IT IS ONE of the few bright spots in the Irish financial system in recent years.
As many financial institutions across Ireland, Europe and America continue to flail in the aftermath of the economic crisis, the Middle East has emerged relatively unscathed – and ripe for pickings.
Ireland is one of many countries which has begun to look at Islamic finance as a way to help rebuild the financial services sector. Already Ireland is a base for 20 per cent of Islamic funds based outside of the Middle East, and the plan is to expand that even further.
“To someone like myself who has no particular expertise in the area, Islamic finance looks like a good fit for Ireland,” Tánaiste Eamon Gilmore told an audience during a speech last month.
But what exactly is it – and why is the Irish government so interested in it?
What is Islamic finance?
Islamic finance means that banking and financial products compliant with Sharia law. Individual interpretations of this can differ; some people can be stricter or offer more literal interpretations than others.
However the basic Islamic teaching is that paying interest on loans or overdrafts, or receiving interest on savings, is forbidden. It also rules out investing in unethical areas like gambling, weapons, alcohol, and adult entertainment.
It is forbidden to buy insurance, but there is a debate over whether credit cards are permissible.
In a world where financial products either generate interest or charge it, this presents numerous hurdles for Muslims attempting to find anything remotely Shariah compliant.
The global Islamic finance industry is currently valued at around €1.3 billion, and growing at a rate of 15 to 20 per cent per year.
What is the government and the financial services sector doing on this?
On a global level, the last government kicked off the attempt to make Ireland a go-to place for Islamic finance, and the current government has been doing a lot to capitalise on this.
Eamon Gilmore acknowledged last month that it is “not, perhaps, an obvious area for Ireland to develop”. However the country has brought in a number of changes.
Ireland’s tax laws and financial regulations are being adapted to be Sharia-compliant, and Enda Kenny has said he wants Dublin’s IFSC to be a ‘centre of excellence’ for Islamic finance. Meanwhile the government has also signed double-taxation agreements with a number of Islamic states, including Saudi Arabia, Bahrain, and Kuwait.
How Irish banks don’t offer Islamic banking to Ireland’s Muslims
((The Dublin Mosque on the South Circular Road. Photo: Mark Stedman/Photocall Ireland)
However while the government is doing a lot to encourage Islamic finance at an international level, this isn’t filtering down to Ireland’s 49,200 Muslims.
Ireland’s two biggest banks, Bank of Ireland and AIB, both confirmed that they don’t offer Sharia-compliant personal banking to customers. This means customers who wish to bank according to their religious beliefs cannot take out mortgages, loans or have savings accounts.
“It makes a difference in how people live their lives. Muslims want to be able to do business or make large purchases like everyone else, but in a lawful way according to their belief system,” Yahya al-Hussein of the Islamic Foundation of Ireland told TheJournal.ie.
Many people don’t buy cars or houses because of it, but rent instead.
He called on the government to do something to encourage banks to offer Sharia-compliant services to the public. ”There isn’t any bank offering it for people but it is something we want to see,” said al-Hussein.
How Islamic finance is doing well for Ireland globally
Figures suggest that it may be working for Ireland on the international stage, however.
There is currently around €2.5 billion worth of Sharia compliant funds in Ireland, according to PricewaterhouseCoopers. More surprisingly, around 20 per cent of all Sharia funds outside of the Middle East are now based in Ireland. This is still a relatively small segment of Ireland’s financial services sector – but it’s significant and it’s growing.
Last month, the CSO published the first comprehensive breakdown of Ireland’s trading partners – in order words, the countries to which Ireland sends its imports and receives its exports.
Of the top 20 countries which saw the biggest increase in trade with Ireland last year, two Arab states – United Arab Emirates and Kuwait, both of which signed double-taxation agreements with the Irish government in recent years - saw significant gains. Irish exports to Kuwait in particular boomed, rising from €63 million in 2010 to €101 million in 2011.
While it may be a small part of the Irish economy, it is growing, and according to Eamon Gilmore, an “important part of our strategy for international financial services in Ireland”. He added:
We have to think of Ireland, in the words of President Clinton, not just as a gateway to Europe, but as a gateway to the world.