Islamic Banking and Finance in Europe: The Case of Germany and United Kingdom

A Theoretical and an Empirical Analysis

by Muhammad Ashfaq (Author)
©2017 Thesis 220 Pages


The Islamic financial industry is expanding rapidly into non-Muslim countries including Western Europe. The author analyses what the prospects of success for an Islamic mode of banking and finance in Germany are at the retail level. The quantitative study revealed that two-thirds of respondents were willing to switch to Islamic banking, and that Giro and savings bank accounts and mortgage financing products and services were most desired by the respondents. The qualitative study showed that the success of Islamic Banking and Finance in the United Kingdom is mainly due to the proactive role taken by regulators and London’s role as an international financial center. Germany’s regulatory model is different than that of the United Kingdom in that there are no market entry barriers, and the success of Islamic banking in Germany will largely depend on the operating model of Islamic financial institutions.

Table Of Contents

  • Cover
  • Titel
  • Copyright
  • About the author
  • About the book
  • This eBook can be cited
  • Executive Summary
  • Acknowledgement
  • Dedication
  • List of Abbreviations
  • Table of Content
  • List of Figures
  • List of Tables
  • Chapter 1: Introduction, Background and Rationale of this Study
  • 1.1 Introduction
  • 1.2 Literature Review and Identification of Research Gap
  • 1.3 Problem Statement
  • 1.4 Research Questions/Objective of the Study
  • 1.5 Significance of Research
  • 1.6 Research Hypotheses
  • 1.7 Expected Results
  • 1.8 Concluding Remarks
  • Chapter 2: Fundamentals of Islamic Economics, Banking, and Finance: A Basic Guide
  • 2.1 Introduction
  • 2.2 Understanding of Islam and Shari’ah
  • 2.2.1 Purpose of Shari’ah
  • 2.2.2 Sources of Shari’ah/Islamic Law
  • 2.3 Definition of Islamic Economics
  • 2.3.1 Origin of Islamic Banking, Finance, and Economics
  • 2.4 Islamic Banking
  • 2.4.1 Importance of Islamic Banking for Muslims
  • 2.5 Characteristics and Features of Islamic Economic System
  • 2.5.1 The Prohibition of Riba (Interest or Usury)
  • 2.5.2 The Prohibition of Gharar
  • 2.5.3 The Prohibition of Maysir
  • 2.5.4 Profit and Loss Sharing
  • 2.5.5 Asset Backed Financing
  • 2.5.6 Prohibition of Investment in Haram Products and Industries
  • 2.5.7 Ethical Values and Rules
  • 2.6 Islamic Financial Instruments, Contracts, and Tools
  • 2.6.1 Musharakah (Equity Partnership, Joint Venture)
  • 2.6.2 Mudarabah (Investment Partnership)
  • 2.6.3 Murabahah (Cost-plus Sale/Mark-up Financing)
  • 2.6.4 Bay’ Salam (Forward Sale)
  • 2.6.5 Ijarah (Leasing)
  • 2.6.6 Istisnah (Construction Financing)
  • 2.6.7 Tawarruq (Cash Financing/Monetization)
  • 2.7 Difference between Islamic Banking System and Conventional Banking System
  • 2.8 Concluding Remarks
  • Appendix Chapter 2
  • Chapter 3: Risk Management and Islamic Wealth Creation and Wealth Management
  • 3.1 Introduction
  • 3.2 Risk Management in Islamic Finance
  • 3.3 Importance of Derivatives in Islamic Finance
