IFN | Islamic Banking: The Regulatory Challenge

This article was first published in 2016 by Islamic Finance News.

2011 saw the beginnings of a new era in banking in Europe. Some questioned the resilience of the conventional banking model while others felt it was time to explore alternative models for future stability. The global financial crisis and the eurozone sovereign debt crisis could be aributed to an increased awareness of Islamic banking. DR YUSUF ABDUL-JOBBAR takes a look at Islamic banking in Europe and Germany and the associated regulatory challenges.

Overall, Islamic banking in EU countries is still in its infancy with huge potential. Banks offering Islamic financial products and services in the EU are only a small number. The majority of them are located in the UK which is regarded as the European hub of Islamic finance. The UK has a renowned reputation for having one of the world’s most developed and exquisite banking and financial services sectors with many institutions carrying over a century of experience.

With the launch of the UK’s first fully Shariah compliant retail bank in 2004, the UK today is considered to be a leader in Islamic finance within the western world. With over 20 banks currently offering Islamic financial products/ services, the government’s own Islamic Finance Task Force and approximately 25 law firms specializing in legal services required for Islamic finance, the UK has one of the most developed Islamic financial markets in the west.

Despite the UK taking a lead in Islamic finance, other eurozone countries are joining the race. Luxembourg is no stranger to the world of banking and finance. The Grand Duchy today has around 143 banks from 27 different countries. Its success in private banking is not built on banking secrecy, but rather on the quality of its services and the high level of cross- border expertise it has to offer.

Toward the end of 2014, the first fully-fledged Islamic bank in the eurozone, Eurisbank, was established in Luxembourg. It was initially launched with a capital of EUR60 million (US$65.21 million). The bank offers a mix of retail, corporate and pri¬vate banking services. Outside its home territory, Eurisbank has plans to open branches in France, Belgium, the Netherlands and Germany. The following year, we saw another big announcement, this time from neighboring Germany.

With over four million Muslims in Germany holding an estimated wealth of approximately EUR25 billion (US$27.17 billion), the appetite for Islamic finance is huge. In July 2015, KT Bank became the first fully Shariah compliant retail bank to operate in Germany.

Author: The Muslim Wealth Portal

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