Social Responsibility Trends
at Islamic Financial Institutions

1st poll with the support of AAOIFI:

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After the ban on minarets, will there be a ban on Islamic finance? One could dread it, if one reads the op-ed, published on November 20th, called “Islamic Finance threatens the French tradition of secularism.” The affair looks critical, indeed. In fact, the arguments implied in the column are not to be taken seriously. First of all, it uses deliberately exaggerated phrases in the aim of frightening readers: “Sharia law is attempting to be introduced in French law” or “France should not yield to the imperatives of any religion.” Second, it mobilizes the conspiracy theory: it seems in this column as though everything is hidden from us, cleverly concealed: “in the muffled environment,” “in the mugginess of July,” until “broad day light be shed onto this affair”… And yet this issue had been debated on for several months: nobody is hiding from that debate. As a proof thereof, take a look at the numerous symposiums, press conferences, articles and books dedicated to the subject. Lastly, let us point out this ultimately specious argument: we are bluntly told in the introduction that the “Constitutional Council has spared us from the danger (of Islamic finance), at least temporarily,” whereas we are told by the end of the article that the Council’s decision was a matter of form, not a veto on Islamic finance per se.

However, Islamic finance deserves neither unconditional praise, nor such a row over it. Let us try to put things straight, thinking of the interest of our country first.

What is the quarrel about exactly? Islamic finance appeared in Muslim countries because of the ban by the Quran on interest loans, called “riba.” Although its origin is religious, “Islamic finance”, surprisingly, is precisely about by-passing this ban to meet the standards of a modern economy. This gave birth to a competitive and inventive system based on some simple principles: being backed on the real economy, retribution according to cash flows, the share of losses between the loaner and the borrower. Things are much less complicated than they seem!

Why should we adjust our law to welcome Islamic finance? Since its recent international boom, Islamic finance has often been the victim of legal obstacles and additional fiscal costs. This is why many countries, like Britain or Germany, have changed their legislation to remove these barriers. What is at stake for France is its participation to that move and its capacity to attract those investments for our country’s development.

France must catch the train of Islamic finance. This will not require a legal revolution. In fact, only some regulatory and fiscal “frictions,” which make Islamic finance instruments more costly than standard instruments, must be removed.
And the French vision of secularism? The change in legislation that we need does not imply to introduce Sharia law at all: this would be contrary to the principle of “laïcité” to which we are all strongly attached. It is actually the contrary: we want to apply the principle of neutrality, the cornerstone of secularism. Our goal is to make our fiscal law neutral towards Islamic finance, instead of maintaining the discriminatory barriers that hinder its development. Moreover, these adaptations are very similar to those brought along by the numerous fiscal conventions that we ratify each year with foreign countries. Nobody would dare say such conventions are causing France to “bow” in front of these countries! I also demand that Islamic finance can be thought of in the context of the increasing demand towards more “ethical” financial instruments, which respect the consumers’ social, environmental or religious convictions. Such initiatives are developing from everywhere nowadays, including inside the Catholic Church. Islamic finance is a mere example of this move, and therefore, there is nothing shocking about it.

Is the development of Islamic finance in the interest of France? Yes, three times yes!

Yes, because Islamic finance represents an outstanding geopolitical opportunity. Against the risk of a “clash of civilizations,” fueled by those who deliberately spread stereotypes and dangerous fantasies, it is important to build financial and commercial ties between the West and the Muslim world. The development of Islamic finance is potentially tomorrow’s version of the “smooth trade,” factor of peace, sketched by Montesquieu.

Yes, because Islamic finance is an answer to France’s needs in capital. Our country badly needs to invest in its future, as the recent issuance of a new generation of public bonds has shown. In order to do so, France must be ready to welcome foreign investors from the Muslim world who wish to contribute to the development of our production and research. One must not reject Islamic finance any more than sovereign wealth funds in the name of old-fashioned “economic patriotism.” This is the condition for future growth in our country.

Yes, because we must reinforce the “Paris platform,” i.e. our financial marketplace and our ability to regulate it. A “deep” and dynamic financial platform enables our firms, small and big, to grow and develop. This is all the more accurate as the current international crisis forces the actors in the financial sphere to narrow the array of their investments, concentrating on a few global marketplaces. Paris must be among them and therefore, it needs to count on the significant contribution of Islamic finance. It is in regulators’ interest that Islamic finance settles in Paris and not in the City!

Let us conclude with a wish. We wish that the legitimate debate on Islamic finance that we call for becomes a debate in which reason triumphs over passions. At a time when France is rethinking its identity, we do not need fatwas, wherever they come from.

Hervé de Charette

Former Minister of Foreign Affairs
President of the French Institute for Islamic Finance