National and Global Islamic Financial Architecture:
Prolems and Possible Solutions for the OIC Member Countries
185
Germany
Germany has made no attempt to become a major player in Islamic finance. This may be in
part because its banking and capital markets activities tend to be more focused on Europe than
broader international business. But whatever the reason, it is clear that Germany has
approached Islamic finance with some caution. It has made no strategic attempt at the
government or other authoritative level to establish an international position in this area. It
has even been prepared to be accommodative of attempts to provide Islamic financial services
to its Muslim minority, though the limited success so far suggests that demand, among a
Westernised minority in a mixed financial system, is rather “soft”.
This contrasts with the position of major German financial businesses. In particular, Deutsche
Bank is a major player as an investment bank in the capital markets, structuring sukuk and
providing services such as custody. It has published at least one important – though much
contested – structure (DB undated). But all this work is done outside Germany, Dubai and
London being the most important centres. The German insurance and reinsurance industry has
also established an important presence in Takaful and Retakaful, with Munich Re, Hannover
Re, Allianz and FWU all significant in rather different roles. But again, this business is being
done in a variety of Muslim majority countries, though with perhaps more direction from
Germany than in the case of Deutsche Bank.
Luxembourg
Luxembourg is a relatively straightforward example of a centre that has specialised strengths,
in capital markets and especially as a domicile for collective investment schemes and has
extended these to the Islamic market, supported by active government promotion. It has
already established itself in conventional finance as a point of entry to Europe for CIS in
particular and its attractions (especially in speed of response) could readily be extended to
Islamic finance. Its position is supported by the fact that there are supporting businesses, for
example lawyers, for whom the Luxembourg CIS regime is tried and tested and who are geared
to establishing funds within this regime very efficiently.
These features are true to a lesser extent of the sukuk business where Luxembourg has,
however, had the advantage of being better geared than the UK-influenced jurisdictions to
continental systems of law and business structures; it has, therefore, had some edge in dealing
with businesses wanting to use such systems.
Hong Kong
The natural Asian comparator for Luxembourg is Hong Kong. Hong Kong also has a minimal
Muslim population, and has therefore focused on its capital market strengths, especially as a
bridge between China and outside markets. It has done this with active government promotion
aimed at one particular segment, in this case sukuk. Its government has explicitly
acknowledged as an objective the tapping of surplus liquidity in the Islamic world for
investment into China. Hong Kong has, however, been rather slower off the mark than
Luxembourg and its tax changes in particular have taken some time. There are some hints (for
example the fact that the central bank took the lead on Islamic finance ahead of the capital
markets authority) that there may not have been a common level of enthusiasm for the project
across government, but this is not a clear inference.
Although it has undertaken a demonstration project by issuing two sovereign sukuk, Hong
Kong has not as yet gained traction in the sukuk market more generally. It appears that, in any
event, Chinese companies have been slow to be convinced of the merits of raising money by