Islamic Finance

Plans for Luxembourg’s first Islamic bank revived

| 01 November, 2018
 Megha Merani
Plans for Luxembourg’s first Islamic bank revived
Photo: Buildings of the Kirchberg are seen behind people standing in roman ruins in the city of Luxembourg, Luxembourg, March 25, 2017. Reuters/Eric Vidal

DUBAI - An unsuccessful venture to establish the first Islamic bank headquartered in the euro zone in 2014 has revived its plans and is in the process of raising funds for the project, an executive told Salaam Gateway.

Private investors from Gulf Arab countries, including a royal family from the United Arab Emirates, planned to establish a venture named Eurisbank in Luxembourg during the last quarter of 2014, Reuters reported in 2013. The company announced the agreement, which also included a group of elite businessmen in the GCC, at the Global Islamic Economy Summit (GIES) in Dubai in 2013. The Shariah-compliant bank was planned to start with an initial capital of 60 million euros ($80 million) and offer retail, corporate and private banking services.

“We tried to do it in 2014. It didn’t succeed despite the fact that we were approved by the regulator, but for other reasons. I think there was misunderstanding of the market and many things, so that’s the reason we didn’t build the bank,” Ammar Dabbour, managing partner at Euris Group, told Salaam Gateway on the sidelines of the GIES in Dubai on Tuesday.

“We are planning now to raise capital to redo Eurisbank again,” said Dabbour.

Euris Group is an Islamic finance project management and advisory company based in Luxembourg.

The firm said in 2013 it had contracted consultancy firm Deloitte to complete a feasibility study of the bank, which demonstrated high return on investment taking advantage of being the first mover in the euro zone countries.

Currently, Germany is home to the Eurozone’s only Islamic bank, the now three-year-old KT Bank AG, a subsidiary of Turkey’s Kuveyt Turk, and competitor Albaraka Turk in September launched a digital-only Shariah-compliant bank called Insha, also in the EU’s biggest economy.

Islamic finance has been slow in gaining traction in the European market but Luxembourg has successfully established itself as a centre for Islamic funds and issuing and trading sukuk.

NO CAPITAL FROM GCC

Dabbour declined to specify any timeframes or the targeted capital value Eurisbank was seeking but said the company was not looking to approach investors from the Gulf region at this time.

“In our business, we cut all hope of having financing from GCC,” he said. “We are looking in Europe to get finance. Everything we do should come from Europe and for Europeans.”

 “We want to do it more low profile than we did in 2014,” he added.

The executive said the firm believes funding must come from within Europe because it wants to bridge the cultural gaps between the Gulf market and the underserved Islamic market in Europe. He believes there is a “big misunderstanding of the culture” between the Gulf and European markets.

“Being Muslim or Arab-European, we should be used as people who can balance culture - bringing the culture from one point to the other point. That’s our role and what we try to do.”

“For example, if you are coming from a Muslim country, you would say that Europe is racist,” he explained. “You’ll say 'ahh they’ll never accept an Islamic bank'.”

To that, he points out, France24, France's state-owned international news and current affairs television network, broadcasts in English, Arabic, Spanish and French.

“When you have a problem in France about the halal food in schools, it’s translated in the four languages and it gives you the opinion and feelings that all Europe is there,” he said.

“But Europe is 27 countries. And that’s the problem I noticed when I was trying to raise funds for Eurisbank.”

The Luxembourg-based former banker stressed that a problem that occurs in one European nation, like France for example, “does not touch” others like Luxembourg or Belgium, or Germany.

“So there is this misunderstanding - it’s (like) we know Europe but we don’t know the subtleties of Europe and Europe doesn’t know the subtleties of (the) GCC or (the) Arabic world or Muslim world in general,” he said.

A BANK, NOT A MOSQUE

The value of the global Islamic finance industry is forecast to rise from $2.4 trillion in 2017 to $3.8 trillion by 2023, according to the latest State of the Global Islamic Economy Report from Thomson Reuters.

Muslims made up 4.9 percent of Europe's more than half a billion inhabitants in 2016, according to the Pew Research Center. The population is expected to rise from the current level of 4.9 percent to 7.4 percent by the year 2050.

Dabbour said Eurisbank “really promised to be successful” five years ago and he believes the market demand in Europe is still unaddressed.

“Existing Muslims, first and second generation immigrants, who are pure consumers, like any other Europeans, are not served at all in Europe,” he said, calling it “a pity”.

“For Muslims being based in Europe we see those (Islamic finance) developments only in Muslim countries, not in European (countries), despite the fact that you have more Muslims in Europe than in the GCC in terms of population.”

In addition to the two Islamic banks in Germany, UK has a handful of Shariah-compliant financial institutions but Dabbour said this is not sufficient to serve the larger euro zone population, especially with Brexit looming.

“The UK is a very small market,” he said. “There are four or five banks in (the) UK, but they are not enough to cover (the) European market. And there is this psychological barrier that if you are the UK, we will not cross the sea to do my banking business.”

He added the opportunity was “huge” and that just in France, around 10 percent of the population are Muslim. However, the executive said he believes that an Islamic bank must shift to cater also to non-Muslims in order to truly drive the sector global.

“When I talk about (an) Islamic bank I always say to non-Muslims (that) we are not a mosque, we are a bank at the end of the day,” Dabbour said.

“So the end result should be the same for you as it is for my Muslim clients. I’m not asking you to become a Muslim. I will be happy of course but this is not my goal. My goal is banking. So we should be global in this aspect also, not only in terms of geography.”

(Reporting by Megha Merani; Editing by Emmy Abdul Alim emmy.alim@refinitiv.com)

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