This Article investigates the market potential of and legal constraints on Shari'ah-compliant retail products in Europe, focusing in particular on the English and the German markets. "Retail products," for the purpose of this Article, refer to finance and investment products that target primarily consumers (in other words, the product range of the "high street bank" as opposed to investment banking services). Compared to the development of Islamic retail finance in the UK, it is fair to conclude that the developments in Germany are significantly lagging. For several years, Islamic retail products, especially Islamic home finance products, have been an integral component of the product range of most English High Street banks. Further, the Islamic Bank of Britain, set up as an Islamic bank to serve Muslims in the UK, commenced operation in 2004 and became the first fully Shari'ah-compliant bank in Europe.1 In contrast, Germany, which has a Muslim population exceeding three million, currently lacks Islamic retail products.2 Although there have been some deliberations regarding the establishment of an Islamic bank in Germany, all projects are presently far from the implementation phase. While the English market is booming, the German market is close to non-existent. The same holds true for most of the other European markets. Islamic retail finance in Europe is largely confined to the UK.
In light of the existence of Islamic retail products in the UK, why do countries such as Germany and France fail to widely offer Islamic retail products? Considering the attention Islamic finance has attracted in Germany over the past few years and the extensive coverage the issue has received in the media, the shortage of Islamic retail products cannot be due to either disinterest or a lack of information. There has been extensive media coverage both in the general and the financial press focusing on how German institutions could take advantage of the economic potential of Islamic finance.3 There must be other reasons for the slow development.
This Article argues that developments in Islamic finance must be analyzed within a broader framework. First, Islamic financing transactions must be integrated with and adapted to the overall legal and regulatory framework of the prospective jurisdiction in which the transaction will take place. Islamic financial services, in most jurisdictions, are subject to state law. Integrating and adapting transactions is of particular importance with regard to retail products that are based on an industrialization of the banking business. In Germany, regulation works differently from the UK and may be less susceptible to catering to the needs of ethnic and religious minorities. Second, and perhaps more importantly, Shari'ah-compliant retail products must also mirror the needs of the respective Muslim communities they serve. While there may be a global market for "big ticket" Islamic financing transactions, this is not the case for retail products, which are not based on globally uniform standards. What is deemed to comply with Islamic principles will depend on who interprets them and in which jurisdiction the transaction is implemented. Therefore, the success of Islamic retail products depends on a double cultural accommodation: adjusting the respective product to both the requirements of local laws and the specificities of local Muslim communities. This depends on certain institutional arrangements that, in the past, have been more favorable in the UK than in Germany.
II. WHY CARE ABOUT IT?
The assumption underlying this Article is that it is indeed a good idea to pursue the development of Islamic retail finance in Europe. This assumption may be widely shared within the Islamic finance community and certain public bodies-including the British Financial Services Authority ("FSA") and international organizations such as the World Bank-have also taken a supportive view more recently. …