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Islamic Finance In France

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Islamic_Finance_FranceWith approximately 5 million residents, France has a large Muslim population, more than any other European country, originating mostly from the Maghreb countries (Algeria, Morocco, and Tunisia). However, despite the favourable demographics, France is falling behind its European rivals in courting the Islamic finance industry.  

As the United Kingdom basks in the success of its maiden sovereign Sukuk issuance and other European countries (particularly Ireland and Luxembourg) showing  similar commitment, many analysts are asking where is France, in Islamic finance? Researcher and French entrepreneur, Ezzedine Ghlamallah, explores Islamic finance in France and how the industry can penetrate the market.

Take-off delayed

Many people wonder why it seems so challenging to develop Islamic finance in France: this alternative finance, based on ethical principles and collaborative approach, in a market which has the largest Muslim population in the Western world, as a proportion of households.

The explanations can be multiple. First, there is a lack of political will, since the efforts of Christine Lagarde, when she was Minister of Economy and Finance in 2008. In fact, a real political will has been one of the main ingredients to the industry’s development, in all the countries where the Islamic finance has grown substantially: new laws, direct commitment via sovereign Sukuk issuance. Another factor is that the Islamic finance market is relatively underdeveloped in the countries of origin of Muslims in France: Algeria, Morocco, and Tunisia.

The strengths of the French market

The strengths of the French market are far from being negligible. Paying attention to the banking rate of French Muslims: they have great financial literacy. Also, 41% of French Muslims are “practitioners” (actively practice their religion), according to pollster IFOP, presenting an opportunity to the financial sector in the country to tap into an increasingly devout market. Another example of the vibrancy of the French market is that the halal food sector is estimated at Euro 5.5 billion (Paris Halal Trade show) – the social practice of Islam in France has evolved into the search for a friendly form of consumerism, based on universal ethics and values.

An producer or manufacturer able to offer efficient and compliant products would have great opportunities for development. This emerging market in the field of halal economy may represent a significant opportunity for the development of Islamic finance and Takaful insurance in the country.

There are also two universities offering education in Islamic finance: Strasbourg University with an Executive MBA and Master’s; and the University of Dauphine with an Executive Master’s, supporting students and professionals from various markets in developing their understanding and knowledge in Islamic finance.

The legal framework is also becoming more conducive: for example, the French financial regulator – Autorité des marchés financiers (AML) – issued a statement on the development of the Islamic asset management industry in the country as early as 2007, noting that Mudabarah structures can be supported. The AML also authorized the purification process of asset managers’ (i.e. distribution of certain income to charities), provided that it was mentioned in the fund’s prospectus and their was transparency for the investors.  

However, it is natural that the French authorities underscore their position in relation to asset management, especially since the country is one of the largest players globally, in the sector. On taxation, the countries regulators and authorities have found that there was no need for changes to tax legislation, with Islamic finance products on parity with conventional products, ensuring the taxation is levied on the economic substance rather than form.

Moreover, insurance law includes statutes that are fully compatible with Takaful without it being necessary to further legislate or amend. France is ranked by Swiss Re Sigma (Journal) the fifth largest insurance market. The 2013 annual report of the French Federation of Insurance Companies (FFSA) reported Euro 188 billion of premiums across all markets in France. The global Takaful market represents Euro 11 billion in 2014 so far.  

If Takaful solutions were able to capture even 2% of the market, France will become the second largest market worldwide after Saudi Arabia. This would also be a great way to differentiate from London and Luxembourg who have made the choice to issue sovereign sukuk to attract middle-eastern investors. These are all reasons why the European Central Bank said in a report published in June 2013 that Islamic finance seemed to have a good potential to develop in France.

Conclusion: A limited offer

Nevertheless, on the supply side, the products offered are very limited: one bank is now offering Shariah compliant financing operations. Indeed, the Chaabi Bank, a subsidiary of the French Moroccan bank offers a Murabaha solution for real estate financing and deposit accounts. Regarding insurance, there is no general Takaful solution. Only family Takaful solutions exist with two life insurance contracts: Salam of Swiss Life and Amâne Exclusive Life of VITIS LIFE.

