Paris - The French government, anxious to attract some of the Gulf-based investment currently flowing to London, is promoting Islamic finance, offering it a more accommodating legal and fiscal framework in France.
Economy Minister Christine Lagarde, recently addressing Gulf investors, pledged to take steps "to make (their) activities as welcome in Paris as they are in London and elsewhere."
Analyst Emmanuel Volland of the ratings agency Standard and Poor's noted that this was "the first time that a representative of the state has said publicly that she is favorable to the development of Islamic finance.
"It's a strong signal and the players are listening."
But at another agency, Moody's, Anwar Hassan, cautioned that government pronouncements "are not in themselves sufficient to ensure the blossoming of Islamic finance here."
He said the government should not be content simply to reduce "legal or fiscal irritants" but should - for example - issue Islamic bonds, known as "sukuks," as Britain plans to do next year.
The challenge is also not purely technical or limited to establishing an infrastructure receptive to Islamic finance, he said, adding that convincing the French public of the soundness of such investments would be the real test.
The task, he argued, was to show that they are "an ethical, modern finance alternative."
No interest for Islam
Islamic law proscribes the paying of interest for a service as well as speculation, and prohibits investment in sectors such as pornography, gambling, weaponry, alcohol or pork products.
Hassan warned too that investors in the Gulf or Malaysia might see France's current interest as simply trying to "make sure that some of the oil wealth gets recycled in France."
Islamic finance, a market estimated to be worth $700bn, does exist to some extent in France already. The leading Gulf investment funds, Gulf Finance House, Qatar Islamic Bank, Barwa Real Estate or Quinvest, currently have offices in the Paris suburbs.
Hassan noted that the establishment of an investment fund, compatible with Islamic law, in the French Indian Ocean island of Reunion by the bank Societe Generale "could attract savings from French Muslims."
Societe Generale has said it has no plans to set up a comparable operation in metropolitcan France.
Eventually the offer of Islamic bonds could provide an alterative to French companies currently penalised by increasingly costly bank credit.
For the moment, however, France does not offer Islamic banking services, despite having the largest Muslim community in western Europe.
In Britain, the Islamic Bank of Britain was launched in 2004, the first such institution in Europe. About 20 traditional banks in Britain also offer Islamic banking services.
But Mohamed Damak of Standard and Poor's cautioned that the profile of the Muslim community in France is different from that of Britain.
"It seems to favor the transparency of conventional banking," he said, adding that it was "simplistic to think that because there are twice as many Muslims in France as in Britain, that the demand is going to be the same."
- AFP