Presentation of Islamic Finance-New Frontiers, New Opportunities: What are the advantages for the Mediterranean region? The II Islamic Finance Summit was held in the framework of the VIII Mediterranean Week of Economic Leaders organized by ASCAME and the Chamber of Commerce and Industry of Barcelona

1. Islamic Finance - New Frontiers, New Opportunities:
What are the advantages for the Mediterranean region?
Xavier Foz
Forum organized by:

2. Situation of bank financing in the Euro-Med region
 Excessive dependency of companies on bank financing vs. capital markets
and other sources of alternative funding.
 Increased restriction of access to bank financing for micro-, small- and
medium-sized enterprises.
 New bank regulatory legislation (Basel III) will lead to ongoing bank credit
constraints and transaction cost increases.
 European financial entities (especially, those of southern countries) will
continue to deleverage their balances.
 Financial development measures in the southern and eastern
Mediterranean countries (SEMCs) are still low by international standards,
except for stock market capitalisation.

3. Financial sector development in the SEMCs

4. Change of the financial paradigm
 The financial crisis has questioned the financial monopoly of conventional
credit entities as an efficient channel to allocate national savings to real
investment opportunities that contribute to growth and job creation.
 Bank credit constraints have provided incentives for development of
alternative financing mechanisms and the importance of tools steeped on
tradition in other countries. New technologies are giving rise to
participatory financing models through internet platforms (fintech).
 There is a need to develop new finance models that uphold the principles
of economic and social justice and are not based solely on the concepts of
interests and debt.
 Islamic finance, thanks to the ethical component of the moral principles
which inspire it, may be one of those models. Due to its nature and the
type of assets it invests in, Islamic finance has been especially resilient
during the financial crisis.

5. Islamic finance developments in Europe
 United Kingdom: broad presence of Islamic commercial banking (fully
fledged Islamic entities, subsidiaries, branches and banking windows),
Takaful insurance companies, recent issuance of sukuk for €200 million.
 France: parity of tax treatment of Islamic finance vs. conventional finance.
 Germany: first issuance of sukuk by a Western country (€100 million by
the State of Saxony-Anhalt in 2004).
 Luxembourg: recent issuance of sukuk for €200 million and foreseeable
opening of the first Islamic bank of continental Europe (Eurisbank).
 Ireland: leading centre for funds and supportive legal and tax environment.
 Switzerland: private banking and management of Islamic assets through
local banks and subsidiaries of entities from the GCC countries.

6. Islamic finance opportunities in the Euro-Med region
 Financial sector with the major growth worldwide ($130 billion in assets in
2012).
 Development of a new financial system complementary to the conventional
system but with an ethical component.
 Access to bank services for a relevant sector of the population that begins
to demand products that comply with Islamic principles.
 Access to new investment and capital flows (particularly, those coming
from emerging markets), both for the private and public sectors.
 Creation of new professional positions in different sectors.
 Market niche for specialized local entities vs. conventional global entities.
 Creation of a financial center in the south of Europe: access door to
investment in Latin America and the Maghrib.

7. Islamic finance opportunities in the Euro-Med region
 Areas with major potential:
 Retail and private banking: Muslim community and immigrants’ funds
(repatriation), non-Muslim clients interested in its ethical component
 Wholesale banking: corporate, project finance
 Private equity
 Funds management
 Capital markets: sukuk (financing alternative for Public Administrations
with difficulties issuing conventional debt but which have suitable
assets to be able to structure these issuances)
 Insurance: takaful
 Company certification and audit

8. Islamic finance challenges in the Euro-Med region
 Legislative support: creation of a legal and tax environment that equates the treatment of
conventional and Islamic financial products.
 Regulatory support: instrumentation of a dual control and monitoring system
(conventional and Shari’ah) by the Central Banks.
 Homogenization of criteria in the interpretation of the Shari’ah and standardization of
products.
 Training of professionals from the sector to achieve the appropriate qualifications.
 Erasing prejudice in the European countries against the Islamic component and
spreading its use among non-Muslim clients.
 Increase liquidity of the investment products and wholesale financing channels between
entities.
 Ensure efficient risk management by Islamic banks using contracts that create significant
exposure to the real estate sector.

9. Outlook for the Euro-Med region growth
 Small and medium enterprises are key to creating opportunities in the region; they
contribute nearly 35% of national GDPs while generating 80% of jobs. They are an
essential element to foster greater investment opportunities and trade as well as
technology and knowledge transfer in the region.
 Four strategic pillars for the region: water, environment, infrastructure and financing. Its
natural resources (the Euro-Mediterranean zone accounts for 5.8% and 8.4% of the
world’s oil and gas reserves, respectively) and its proximity to hydrocarbon reserves
transform it into the world’s foremost energy transit region.
 The blend of mature and emerging markets, of countries with medium and advanced
levels of technology, and labour- and capital-intensive economies, all of which results
in enormous complementarity between the northern and southern Mediterranean
shores.
 The extension of the availability of reliable payment solutions will encourage users
without access to traditional financial services to join the financial system. This will
contribute to the development of the economy, both by increasing the amount of
transactions carried out through formal channels and also by providing opportunities for
innovative new products to develop.

10. Conclusions
 A further regional integration of the Mediterranean countries would enhance
the growth and development of the region.
 The financial crisis has driven the reappearance of Islamic finance worldwide
and its expansion in western countries where Islamic finance had not had a
relevant level of penetration.
 On the European Union level, there should be a common strategy regarding
Islamic finance, but in the absence thereof, it is fundamental to adapt national
legislation to create an environment that fosters development of this finance.
 Establishment of an Islamic products offer may have a demand creation effect,
even in non-Muslim clients.
 Implementing the Islamic banking window model by conventional national
banks may be the first approach in European countries to this market awaiting
the arrival of foreign Islamic banks. In any case, there will be room for local
specialized initiatives such as Islamic financial services cooperatives or Islamic
mutual insurance.

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