamic
financiers will need to quell fears that France's official
religious neutrality could be put at risk.
But more people are seeing business reasons to attract Islamic
funds. A report by economics professors Olivier Pastre and Elyes
Jouini claims that France could attract up to euro100 billion
($136.9 billion) from Islamic financial institutions.
"We want to make sure that Paris is in a position to be able to
welcome this money to finance the French economy," said Gilles
Saint Marc, a Paris-based lawyer who is advising an Islamic
institution which plans to make a formal application to start
investment banking activities in France.
Anouar Hassoune, a senior credit officer at Moody's France and
co-author of the book 'Islamic Finance a la francaise," said that
Islamic institutions could initially focus on investing in property
and Shariah-compliant businesses, and within three to five years
they might also offer retail services. He mentioned Kuwait Finance
House and Al-Baraka Islamic Bank as possibilities.
A November report by Moody's shows that Islamic banks have been
fairly resilient. No Islamic financial institution has acknowledged
investing in Bernard Madoff's $50 billion Ponzi scheme, and Saleh
Al Tayar, Secretary General of the Franco-Arab Chamber of Commerce,
said the $4.9 billion hit taken by Societe Generale SA from what it
calls unauthorized trading by Jerome Kerviel couldn't have happened
in an Islamic institution.
"If global banking practices were based on Islamic practices
then we wouldn't be seeing the kind of crisis we are living through
now," he said.
Islamic financial institutions work on a philosophy of
prohibiting transactions considered immoral and promoting greater
social justice by sharing risk and reward. Investing in casinos,
pornography, arm dealers or anything to do with pork is out:
long-term investments in projects considered to benefit society are
in.
Interest payments, short selling and contracts considered
excessively risky are also prohibited. That rules out some of the
products that got Western finance into so much trouble such as
subprime mortgages, collateralized debt obligations or credit
default swaps.
Muslim scholars versed also in the arcane rules of finance have
approved instruments that parallel many non-Islamic financial
products from loans to insurance to bonds.
Sukuks are the equivalent of bonds, but instead of selling a
debt, the issuer sells a portion of an asset which the buyer is
allowed to rent.
"Islamic finance does demonstrate good banking behavior that has
been perhaps lost over the last 10 years or so," said Neil Miller,
head of Islamic finance at Norton Rose and an adviser to the
British government.
"Islamic banking is saying we are close to our clients and we're
only going to do genuine transactions where we can see the asset,
we understand the asset, we can make an assessment of that asset:
whether it's financing a ship or an aircraft they will go and have
a look at the business. It's giving guidance as to what banking
should be."
Hassoune says that conventional banks can be as ethical as an
Islamic bank but competition and shareholder demands have
encouraged excessive risk taking.
"I don't think conventional banks are dirty, bad, money
obsessed," he said. But "they are pushed to make unreasonable
profits."