  • 3.3.1 Slow Growth of Derivatives in Muslim Countries
  • 3.3.2 Reasons for the Underdeveloped Derivative Market in Islamic Finance
  • 3.3.3 Proposed Features of Shari’ah-Compliant Derivatives Markets
  • 3.4 Examples of Shari’ah-Compliant Derivatives in Islamic Finance
  • 3.4.1 Bay’ Salam as an Alternative to Conventional Forward Contract
  • 3.4.2 Use of Options as Derivative Instruments in Islamic Finance
  • 3.4.3 Bay’ Urban (Down-Payment, Deposit, or Earnest Money)
  • 3.4.4 Khiyarat (Option by Stipulation)
  • 3.4.5 Mubadalatul Arbaah (Islamic Profit Rate Swap)
  • 3.4.6 Way Forward for Islamic Derivatives
  • 3.5 Managing Liquidity Risk in Islamic Financial Institutions
  • 3.5.1 Importance of Effective Liquidity Management for Islamic Banks
  • 3.5.2 Causes of Liquidity Risk
  • 3.5.3 Liquidity Management in Practice for Islamic Financial Institutions
  • 3.6 Role of Supporting Institutions in Overcoming Liquidity Management Challenges
  • 3.6.1 The International Islamic Liquidity Management Corporation
  • 3.6.2 The Islamic Financial Services Board
  • 3.6.3 Liquidity Management Center in Bahrain
  • 3.6.4 International Islamic Financial Markets
  • 3.7 Liquidity Management Tools and Instruments
  • 3.7.1 Commodity Murabahah
  • 3.7.2 Interbank Deposits on Wakalah Basis
  • 3.7.3 Short-term Ijarah Sukuk as a Money Market Instrument
  • 3.7.4 Islamic Repo
  • 3.7.5 Way Forward for Liquidity Management
  • 3.8 Implications of Basel III for Islamic Banking
  • 3.8.1 Challenges Posed by Basel III to Islamic Banks
  • 3.8.2 Opportunities for Islamic Banks
  • 3.8.3 Response of Supporting Islamic Institutions and Corporate Governance
  • 3.8.4 Basel III and Islamic Finance Industry: Way Forward
  • 3.9 Wealth Creation and Management in Islam
  • 3.9.1 Size of Global Islamic Wealth Management Industry
  • 3.10 Concluding Remarks
  • Chapter 4: Global Emergence of Islamic Finance in Western Europe: a Case Study of the United Kingdom
  • 4.1 Introduction
  • 4.2 Brief Overview of Global Islamic Banking and Finance Industry
  • 4.2.1 Market Size of Global Islamic Finance Industry
  • 4.3 Evolution of Islamic Finance in Europe
  • 4.4 Islamic Banking and Finance and the United Kingdom
  • 4.5 Size of Islamic Finance Market in the UK
  • 4.5.1 Islamic Banking
  • 4.5.2 Sukuk
  • 4.5.3 Islamic Funds
  • 4.6 Driving Factors behind the Development and Growth of Islamic Finance in the UK
  • 4.7 Comparative Analysis of the UK and German Regulatory and Supervisory Model
  • 4.7.1 Regulatory Phases in the UK
  • 4.7.2 Islamic Finance Taxation Changes in the UK
  • 4.7.3 Regulatory and Supervisory Developments in the UK
  • 4.7.4 Regulatory and Supervisory Developments in Germany
  • 4.8 Islamic Banking Problems and Challenges in the UK Market
  • 4.9 Concluding Remarks
  • Chapter 5: Overview of the German Financial System and Islamic Banking in Germany
  • 5.1 Introduction
  • 5.2 Muslim Population in Germany
  • 5.3 Government Initiatives
  • 5.4 Evolution of Islamic Finance in Germany
  • 5.5 The Role of BaFin Regarding Islamic Finance in Germany
