22 July 2008

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 favourable 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."

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 USD 700 billion (EUR 441 billion), does exist to some extent in France already.

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