Development of Islamic banking will remain challenging in Western markets, but niche markets will emerge
The UK has been a first-mover for the development of Islamic banking in Europe, despite its relatively small Muslim population compared to France or Germany (there are approximately 1.8 million Muslims in the UK, compared to 3.3 million in Germany and 6.0 million in France). This was due to more conducive regulatory and legislative policies that removed many of the disadvantages Islamic banking can suffer against conventional banking products for example, HPPs can attract double stamp duty in many countries. However, other European countries have started to remove these barriers, with France in particular expected to see its Islamic banking market develop.
Difficulties in the UK market will dampen the rollout of Islamic banking in other European countries, given that backers are largely coming from the same Middle East investor pool. However, the current difficulties in the UK are more a reflection of the general state of the economy and banking sector than underlying demand for Islamic banking products. The market is likely to see a deferment, rather than cessation, of development in Europe, and this means that the opportunity for core systems vendors is likely to be postponed for a couple of years at least.The writer is an Ovum analyst.
Sign up for MIS Asia eNewsletters.