  • 5.6 Overview of the German Financial Environment and Banking Supervision Mechanism
  • 5.6.1 Foreign Banks from Muslim Countries Operating in Germany
  • 5.6.2 German Banking System
  • 5.6.3 Licensing of Islamic Financial Institutes According to the German and European Banking Law
  • 5.7 Market Players in Islamic Banking in Germany
  • 5.7.1 KT Bank AG (Kuveyt Turk)
  • 5.7.2 Landesbank Berlin AG
  • 5.7.3 Deutsche Bank AG
  • 5.7.4 Commerzbank AG
  • 5.7.5 Targo Bank AG & Co. KGaA
  • 5.8 Other Islamic Banking and Finance Initiatives in Germany
  • 5.9 Why Low Demand of Islamic Banking and Finance Products?
  • 5.10 Concluding Remarks
  • Chapter 6: Review of Existing Literature
  • 6.1 Introduction
  • 6.2 Studies about Immigrants and their Banking Behavior
  • 6.3 Studies about Islamic Finance in Germany
  • 6.3.1 Muslim Consumers Behavior toward Islamic Banking and Finance Products
  • 6.3.2 Quantification of the Potential of Islamic Banking and Finance
  • 6.3.3 Muslim Consumers Behavior toward Islamic Insurance Products
  • 6.4 Discussion about Existing Studies and our Proposed Study
  • 6.5 Concluding Remarks
  • Chapter 7: Theoretical Framework and Research Methodology
  • 7.1 Introduction
  • 7.2 Research Methodology
  • 7.3 Methods Used in this Research
  • 7.3.1 Quantitative Approach
  • 7.3.2 Qualitative Approach
  • 7.4 Theoretical Framework: Theory of Planned Behavior
  • 7.5 Proposed Conceptual Framework for this Study
  • 7.6 Methods of Data Collection
  • 7.6.1 Population and Sampling
  • 7.6.2 Sample Size for Retail Banking Survey
  • 7.6.3 Pilot Study
  • 7.6.4 Sample Size for Muslim Umbrella Organizations Survey
  • 7.6.5 Sample Size for Semi-Structured Interviews
  • 7.7 Questionnaire Design
  • 7.7.1. Translation of the Questionnaires
  • 7.7.2 Validity and Reliability of the Instrument
  • 7.7.3 Advantages and Disadvantages of Questionnaire Method
  • 7.7.4 Advantages and Disadvantages of Semi-Structured Interviews
  • 7.7.5 Research Ethics
  • 7.8 Practical Steps of Conducting the Field Survey
  • 7.9 Data Analysis Methodology
  • 7.9.1 Analysis of Quantitative Data
  • 7.9.2 Analysis of Semi-Structured Interviews
  • 7.10 Concluding Remarks
  • Chapter 8: Empirical Analysis of the Qualitative Data
  • 8.1 Introduction
  • 8.2 Profiling of the Interviewees
  • 8.3 Key Reasons of Islamic Banking Success in the United Kingdom
  • 8.4 Important Drivers for the Development of Islamic Banking in Europe
  • 8.5 Role and Influence of Religion and Countries of Origin on Islamic Banking
  • 8.6 Retail and Wholesale Islamic Banking Potential in Germany
  • 8.7 Appropriate Islamic Banking Models for the German Market
  • 8.8 The UK as a Role Model of Islamic Finance for other European Countries
  • 8.9 Challenges for Islamic Banking in Europe
  • 8.10 Legal and Product Development Challenges
  • 8.11 European Regulatory Frameworks and Space for Islamic Law
  • 8.12 Regulators Approach toward Islamic Banking in Germany
  • 8.13 Legal and Regulatory Requirements
  • 8.14 Political Support to Islamic Banking in Germany
  • 8.15 BaFin Policy regarding Issuing Banking License in Germany
