DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE IN EUROPE WITH SPECIAL REFERENCE TO ITALY

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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY
Gian Maria Piccinelli Second University of Naples
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ISLAMIC FINANCE PERSPECTIVES IN EUROPEThree
main issues1) The opportunity of attracting
surplus liquidity from main Islamic countries and
financial centres. 2) The challenge of Islamic
finance as an alternative method of investment,
which is less speculative and more likely to
produce sustainable development in the real
economies. 3) Integration policies of Muslim
communities in Europe and the growing demand for
compliant financial and banking services (with
attention to the relation between Islamic label
and Ethical label ).
DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
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Prudent consideration to the Islamic experiments
conducted in Great Britain.
DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
Islamic finance developments in continental
Europe

• Different approach after 2001 and after the
  structural changes occurred in the EU (common
  currency, EU monetary policy, ECB and ESCB,
  coordination of credit and vigilance policies,
  control of payment systems).

• In Europe, wider knowledge of the Islamic
  system.

• In the Islamic system, effort of achieving the
  compatibility with standard rules governing
  transparency, risk and capital management.

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2004 The Saxon-Anhalt region issued sukuks
al-ijara for US 100 million
DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
Germany
asset-backed securities based on leasing
agreements with
a) an underlying asset in buildings owned by the
German Ministry of Finance and conferred to the
SPV mudaraba for 100 years
b) a five-years leasing contract between SPV and
the Ministry with an option to renew the lease
c) the benchmark set to one basis point above
six-months Euribor
d) quotation on the Luxemburg stock exchange (the
rating has been AAA for Finch and AA- for
Standard Poors)
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From 2004 onwards Banks and financial
institutions engaged in experimenting Islamic
financial instruments- BNP Paribas through BNP
Paribas Najmah (Bahrain) - Société Générale
Group through SGAM-AI (SG Asset
Management-Alternative Investments) BFC
(Banque Française de Commerce)
DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
France

• From 2008 onwards Study and enactment of
  legislative reforms to create a proper framework
  for Islamic finance and banking

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BNP Paribas Najmah (Bahrain) offers Islamic
saving, credit and investment contracts
deposits, operations of murabaha, sukùk,
ijàra/leasing, asset management products, as well
as FOREX with swap-free account and derivatives
Investments funds are linked to the Dow Jones
Islamic Market Index and to the FTSE Islamic
Global Index.
DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
France

• SGAM-AIlaunched first protected capital products
  in 2004 (with a total amount of US 500 million
  at the end of 2007) prepared using dynamic
  portfolio insurance combined with a muràbaha and
  an option (arbùn). They offer the entire capital
  restitution or, if more positive, 85 of the
  highest market value obtained before stocks
  maturity.

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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
France

• SGAM Baraka Index created as a dynamically
  managed proprietary index based on an active
  selection from a basket of 30 stocks selected in
  the Dow Jones Islamic Market Index and appraised
  in advance by its Shariah Control Committee

• SGAM Index Standard Poors Shariah (2008)is a
  passive index which seeks to track the
  performance of the 500 Islamic titles listed in
  the SP Shariah indexes within the SG unit trust
  in Luxembourg (in conformity with UCITS III
  European Directive).

• SGAM AI Shariah Liquidity (2008) by BFC in La
  Réunion -Products with 18 months maturity,
  providing daily liquidity through a certificate
  managed in accordance with murabaha principles.

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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
France

• May 14, 2008 audience with some Islamic funds
  experts and managers at the Finance Committee of
  the Senat

• October 29, 2008The bill n. 1277-2008 (regarding
  improvement of SME credit access) has been
  presented at the National Assembly containing a
  revision of art. 2011 code civil concerning
  fiducie (trust) in order to introduce a
  distinction between legal property and economic
  property with the opposability of the destination
  clause to third parties (similar to the art. 2645
  ter of Italian C.C.)

• October 14, 2009Final enactment of the law
  without that provision after the rejection by the
  Constitutional Council.

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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
Comparing definitions of bank in Islam and Europe
ISLAMIC DEFINITION OF BANK

• as for the elimination of riba from all
  transactions Banks are institutions that collect
  money (savings) from the general public and
  provide credits through interest-free
  transactions both on the asset and liability
  sides.

• as for the adoption of participatory
  contractsBanks are institutions operating
  through a system where profits and losses are
  shared between the parties of each transaction
  (Profit-Loss Sharing PLS) without a general
  guarantee of fund repayment.

