Islamic Finance in Europe

74 Pages Posted: 24 Aug 2013

See all articles by Filippo di Mauro

Filippo di Mauro

European Central Bank (ECB)

Pierluigi Caristi

Banque Centrale du Luxembourg

Stéphane Couderc

European Central Bank (ECB)

Angela Di Maria

Bank of Italy

Lauren Ho

Banque Centrale du Luxembourg

Baljeet Kaur Grewal

Kuwait Finance House Research

Sergio Masciantonio

European Union - European Commission

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Sajjad Zaheer

State Bank of Pakistan - Monetary Policy Department

Date Written: April 15, 2013

Abstract

Islamic finance is based on ethical principles in line with Islamic religious law. Despite its low share of the global financial market, Islamic finance has been one of this sector’s fastest growing components over the last decades and has gained further momentum in the wake of the financial crisis. The paper examines the development of and possible prospects for Islamic finance, with a special focus on Europe. It compares Islamic and conventional finance, particularly as concerns risks associated with the operations of respective institutions, as well as corporate governance. The paper also analyses empirical evidence comparing Islamic and conventional financial institutions with regard to their: (i) efficiency and profitability; and (ii) stability and resilience. Finally, the paper considers the conduct of monetary policy in an Islamic banking context. This is not uncomplicated given the fact that interest rates – normally a cornerstone of monetary policy – are prohibited under Islamic finance. Liquidity management issues are thus discussed here, with particular reference to the euro area.

Keywords: Islamic finance, central bank monetary policy and regulations, globalisation, financial institutions, financing policy, corporate governance and culture, social responsibility

JEL Classification: E52, E58, F6, F65, G21, G22, G28, G3, G32, M14

Suggested Citation

di Mauro, Filippo and Caristi, Pierluigi and Couderc, Stéphane and Di Maria, Angela and Ho, Lauren and Kaur Grewal, Baljeet and Masciantonio, Sergio and Ongena, Steven R. G. and Zaheer, Sajjad, Islamic Finance in Europe (April 15, 2013). ECB Occasional Paper No. 146. Available at SSRN: https://ssrn.com/abstract=2251204

Filippo Di Mauro (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Pierluigi Caristi

Banque Centrale du Luxembourg ( email )

2, boulevard Royal
Luxembourg, L-2983
Luxembourg

Stéphane Couderc

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Angela Di Maria

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Lauren Ho

Banque Centrale du Luxembourg ( email )

2, boulevard Royal
Luxembourg, L-2983
Luxembourg

Baljeet Kaur Grewal

Kuwait Finance House Research ( email )

Baitak Tower, Floor 2, Safat Square
Ahmed Al Jaber Street
Kuwait City
Kuwait

Sergio Masciantonio

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Sajjad Zaheer

State Bank of Pakistan - Monetary Policy Department ( email )

I.I. Chundrigar Road
Karachi, 74000
Pakistan

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