  • 8.16 BaFin Policy toward Islamic Banking in Germany
  • 8.17 Islamic Banking via European Union Passport in Germany
  • 8.18 Future of Islamic Banking in Europe
  • 8.19 Success Prospects of KT Bank AG in Germany
  • 8.20 Concluding Remarks
  • Chapter 9: Empirical Analysis of the Quantitative Data
  • 9.1 Introduction
  • 9.2 Section 1: Analysis of the Retail Banking Survey
  • 9.2.1 Part 1: The Main Characteristics of the Respondents
  • 9.2.2 Part 2: General Banking and Finance Information
  • 9.2.3 Part 3: Perceptions of Consumers About Islamic Banking
  • 9.2.4 Knowledge About Islamic Banking and Finance
  • 9.2.5 Religious Characteristics of the Muslims
  • 9.2.6 Awareness Level About Islamic Banking and Finance
  • 9.2.7 Awareness and Prohibition of Riba
  • 9.2.8 Availability of Islamic Banks in Neighborhood
  • 9.2.9 Investment in Shari’ah-compliant Products
  • 9.2.10 Mortgage from non-Islamic Western Banks
  • 9.2.11 Willingness to Use Products and Services of Islamic Banks Despite Higher Costs
  • 9.3 Part 4: Consumer Willingness to Switch to Islamic Banking
  • 9.3.1 Willingness to Switch Toward Islamic Banking
  • 9.3.2 Motivations to Do Islamic Banking
  • 9.3.3 Reasons for Not Doing Islamic Banking
  • 9.4 Part 5: Relevance of Islamic Products
  • 9.5 Part 6: Inferential Statistical Analysis of the Retail Banking Survey
  • 9.5.1 Determination of Correlation Among Different Variables
  • 9.5.2 Willingness to do Islamic Banking and Religious Characteristics of the Respondents
  • 9.5.3 Gender and Level of Awareness of the Respondents
  • 9.5.4 Gender and Perceptions of Making Investments in Shari’ah-compliant Products
  • 9.5.5 Gender and Perceptions of Avoiding Mortgage Loans from Non-Islamic Banks
  • 9.5.6 Gender and Perceptions of the Respondents to Pay Higher Prices to Obtain Services of Islamic banks
  • 9.5.7 Awareness of Islamic Banking and Educational Backgrounds
  • 9.5.8 Nationality and Level of Awareness of Islamic Banking
  • 9.5.9 Nationality of Respondents and Demand for Islamic Products and Services
  • 9.6 Section 2: Descriptive Statistical Analysis of the Survey of Muslim Umbrella Organizations
  • 9.6.1 Awareness About the Existence of the Islamic Financial System
  • 9.6.2 Usage and Recommendation of Interest-free Products to the Members
  • 9.6.3 Desired Products and Services by the Muslim Organizations
  • 9.6.4 Reasons for Not Doing Islamic Banking
  • 9.6.5 Demand of Islamic Banking Products Among Muslims
  • 9.6.6 Benefits of Islamic Banking Products for the Muslim Community
  • 9.6.7 Religious Characteristics of Members of Muslim Organizations
  • 9.7 Section Three: Hypothesis Testing
  • 9.8 Concluding Remarks
  • Chapter 10: Discussion and Conclusion
  • 10.1 Introduction
  • 10.2 Summary of Main Findings
  • 10.3 Potential Impact of Muslim Refugees and Asylum Seekers on Islamic Banking
  • 10.4 Study Recommendations
  • 10.5 Research Contributions
  • 10.6 Research Limitations
  • 10.7 Areas for Further Research
  • 10.8 Future Outlook
  • 10.9 Concluding Remarks
  • References
  • Appendix