To enable the emergence and development of a real market for Islamic finance and Takaful in France, it is necessary to invest in the creation and delivery of new products to meet the needs of the customers. Education will be key in demystifying the industry and providing further direction to its development in the country.

Originally published on www.islamicbanker.com

Saudi Firm Takes Stake In French Poultry Producer

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douxJEDDAH – The Saudi-Arabian food group Almunajem has taken a stake of 25% in the French poultry producer Groupe Doux. The transaction completes the financial restructuring of Doux that filed for insolvency over two years ago.

Almunajen is the principal customer of Groupe Doux, which went down in the summer of 2012 because of its burden of debt. The Saudi-Arabian company announced its intention to participate in the resurrection of Doux over a year ago and has now converted the outstanding debt into a participation in the share capital.

A majority of 75 percent of the shares remains in the hands of the Breton businessman Didier Camels. “That an international group wants to enter into the capital of a Breton food company is a show of confidence. We are very proud of this,” said CEO Arnaud Marion of Doux, who added that his company is now profitable and without debts. “We are ready for the next steps in our plan.”

Groupe Doux, with its headquarters in Chateaulin, employs some 2,200 people, over a 1,000 less than before the financial problems. In an earlier plan, the family Doux would retain part of the company but that appears no longer to be the case. Almunajem, a company with over 15,000 employees, is specialized mainly in the import of frozen food products.

Originally published on www.saudigazette.com.sa

Halal Test Kit To Check For Traces Of Pork In French Halal Products

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halaltest-kitA French company has developed a so-called Halal test Kit which will allow Muslim consumers to detect, within a matter minutes, the presence of pork or alcohol in food.

Some have suggested it could be the latest “Made in France” success story.

Priced at €6,90 each or €125 for a packet of 25, a device, simply called “Halal test”, is designed for use by Muslims who, under the dietary requirements of their religion are forbidden from consuming pork and alcohol, Le Nouvel Observateur reported.

In a similar style to a pregnancy test, the device consists of a strip which the consumer must put into a glass of warm water containing a sample of food. After a few minutes, the test will then show one of two options: either a single bar for a negative test or two bars for a positive one, which means there is alcohol or pork present.

The test was created by the company Capital Biotech, founded by Franco-Algerian duo Abderrahmane Chaoui, a graduate in business and entrepreneur Jean-François Julien.

While no test currently exists which allows Muslims to verify if food really is Halal – i.e. it contains meat from an animal slaughtered according to Islamic ritual, Chaoui, 25, says the test is important to confirm “the absence of food products forbidden by the Koran”.

The tests will be especially helpful to Muslims when buying unlabelled food, the Algerian born Chaoui said.

“While travelling, if you go to a restaurant or order a meal to takeaway, the products aren’t always labelled,” he said.

The entrepreneurs are tapping into a potentially lucrative market. With France home to around six millions Muslims, the market for Halal food is estimated to be worth €5.5 billion a year.

Nevertheless, the business partners are optimistic that they will be able to one day create a test that will be able to determine how an animal was slaughtered based on the oxygenation of the blood.

Although Halal is a term normally applied to raw meat products, it can also refer to cooked meals, drinks, sweets and even cosmetic and pharmaceutical products.

Food falsely labelled as Halal has been at the centre of some scandals in France in recent years.

In January 2011 poultry sausages labelled as Halal from the company Knacki Herta were removed from supermarket shelves after tests revealed the presence of pork.

In deed the issue of Halal food has long been a contentious issue in France, with far right politicians repeatedly calling for public canteens not to serve Halal food and some conservative figures following suit.

Before the 2012 presidential election Nicolas Sarkozy, under pressure not to lose voters to the far-right National Front party jumped on the issue of Halal, saying that there should not be “alternative” meat options in school canteens.

In March 2013, The Local reported how Jewish and Muslim parents in the south-western town of Arveyres were outraged when their children’s school announced that the canteen would no longer be serving a substitute for pork.

More recently in July this year, a controversial ruling that ordered a French prison to serve up halal meals to inmates was overturned by a court in Lyon.

