Since when has the Chaabi Bank been offering services corresponding to Islamic finance principles?
Islamic finance has often been in the news in recent years, namely with the emergence of tax instructions in August 2010. Today’s market can be said to be mature, and certain market studies reveal a real potential. So the time has come for us to launch ourselves as a banking player.
This is why in 2011, after a year of preparation, we launched an “Islamic window” by becoming the first French bank to commercialise a deposit account compatible with Islamic finance principles. In 2012, we widened our product range by offering clients a real-estate financing product that conforms to Islamic operations known by the term mourabaha. We envisage launching a current account aimed at businesses and associations according to these same principles in the last quarter of 2013.
What are the main rules of Islamic finance?
Firstly, investments are backed by real and “palpable” assets or services, with a rigorous and specific selection of activity sectors. As you no doubt can guess, in Islamic finance, there are certain activity sectors such as alcohol or gambling that are prohibited.
In addition, money is a mere means of exchange. As a result, it cannot be the sole object of a contract, nor can it be used as a means to make a profit.
Islamic finance is characterised by the fact that it privileges participative investments where the “lender and borrower” become partners and share risks. The fundamental terms of contracts are clearly defined without any element of uncertainty.
Other rules include the prohibition of excessive speculation and of the “debt trade”(where a debt is considered to be an asset that can be exchanged at high cost, contrary to what is done in conventional finance with bonds for example) or else the banning of short sales (so it is not possible to sell what does not belong to you).
What is the mourabaha?
In the context that concerns us, we are talking about a mourabaha with a buy order to finance a piece of real estate. This is a contract according to the terms of which a seller sells an asset to a financial intermediary – in this case the bank – that then sells it to the client at a contractual profit margin that is known at the signing of the contract. In practice, in France, the bank does not intervene in negotiating the purchase price with the initial seller as it is generally the client who identifies and negotiates the sale price.
The principle to bear in mind is that the bank cannot sell a product that it does not own. When the bank proceeds to finance the asset, it must first genuinely become its owner, and thus fully assume inherent risks before the final resale to the client. It is this risk-taking that gives it the right to a profit on the operation in question. Once the resale is effective, the bank transfers ownership of the asset to the end client who becomes its sole and exclusive owner in this way.
Is it possible for a client who gets his asset financed conventionally to pay for this first loan with a mourabaha?
No, because credit purchasing operations are not authorised. The seller and the client therefore cannot be the one and the same person in two successive mourabaha operations. However, there are techniques that are compatible with Muslim law and that allow the purchasing of credit, but French taxation law is not yet adapted to this type of setup (as things stand, the operation would be too costly for the client).
Is off-plan purchasing possible?
Yes, but not with the mourabaha technique according to which the asset must actually exist at the time of the sale. In fact, the main idea to bear in mind is that Islamic finance does not involve the trade of money, but of goods. There are nevertheless Islamic contracts that exist which allow the sale of goods yet to be constructed (therefore off the plan), but we have not yet commercialised these.
These present a few legal complexities on the one hand, and on the other hand, we already have a very strong demand for already-constructed goods to handle. As a result, we will be studying the prospect of off-plan financing in the longer term.
What happens in the case of default of payment?
The bank obviously applies the same procedure for payment incidents relating to a mourabaha product as to conventional finance products. However, in the mourabaha context, the bank does not enforce bank charges but requires a set fee for every period of payment that is delayed. What should also be noted is that for the financial penalties paid by the client, only the cost of processing the unpaid sum is cashed by the bank; the rest of the sum is handed over to a charity, as required by Islamic finance principles.
And what happens in the case of early repayment?
Whatever the duration of the repayment, and hence, in the event of early repayment, the client will pay the same price.In terms of cost, how does the mourabaha stand compared with fixed-rate
We have positioned ourselves to have similar costs as for conventional finance.
What types of clients subscribe to the mourabaha?
It is a young clientele with an average age of 36 years. They are generally first-time buyers coming with fairly high lump sums – around 36 % of the investment programme – which is rare in conventional finance. So they are clients with high saving capacities who have probably abstained from investing as they have been unable to find products corresponding to their demands.
Have non-Muslims come to you with mourabaha requests?
Islamic banking principles are primarily Ethical (with a capital “E”) and universal principles. Chaabi Bank is a traditional French bank open to all, which has added new products to its catalogue. While these products are Islamic in nature, they are absolutely
not reserved to individuals of the Muslim confession. On the contrary, anyone can subscribe to them.
How do you publicise your offer?
We make ourselves known via associations and regular participation in conferences on the theme of Islamic finance. Next, the first entrance channel to the bank is our client relations call centre.