In the last few years, Islamic finance went through a rapid development that was moved by investors who were looking for legal (Halal) investments in Germany. Between 4.4 million and 4.7 million Muslims live in Germany at the moment. This equals to about 5.4–5.7% of the total population.
As a major economy in Europe, Germany represents a relevant market for Islamic finance in Western Europe. Needless to say, the markets in France and England are more developed. Crucial progress for the Islamic financial market in Germany was made by granting a fullyfledged Islamic banking license to KT Bank in March 2015, a subsidiary of a Kuwaiti–Turkish holding bank. After intensive preparations, the Kuwaiti–Turkish bank has done the pioneering work and become the trailblazer on the market. It was the first Halal bank in Europe and no laws in Germany needed to be changed.
Review of 2019
Despite the closing of several Shariah compliant investment funds in Germany, eg West LB (certified as one of the 10 biggest German Shariah compliant companies, it closed in 2013) and DWS der Deutsche Bank (investment funds, it closed in 2016), there is still a quite successful investment company, Arabesque Asset Management, in Frankfurt and London which has Halal/Shariah compliant funds.
As a sustainable and Shariah compliant fund, Arabesque is mainly catering to customers who are interested in these exact conditions. To find appropriate companies, the fund founded a subsidiary called Arabesque S-Ray in 2017 and developed an analysis tool which is not only based on the declarations of the companies but also evaluates what is written about the companies in newspapers, social media or by non-profit organizations. Currently, more than 30,000 sources are being analyzed. Despite that, the company is mainly unknown in the GermanMuslim community.
At the end of 2018, another Shariah compliant company entered the German market — the fintech-company insha. insha is a subsidiary of Turkey’s Albaraka Turk Participation Bank. As a fintech-company, insha does not require a bank license; it cooperates with solarisBank which was founded a couple years ago and is a fully-fledged bank without an end-customer business and offers its services only to non-banking institutions to enable them to realize their business models which are subject to bank concessions. Albaraka Turk is one of the pioneers in Islamic banking as well as the new fintech industry in Turkey. Based on products for payment transactions, insha wants to offer all classic banking products via smartphones.
Takaful
Shariah compliant insurance or Takaful is increasingly under international focus. This insurance model does not only consider the classic elements of a Shariah compliant financing business like the prohibition of interest, risk and speculation as well as the prohibition of investments in Haram industries, but also the idea of mutual assistance between the insured persons themselves which is of particular significance. An important entity in the niche market of Islamic finance in Germany is insurance company FWU Takaful in Munich which offers Shariah compliant insurance in Europe and Asia. FWU advertises its products to both Muslims and non-Muslims and also to major German insurance companies like the Allianz Group. The acquisition of Al Hilal Takaful from Abu Dhabi by Islamic insurance company Takaful Emarat from Dubai gives hope for an expansion of the Takaful market.
Halal food
The Halal food industry in Germany has great potential. Cologne food producer Egeturk, which is the German market leader for Halal meat products, made a turnover of about EUR130.5 million (US$142.17 million) in 2017. This puts the company at 65th position in the rankings of ‘Allgemeine Fleischer Zeitung’ (a general weekly newspaper for the butcher trade) for the top companies in the German meat and meat products industry. In the previous year it ranked 80th.
Looking at the global sales figures of Halal beauty products, it becomes evident that great potential can be found in this industry in the German market. Halal cosmetics are also popular with non-Muslims as it does not contain any alcohol, animal or gene-manipulated ingredients. A study by UK market research company Tech Navio in 2018 found that the world market value of Halal cosmetics of currently EUR25 billion (US$27.24 billion) is going to increase to more than double that — EUR55 billion (US$59.92 billion) — in 2022. This amounts to about 6% of the global business of beauty products. The average annual growth rate in the next three years is about 13.55% according to the Tech Navio study.
Compared to other European countries, the German market is currently still conservative. Shariah compliant or Halal food can mostly only be found in Turkish shops, although more and more Halal products are making it into food store chains, such as Rewe, Edeka and Lidle. Currently, France and England are considered the pioneers of the Halal market in Europe. But there is progress. For the first time, there will be a Halal trade fair in Hannover in 2020. The planned main focus will be the food and beverage, cosmetics and travel sectors. There are also more and more apps being used for the identification of Halal products. NonMuslims also seem to have discovered Halal products for themselves. It can be assumed that, as with Islamic finance products, customers are concerned with sustainability.
Preview of 2020
Germany has a long tradition in Islamic financing, often as a pioneer in Western Europe. The current niche market of Islamic finance is going to further evolve and grow in the next years in Germany. The potential is there and the previous financial crises have made customers question the current methods in the financial market. The awareness of ethical and social aspects regarding financial business and economical action is also increasing. Many Muslims see the rules and principles of Islamic finance as potential preemptive measures against future crises and this increases the demand for Shariah compliant financial solutions accordingly. Halal food and cosmetics continue to have great potential in Germany. The market for these products grows rapidly and this can be expected to continue in the next few years. Combined with the fact that Germany is the largest and most stable market in Europe, growth of this niche is to be expected.
Conclusion
Considering the successes and failures of Islamic finance in the German market, the necessity for a more comprehensive approach is clear. For sure there is great interest and demand for Shariah compliant financing services in Germany. But being Shariah compliant as a unique selling point is not always enough to establish oneself in the German market. Aspects like quality of service; intelligence; sustainability; contemporary and user-friendly technology; as well as competitive prices are equally essential to give customers additional benefits regardless of religious denomination.