Originally published on www.thelocal.fr

Wrong Labelling Of Halal Meat Threatens French Halal Meat Producer

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wrong-labelling-of-halal-meatFrance — Fat and pork liver contained in a halal product. A reading of this ingredient on the label of a country terrinette the Oriental brand Meat, certified by the ACMIF (Cultural Association of Muslim Ile-de-France) of the Great Mosque of Evry Courcouronnes, the shock of Muslim consumers did not fail to make the rounds of social networks in September.

Which seems to be a big fail brand sausage is actually the result of a “malicious action ” which “led to affix a label with false information” , said the leadership in a statement dated September 19. It was the act of an employee – a quality technician training – furious at not seeing his work contract renewed. The latter, having access to computer data could change the wording of the label, “it deliberately and illegally, by replacing the word” chicken “with” pork “and that to harm the company” .

DNA analysis to be exculpatory

“Alerted, we proceeded immediately to the withdrawal of the products concerned for their sales areas because of labeling non-compliance” , adds the brand. As a sign of good faith, for DNA analysis of traces of pork were performed by Eurofins product labeling falsified, all “to make clear himself facing the wrath of customers” . According to the analysis report sent to us, no trace of pork was detected … obviously. Only seven trays of forty involved in fraudulent labeling were sold but the moral damage is great for Oriental Meat.

According to the minutes of observation made ​​by a bailiff at the Eurofins passing on 2 and 4 September at Granges-sur-Vologne (Vosges) and Saphirnews consulted, the brand said it had been “a victim of an industrial sabotage ” . She informed that a complaint has been filed against the employee. Quickly identified by the computer system, it is now wanted by the police. A hearing should be held at the end of the year. This development finally marks the end of the rumor.

Big Trio Trying To Conquer The Islamic Finance Industry

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sukuk-issuance-by-big-trioIslamic bond programmes from a trio of big conventional banks are set to expand the boundaries of Islamic finance, helping open the market to first-time issuers while testing the banks’ ability to win over industry purists.

Since June, France’s Societe Generale, Bank of Tokyo-Mitsubishi UFJ (BTMU) and Goldman Sachs have set up sukuk programmes, aiming to tap the pool ofcash-rich Islamic investors.

They are treading a fine line, having to reconcile the fact that their businesses mostly depend on conventional banking practices – interest payments, and to some degree monetary speculation – which Islamic principles forbid.

An abortive plan by Goldman to issue sukuk in 2011 showed the obstacles which conventional banks can face in the market. Some in the industry accused Goldman of failing to follow Islamic principles, and it never went ahead with that issue.

But if the three banks are successful and become regular sukuk issuers, they could help to widen Islamic finance beyond its core markets in the Middle East and southeast Asia.

Governments in non-Muslim countries are already issuing sukuk; Britain and Hong Kong made debut issues earlier this year, while South Africa and Luxembourg are next in line. The entry of conventional banks into the market may be needed to prompt significant numbers of Western companies to issue.

“It builds credibility in an industry that is attracting many new participants,” said Khalid Howladar, Moody’s Investors Service’s global head of Islamic finance.

“Key financial institutions represent volume issuers in mature markets. They will improve liquidity and encourage more global investor participation.”

Year-to-date, sukuk issuance totals $88.9 billion through 475 deals globally, up from $76.4 billion through 574 deals a year earlier, according to Zawya, a Thomson Reuters company.

But the market remains stubbornly reliant on sovereign and quasi-sovereign issuers, who represent a combined 77 percent of the total; most corporate sukuk come from Malaysia.

Only a few companies from non-Muslim countries have so far issued sukuk, including GE Capital, which in 2009 raised $500 million through five-year Islamic bonds backed by interests in a portfolio of aircraft, and Japanese brokerage Nomura Holdings, which in 2010 issued $100 million of two-year sukuk in Malaysia.

CREDENTIALS

HSBC is the only non-Islamic bank to have issued sukuk, through a $500 million deal in 2011. Market acceptance of that deal was ensured in part by the fact that HSBC operates a major Islamic retail brand, HSBC Amanah.

