France will today take a significant step towards establishing Paris as a western centre for Islamic finance when plans to attract this fast-growing sector to the city are discussed in the country's parliament.
The move is a part of the French capital's wider aspirations to rival London as an international financial centre.
Christine Lagarde, France's finance minister, has already introduced several measures to attract global funds since taking office last June.
"This government's objective is to make France more competitive and one aspect of that is [attracting] Islamic finance," said Anouar Hassane, a credit analyst for Moody's, based in Paris. "We have to compete with the rest of Europe and the emerging economies."
Paris has been left in London's wake when it comes to Islamic finance, even though France has a Muslim population of about 6m - three times that of Britain.
The UK is home to five licensed Islamic banks, the only licensed ones in the EU, and lists £5.5bn in sukuk, or Islamic bonds, on its stock exchange.
Only a handful of French banks, such as BNP Paribas and Société Générale currently offer wholesale Islamic services. There are no retail products available.
The senate - the upper house of the French parliament - will bring together politicians, bankers and Sharia scholars to discuss how to support Islamic finance - by raising awareness and changing legal and fiscal frameworks.
Sharia principles forbid interest on the grounds that money should measure rather than create value, and the government must alter certain tax laws to better accommodate this approach.
"Paris has seen what London has done with Islamic finance and has realised there is money to be made, especially because there is a lot of demand from the Middle East," said Zoubair Ben Terdeyet, who founded Isla Invest, France's first Islamic finance advisory service, in 2004.
Islamic banking assets have been growing at a rate of just under 20 per cent a year since 2000 and are currently worth about $500bn globally, according to Moody's. This rapid growth has been driven by the oil wealth of Middle Eastern investors as crude prices have hit fresh records.
Arnaud de Bresson, managing director of Paris Europlace, which represents the capital's financial professionals, said: "The senate's initiative to organise a high-profile event on Islamic finance is a sign that the authorities are paying increased attention to this market."
The UK government has since 2003 been reforming laws to ensure that Sharia-compliant investments are not prone to higher levies than their conventional equivalents. Analysts say Paris will have to catch up with London by modifying rules such as double stamp duty, which affects Islamic mortgages.
Source: Financial Times (English), h/t Sharia Finance Watch