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Chapter 1: Introduction, Background and Rationale of this Study

1.1 Introduction

The financial system includes financial intermediaries and financial markets, which play a vital role in the economic development of a given country (Majanga, 2015; Claus et el., 2004; Askari, 2012). The financial system has a complex structure and consists of banks, insurance companies, stock markets, and mutual funds, and it depends on the economic stage of development of the society concerned. Efficient and effective financial systems facilitate the swift transfer of funds from savers to spenders. Savers deposit excess funds in the form of savings, while the spenders seek excess funds for spending and investment (Iqbal & Molyneux, 2005).

Islam is a complete code of life and offers solutions to a wide range of problems arising from personal, social, political, and economic situations (Mohamad et al., 2014). In the view of Malkawi (2014), in Islam, there are certain rules and ethical norms that provide guiding principles for conducting business and economic activities. Islamic banking and finance is an innovative branch of financial services and one that has grown significantly during the last four decades (Alrifai, 2015). The primary motive of conventional1 banks is profit maximization where charging interest is central to the business structure. However, Islamic bank operations are interest-free (Riba) and only Halal (permissible) transactions are allowed (Abu-Alkheil, 2012). The Islamic financial industry2 is comprised of a number of components including Islamic banks, Islamic windows at conventional banks, Islamic insurance (Takaful), capital and money markets, and non-bank financial institutions (Askari, 2012). It should be taken into account that Islamic banks are the largest segment of the Islamic financial industry, which performs the function of financial intermediation.

Islamic banking and finance is a system regulated by a set of rules based on outlines set by the Islamic Shari’ah. Shari’ah is a set of guidelines mentioned in the Quran, Islam’s Holy book, and is based on the concept of Riba (Usury) which addresses interest, uncertainty (Gharar), and gambling (Maysir), which are strictly forbidden in Islam (Nienhaus, 2011a, Malkawi, 2014; Etzold & Wackerbeck, 2012; Ribera et al., 2011; Etzold & Wackerbeck, 2011). Hersh (2011) stated that Islamic ←1 | 2→finance has emerged as a viable alternative to conventional finance3, and the recent financial crisis4 has highlighted the inherent weakness in the global financial system. Ahmed (2015) highlighted the fact that the financial crisis of 2008 followed by the recession of 2009 has raised important questions about the current financial architecture and the viability of the future of the global economy.

Ethical aspects of Islamic banking appeal to a wider group of customers including ethically oriented or religious customers that are not satisfied with the conduct of Western financial institutions (Etzold & Wackerbeck, 2011). Nienhaus (2011b:1) stressed the importance of a new financial system that can ensure global financial stability by stating:

“The world in general is in search of a better financial system that, among others, can ensure more stability, efficient allocation of resources, just distribution, responsibility of investors, risk sharing, sustainability, entrepreneurship and innovation.”

Etzold and Wackerbeck (2011:18) discussed the importance of Islamic finance after the recent financial crisis as:

“Overall, with the current banking model having come into question after the crisis and with the need to channel payments and investments from East to West in a Shari’ah-compliant way, the opportunities for Islamic finance in Europe are better than ever.”

Alrifai (2015), stated that in the mid-1990s there were about 144 Islamic financial institutions, which were functioning mainly in Malaysia and Middle East with total assets $150 billion. Currently, this number reached over 700 institutions with total assets amounting up to $2 trillion. These institutions are working in Muslim countries and expanding rapidly into non-Muslim regions including Western Europe, Asia, and North America. According to Alshamrani (2014), the Islamic financial market is growing at a rate of 15% per annum and is currently comprised of “more than 500 Islamic financial institutions operating in over 75 countries.” Thus, the Islamic finance market, which operates globally and has many institutions operating in Western countries, “is one of the fastest growing financial sectors” and was ranked as the fastest growing sectors after the recent financial crisis (Alshamrani, 2014).

←2 | 3→

According to a recent report published by the TheCityUK (2015), the size of Shari’ah-compliant assets was around $2 trillion at the end of 2014. Islamic retail banks are bourgeoning through the Middle East and currently the presence of Islamic banks and asset management institutions can also be seen in non-Muslim countries such the United States (US) and the United Kingdom (UK) (Perry & Rahman, 2011). Although Islamic finance is making inroads into the industrialized West, it is not currently a threat to the conventional financial institutions as it is expected to remain a niche market. Ribera et al. (2011) stated that Islamic banks are gradually gaining ground in major European and American markets, especially in those countries that have large Muslim population.

According to Malkawi (2014), four factors, including influx of petrodollars, Muslim population, low penetration levels, and built-in ethical values in Islamic financial model, have contributed to the rapid growth of the Islamic financial industry. As Islamic finance prospers across Europe, many financial institutions perceive a new window of opportunity to reach additional client groups, including the growing Muslim immigrant community, in order to generate additional profits by offering ethical and Shari’ah-compliant banking and financial services (Wilson, 2007). Thus, financial service firms and banks do not consider the growth of the Islamic financial market around the world a threat to the traditional banking and economic system. Moreover, the financial crisis in Europe demonstrated the importance of moral values in the financial sector, which would be an argument in favor of the potentially beneficial impact the Islamic financial system has on enhancing the receptiveness to the Western, and also German financial markets (Mauro et al., 2013; Guski, 2009).