SocGen and BTMU, Japan’s largest lender, do not have Islamic retail banking brands. So they have been building their Islamic credentials by establishing strategic relationships with heavyweight Islamic financial institutions.

BTMU, which set up its $500 million multi-currency sukuk programme in Malaysia in June, signed in April a cooperation agreement with the Jeddah-based Islamic Corporation for the Development of the Private Sector (ICD), the private sector arm of the Islamic Development Bank.

Last week, BTMU extended $100 million in murabaha financing to the ICD, marking the first time that the ICD had raised cash from a non-Islamic financial institution. Murabaha is a common cost-plus sale arrangement in Islamic finance.

The participation of conventional banks in Islamic finance is positive as long as they ensure adherence to sharia principles in a way that is acceptable to the market, the ICD said in a statement to Reuters.

“The recent murabaha agreement marks the first step along this path and we fully expect the relationship to grow, develop and strengthen over the coming years.”

SocGen, which also set up a sukuk programme in Malaysia in June, offers sharia-compliant commodity hedging tools to corporate clients. Last year, it helped Dubai-based cable manufacturer Ducab migrate most of its commodity hedging needs into Islamic equivalents.

“We know there are many similar companies to Ducab within the region and we do hope they will gradually move into sharia-compliant programmes,” said Dubai-based Mohamed Virani, SocGen’s head of Islamic products.

“It’s a natural progress in the evolution of the Islamic finance market as it develops and matures.”

DIFFERENT TACK

The biggest leap could be for Goldman, which is viewed by some in Islamic finance as a symbol of Western financial engineering. Though it insisted that its 2011 sukuk plan obeyed sharia principles and had enough certification from Islamic scholars, it is taking a different tack with this year’s plan.

While the 2011 plan was a $2 billion programme of one-year sukuk, the current plan appears smaller; lead managers said the issue would be benchmark-sized, meaning at least $500 million, and the tenor would be longer, at five years.

Goldman sought advice for its latest plan from two of the same scholars whom it cited for its 2011 scheme, Abdul Sattar Abu Ghuddah and Mohammed Elgari, a source familiar with the plan said. This time, however, Goldman has also revealed the banks arranging the issue: Abu Dhabi Islamic Bank (ADIB), Emirates NBD, National Bank of Abu Dhabi and Saudi Arabia’s National Commercial Bank.

The involvement of four top Gulf banks, including ADIB which has a sharia board led by the prominent scholar Taqi Usmani, may go a long way towards removing the misgivings which dogged Goldman’s 2011 plan.

Goldman has also changed the structure of its sukuk plan. While its 2011 scheme was based on murabaha, its current plan has a hybrid structure and envisages operating only 49 percent though murabaha and 51 percent through a structure called wakala.

Under wakala, certificates are issued by an originator to buy assets which are given to an agent, who charges a fee for managing the assets, Some scholars favour wakala over murabaha because of its clearer link to the assets backing the sukuk; the HSBC issue in 2011 was wakala, as are the issuance plans of SocGen and BTMU.

The fact that the Goldman sukuk is predominantly wakala may remove one objection to its 2011 plan: that the sukuk might be traded at prices other than par value. Trading wakala structures is relatively uncontroversial, according to scholars.

Hybrid formats have been used in the past by the likes of the Islamic Development Bank, Abu Dhabi Commercial Bank and Qatar International Islamic Bank, combining different Islamic structures among which at least one is tradeable to ensure the sukuk can be bought and sold in the secondary market.

Another objection to Goldman’s 2011 sukuk, which the U.S. bank said was unfounded, was that the proceeds might be used in interest-bearing finance. Documentation for the current sukuk plan, seen by Reuters, does not appear to address that issue directly, though it says proceeds would be used in the commodities business of J. Aron & Co, a Goldman unit.

“The thing they have to be most careful with is the use of the proceeds. They are a conventional bank, so they need to show that the proceeds are going to sharia-compliant purposes,” said Shamsiah Mohamad, senior researcher at the Malaysia-based International Shari’ah Research Academy. 

Originally published on www.albawaba.com

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