Islamic Banking – a golden opportunity for European banks

DinarStandard: While Islamic finance grows at a marked clip in the GCC and Asia, what is its prognosis in Europe?

As we’ll see in this article, a considerable demand exists for Islamic banking products in Europe but to date, for a number of reasons including risk-aversion and conservatism, this need has gone largely unfulfilled.

The Islamic banking market continues to flourish around the world with current estimates suggesting that assets managed by Islamic banks are in excess of $700 billion - predominately concentrated in the Middle East.

It is a fact that there are sufficient Muslim investors and borrowers in both Islamic and non-Islamic countries to warrant the attention of traditional banks that seek to serve such clients and capture a potentially profitable slice of a still relatively untapped market. This is corroborated by the growth of Islamic finance in the US, which has a population of over 7 million Muslims.

The challenge for European financial institutions is how to leverage their banking knowledge and expertise in developing sufficient products and services that fulfill the requirements of their Islamic customer base while being compliant with Islamic finance principles.

Key Islamic financial Instruments

Islam is not only concerned with the relationship between man and God but it is also a system of beliefs, justice, equity, fairness and morality which are the values that underpin the entire Islamic way of life. These beliefs are governed by the body of Islamic principles generally referred to as Shariah, which is used to develop and create Islamic financial products.

The European market size and scope

There are more than 14.74 million Muslims in Europe, of which 1.8 million are resident in the UK plus an additional 72 million in Turkey. There are 360,000 Muslim households in the UK.

The following table illustrates the potential market size in mainland Europe for an Islamic bank, as well as highlights the potential for extra-European expansion in countries such as Turkey.