The Islamic financial system prohibits charging interest (Riba) on loans (Askari et al., 2012; Daly & Frikha, 2015). Both the borrower and the lender must share risk in any transaction. Both the provider of capital and the entrepreneur share the businesses profit and loss. Speculative behavior (Gharar) and gambling (Maysir) are not allowed in Islamic Shari’ah (Farooq, 2014; Azad et al., 2013). Due to the involvement of speculation and uncertainty Islamic financial practices also restrict the traditional use of derivatives (financial instruments that derive their price from one or more underlying assets) (Al-Amine, 2013b). Money is seen as potential capital and thus only takes the form of actual capital when it is used in a productive capacity. Sinful products, which are banned by Quran, including such products as pork, alcohol, and prostitution, cannot be financed (Alrifai, 2015).

According to Azad et al. (2013) Islamic financial markets around the world have witnessed the rapid growth of Islamic finance in recent years and currently function parallel to the conventional financial markets. The growing acceptance of Islamic financial markets is due to the unprecedented annual growth of 12–15% and the potential for Muslims wealth. Various financial centers around the world are actively promoting Islamic banking and finance in their respective jurisdictions, and conventional players are venturing into Islamic financial activities.

It is worth remembering that the recent financial crisis was, in substance, an economic disaster caused by inherent weaknesses in the conventional financial system (Ahmed, 2009). People defaulted on consumer debts that they could not afford to ←3 | 4→pay from loans that they should not have been granted in the first place. Innovative financial instruments that enabled more participants to speculate on risks magnified the effects of the financial crisis. This made things worse by creating a bigger asset bubble (El Hussein, 2013). However, with prudent financial innovation, the magnitude of this financial crisis would have been much smaller.

Islamic finance, on the other hand, relies less on debt based financial reengineering; rather, most of its growth has been predominantly a result of the expanding economies of Muslim countries, which has resulted in more demand for Shari’ah-compliant products. The Islamic financial market was not adversely affected by the recent sub-prime financial crisis because it was backed by real and tangible assets (El Hussein, 2013).

1.2 Literature Review and Identification of Research Gap5

In continental Europe, the UK is the initiator of providing Islamic banking and financial services to fulfil the demands of the increasing minority Muslim population (Wilson, 2007). This is a result of an Arab joint venture – banks bringing Islamic finance to London during 1980’s as financial institutions in the Gulf realized that re-depositing on a Murabahah basis could be a useful tool for managing liquidity with mark-ups generated from trade activity on London Metal Exchange (Wilson, 2007). In the United Kingdom, the Financial Services Authority (FSA) has proactively facilitated the development of the Islamic financial sector. Despite having a much larger Muslim population than the United Kingdom, Germany lags far behind in the development of Islamic finance (Bälz, 2007; Wilson, 2007; Nawas, 2013; Ernst, 2011; Etzold & Wackerbeck, 2011). There is not a single Islamic bank operating in Germany. Parker (2008) stresses that if Germany implements legislation enabling Islamic banking and finance and the government provides support Germany has a strong potential for becoming an even larger Islamic financial market than the UK. The German state Saxony-Anhalt issued a €141 million asset-backed Sukuk bond in 2004. The bond was listed on the Luxembourg Stock Exchange, and was the first such kind of Islamic financial transaction among European countries (Ahmad et al., 2014). According to Colditz (2009) and Ernst (2011), German financial institutions have hitherto not shown strong interest in Islamic banking and finance within Germany apart from specific cases of Sukuk bond issuance. German banks, such as the Deutsche Bank and West LB, are offering Islamic banking products and services in the Middle East and Malaysia. However, no similar initiatives exist in Germany despite a Muslim population in excess of four million persons (Etzold & Wackerbeck, 2011).

