Eager to attract Middle East investment but uneasy about linking faith and finance, the French parliament has opted for some legislative sleight-of-hand to pass a law allowing the issuance of interest-free Islamic “sukuk” bonds. The move is part of France’s two-year drive to create a new European hub for Islamic finance, whose value globally is estimated at $1 trillion. But instead of introducing a separate bill, which would attract attention to it, the governing UMP party tucked the proposed change of French trust law into a larger bill on financing reform for small and medium-sized companies. And it chose to do this by introducing it as an amendment in the second reading of the bill — the one that usually gets fewer headlines.

(Photo: French National Assembly, 15 Sept 2009/Charles Platiau)

Sounds confusing? That seems to be exactly what the legislators wanted. As my colleague Tamora Vidaillet wrote here in an earlier post entitled “France courts Islamic finance, as long as it’s not too obvious,” bankers, politicians and goverment officials are clearly uneasy about promoting Islamic finance in France. “There is a clear sense of apprehension over how Islamic finance would fit into French society, where the policy of laïcité – the strict separation of church and state — tries to keep anything religious out of the public sphere as much as possible,” she wrote. “Many admit that French companies and banks may hesitate to do anything that uses the label Islamic as this could highlight sensitivities over social and cultural divides.”

The opposition Socialist Party opposed and attacked the change. “We are introducing Islamic law into the French legal framework. This deeply shocks us, it is unacceptable.” said Socialist MP Henri Emmanuelli. “When Muslims are rich, we try to attract them. When they’re poor, we expel them.”

Another Socialist deputy, Jérôme Cahuzac, said: “We don’t create fiduciary regimes for Jews, Catholics or Buddhists. France sends soldiers to Afghanistan to prevent people from dying under sharia law. But when big money is involved, we forget all that … In the second reading, we discovered an amendment we cannot accept. This subject is too delicate to be voted furtively.”

(Photo: Malaysia’s Bank Islam — a brand name considered unthinkable in France, 13 Jan 2009/Bazuki Muhammad)

On the far-right, the anti-immigrant National Front party denounced the law as the latest “communitarian peril” it said threatened the French Republic, along with approvals for construction of mosques, the serving of pork-free school lunches, the introduction of women-only hours at municipal swimming pools and the officially sponsored creation of a Muslim Council.

The idea behind this law is that investors from the Middle East might be more inclined to invest in French projects and companies, especially small and medium-sized ones, now that they can do this in ways that are sharia-compliant.

France’s first sukuk bond, originally expected in October, has been delayed but should be issued later this year or early in 2010, according to Mohammad Farrukh Raza, managing director of Islamic Finance Advisory & Assurance Services (IFAAS). He said the delay was caused by a “a number of challenges from the sharia and legal point of view” but gave no details.

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