Germany eyes Islamic finance
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FRANKFURT - Despite a huge potential client base, Germany has proven reluctant to adapt its legal and tax systems to attract Islamic finance, which has enjoyed stellar success in Britain.
What sets Islamic finance apart from other banking systems is that no interest is collected on loans. The risks and rewards are shared between the bank and the client and debt levels are carefully monitored.
In recent years, Islamic finance has grown exponentially in the Middle East, Southeast Asia and Britain. Global assets held by Islamic banking institutions stood at nearly $500 billion in 2008, compared to $260 billion in 2004.
With some 3.5 million Muslims, mainly of Turkish origin, Germany offers enormous potential demand for banks providing retail Islamic financing, said Zaid el-Mogaddedi, president of the Institute for Islamic Banking and Finance in Frankfurt.
"But the German system is not yet geared towards the development of Islamic finance. Politicians are wary," El-Mogaddedi said.
For their part, German banks have been quick to offer products that conform to Sharia law. But only outside Germany. Deutsche Bank has been issuing "Sukuks" (bonds without interest payments) in cooperation with Saudi banks since 2005.
However, the collapse of Commerzbank's Al-Sukoor equity fund is a less heartening example. When it was wound up after five years, it had tapped a mere $5 million, a long way from the desired amount.
"Not many rich families from the Gulf have settled in Germany and the Turkish community puts its money in savings banks like everyone else," said Volker Nienhaus, president of Philipps University.