Trakic (2012) pointed out that Germany is far behind the UK in the development and promotion of Islamic finance despite having a sizeable Muslim population. ←4 | 5→The main reason behind the slow development of the Islamic financial sector is the existence of ‘ Leitkultur phenomena’ in society and ‘fatwas’-an opinion given by some Muslim scholars, which exempted Muslim populations living in Europe from complying with Shari’ah guidelines in the ordinary course of life (Bälz, 2007).

To offer Islamic financial products and services within a secular environment such as Germany, several successful business models that are currently used in the United Kingdom could be adapted to the German context (Mauro et al., 2013). First, already established financial institutions can offer Islamic banking and finance services based on Shari’ah-compliant principles. Second, a dedicated Islamic finance window might be opened by commercial banks. Third, Germany could establish a full-fledged Islamic bank, similar to the Islamic bank of Britain, to serve the needs of Muslim customers. Kuveyt Turk Participation Bank, a business unit of Turkish Kuwait Finance House, has already received a limited banking license to operate in Germany, but its application for a full banking license is still under review (Nawas, 2013). In March 2015, KT Bank AG became the first bank in Germany to obtain a full-fledge banking license to offer products and services in a Shari’ah-compliant manner (KT Bank AG, 2015).

Some researchers, like Schönenbach (2012), have identified various barriers regarding the development of Islamic finance in Germany. Although such barriers include low-income levels for Muslims in Germany and a low number of Muslim women in the German workforce, some German banks (such as Deutsche Bank AG and Commerzbank AG) have successfully entered into Islamic banking and financial services in various Arab countries including Saudi Arabia. However, such services are not yet offered in Germany (Parker, 2008). According to Farhoush and Schmidt (2011), Deutsche Bank AG has taken an initiative toward Islamic Banking and has established its Bankamiz branches, which are offering consultancy to the Turkish community and free remittances to Turkey. On the other hand, Ernst et al. (2013) argued that Deutsche Bank AG finds little potential for Shari’ah-compliant products and services in Germany. Etzold and Wackerbeck (2012) stated that several attempts have been made to establish Islamic banking in Germany but the specific nature of German banking regulations and the language barrier are primary reasons for the failure of such efforts. Generally, German officials in government offices prefer the use of German rather than English. On the other hand, Ribera et al. (2011) asserted that Germany is an attractive market for Islamic banks due to a Muslim population in excess of four million.

According to Ernst (2011), a lawyer in Germany, a major challenge to success is the drafting of contracts that are Shari’ah-compliant but that also comply with laws that are enforceable in secular courts. However, Ernst firmly believes that it is possible to draft such contracts in a manner that a judge can pass a verdict without having prior knowledge about the key Shari’ah principles. Similarly, Parker (2008) asserted that it is feasible to structure Islamic financial transactions in Germany.

Nawas (2013) found that 74% of German-Muslims expressed a keen interest in Islamic financial products. However, a recent survey found that 94% of German-Muslims expressed an interest only if said services are available from Islamic banks ←5 | 6→Despite an estimated 1.2 billion Euros in Islamic finance potential less than 5% of German-Muslims are currently using Islamic banking products (Nawas, 2013).


ISBN (Hardcover)
Publication date
2021 (June)
Islam Islamic Finance Germany UK Europe
Frankfurt am Main, Bern, Bruxelles, New York, Oxford, Warszawa, Wien, 2017. XXVI, 220 pp., 23 tables, 8 b/w ill., 2 coloured ill.

Biographical notes

Muhammad Ashfaq (Author)

Muhammad Ashfaq is CEO of the Amanah Institute of Islamic Finance and Economics. He has contributed to the further development of the Islamic financial industry through his cutting-edge research and global initiatives for human capital development and organizational capacity building.


Title: Islamic Banking and Finance in Europe: The Case of Germany and United Kingdom