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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
Comparing definitions of bank in Islam and Europe
ISLAMIC BANKS

• Saving accountswide range of deposits repayable
  on demand or with a term or call period.

• PLS contracts for saving and credit- directly
  participatory contracts mudàraba (limited
  partnership, joint venture) mushàraka (venture
  capital, project finance)- indirectly
  participatory contracts muràbaha (mark-up
  sale), ijàra (leasing), istisnà
  (procurement, order to manufacture)

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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
Comparing definitions of bank in Islam and Europe
EUROPEAN DEFINITION OF BANK There is different
definitions in each national legislationA
common frame could be found in defining Banks
only those enterprises whose main activity (so
called banking activity) consists both in
collecting repayable funds from the general
public and in providing loans as well as all
other financial activities (Italian Banking Law
n. 385/1993 art. 10,3)
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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
Comparing definitions of bank in Islam and Europe

• In the common European conceptThe activity of
  collecting funds produces the banks obligation
  to repay and the depositors right to be
  reimbursed, while it does not produce any duty of
  compensation on the deposited amounts.

• In the Islamic concept Different types of
  deposit do not produce a debt-based transaction
  between the depositor and the bank, but an
  equity-based transaction with the consequence
  that no guarantee on the deposit is allowed(even
  if only participatory accounts can actually
  suffer losses for inadequacy of banks capital
  and reserves).

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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
Legislative reforms required

• Guarantees and credit risk managementvarious
  degrees of borrowers risk does not correspond to
  the application of different interest rates, but
  are congruent with different allocations of
  profit shares

• the law of trust in civil law systems with
  special regard to the opposability of
  beneficiarys rights to third parties

• the discipline of civil guarantees (sale of goods
  and debt or credit transfer)

• the leasing contract affecting goods or real
  estates

• fiscal legislation mainly in order to avoid
  double imposition in temporary purchase and sale
  transactions

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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
Islamic capital market
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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
Ethic banks vs. Islamic banks
Positive and negative criteria for investment
selectionSharìah-compatibility test excludes
all those activity expressly violating the
Quranic precepts (alcoholic production, swine
processing, etc.) or conflicting with Islamic
ethics deriving from the same precepts.
Ethic-compatibility test excludes all those
activity not coherent with socially responsible
activities (weapons, environment, sustainable
development, fair trading, etc.)Positive
screening process of the financial pocket based
on the efficiency evaluation and performance
criteria
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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
Ethic banks vs. Islamic banks
Purification of investment returnsas a
consequence of transparency that concerns
directly the psychological security of each
investor and calls for the principle of
individual conscience to decide to follow an
alternative way in money investment. in
ethic-compliant institutions the savers renounce
all or part of the interests addressing them at
projects in the third sector with a strong social
value. in Sharìah-compliant institutions
returns contaminated by transactions operated
within an interest-based system should be
addressed to charitable purposes.
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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
Ethic banks vs. Islamic banks
A convergence within ethic co-operative
banksclient-partner model of activity
inspires both systems where in theory it is
considered a bank/client joint liability.
partner-client practices deriving from the
experience of shareholders uptaking the bank
services.widespread community of shareholders
as a common needtransparency and nearness to
the clients needs (from the economic, social and
religious point of view) as a point of strength
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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
Ethic banks vs. Islamic banks
A convergence within ethic co-operative
banksCritical issues additional costs derived
by the duties of both information and vigilance
remain particularly onerous for banks with an
atomized shareholders community Positive points
for Islamic banks- canalization of donations
(zakat, sadaqa, remittances)- credit demand from
ethnic firms- purchase of real estates- market
of ethnic and faith-compatible goodsTo avoid
any form of religious discrimination in accessing
credit and banking services
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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
Conclusive remarks

• The Islamic label- involves foreign policies-
  requires economic and financial strategic choices
  - can be an instrument of socio-economic
  integration

• Islamic financial market- are more compliant
  with European regulation- alternative forms of
  investment able to attract liquidity from
  Islamic countries

• The introduction of Islamic innovations in
  banking sector brings into question complex
  legislative reforms but also clear political
  strategies that can multiply good profits and
  positive returns arising from the continuous
  contamination and dialogue of world cultures

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DEVELOPMENT AND PERSPECTIVES OF ISLAMIC FINANCE
IN EUROPE WITH SPECIAL REFERENCE TO ITALY GIAN
MARIA PICCINELLI Second University of Naples
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