According to the documentation center of the French Economy and Finance Ministry (CEDEF), the term Islamic finance covers “all financial services in accordance with Sharia Islamic law that bans receipt and payment of interest (riba), excessive uncertainty (gharar), gambling (maysir), speculation like short sales and compels the sharing of the risks and rewards of any financial, business transaction.
In spite of the limitations it sets, Islamic finance has established a presence in more than 60 countries and has become systemically important in 14 jurisdictions, according to the latest data delivered by the IMF in its latest report Ensuring Financing Stability in Countries with Islamic Banking.
The IMF’s Board of Directors wished to assess more precisely the prospects for the global growth of Islamic finance and to suggest a plan to create an environment that would foster its financial stability and compliance with legal, prudential and risk standards. With an estimated annual growth rate of 16.1%, Islamic finance remains mainly concentrated in the Sunni monarchies of the Gulf, in Iran and in Malaysia but already accounts for 1.05% of world finance, with total assets valued at 2.100 billion dollars.
Islamic finance would therefore be emerging as a “new deal for finance” with the definition of banking methods according to religious principles which, believers said, would have spared Islamic banks from the subprime crisis in 2008. For example, taking into account the emergence of Islamic finance in the West, the French tax authorities decided as of September 2012 tax neutrality for transactions in the Islamic futures contract (murabaha) with respect to registration fees and tax deductibility of remuneration paid in respect of Islamic financial products (sukuk).
With constantly growing Muslim immigration and demographics, Europe should logically witness the rapid expansion of a visible and differentiated Islamic banking offer with likely deep economic, political and legal consequences. With an overall growth of 800% between 2003 and 2013, Islamic finance could double by 2025 and reach a total financial mass of 4.000 billion dollars.
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