The Cultural and Demographic Aspects of the Islamic Financial System and the Potential for Islamic Financial Products in the German Market

Diplomarbeit von Holger Timm

Abstract:

The aim of this thesis is to show the potential Muslims in Germany have concerning their number and financial power. As assumed, whilst developing the idea for this work, no financial institution is existent in Germany which offers banking services in compliance with Islamic law. Would it not make sense to introduce such instruments in a market which accommodates more than 3 million Muslims? Are the hurdles for introduction too high or is the financial potential of the Muslim population too low to care about such questions? They will be answered in this thesis.

To gather information necessary for writing this thesis, the author read various books about Islam, its roots, and its financial systems. The „World Wide Web” was a valuable source, especially publications of data by statistical offices, ministries, and institutions dealing with the topic. For certain parts specific data were not accessible to the author. For investigation purposes he wrote letters and mails to various institutions to find out that specific data were not available and certain statistical investigations were not undertaken. In that case approximations and extrapolations were used and marked as such.

The author has divided the thesis in four parts. The first chapter, „Chapter A – Islam – History, Cultural Aspects, and Principles for the Financial System“, introduces Islam, its roots and foundation about 1,400 years ago. In that chapter basic Islamic principles are explained and their relevance in all aspects of Muslim life is shown. With those principles underlying, a financial system developed which is different from the Western one. The development of the financial system is described as are various Islamic financial tools explained.

In „Chapter B – Muslims in Germany” it is shown how the Muslim community in Germany developed. It is explained when processes of migration started and to what extent they developed. The cultural and educational „Status Quo” of the Muslim community is analysed, and it is looked at their stand concerning school, work, associations, etc. Thereby Islamically cultural distinctions are outlined and resulting obstacles for integration deduced. Following that, the financial „Status Quo” is looked at. Facts about Muslim savings are provided and examples of instruments available at the German market, which are in compliance with Islamic law, are described. Out of the outlined facts in the „Status Quos” a potential analyses is developed. Future scenarios about shifts in the population structure are calculated and thereby resulting changes at the labour market predicted. After combining the analyses it was assumed that changes in the population structure and at the labour market may result in changes in the income structure, which is looked at in the following.

After the Muslim community and its financial situation is analysed, „Chapter C - Possibilities for Islamic Products in the German Market“ describes legal requirements set by German authorities as does it look at Islamic prescriptions for the running of a financial institution. Proposals are given how to harmonise differences to create possibilities for a financial system which encompasses both – conventional and Islamic finance. Afterwards descriptions of product examples are provided which are in compliance with German law and with Islamic law. Finally a conventional equity financing model is analysed and ways of its transformation into an Islamically acceptable model are developed. It is calculated if such a model can be operated efficiently and profitably.

In „Chapter D – Conclusions Deduced from the Thesis” final remarks are given concerning results achieved in the process of analysing the market and writing this paper.

It has been the author’s aim to outline complex correlations as simply as possible. It was tried to clarify theoretical conditions with help of practical examples. Only selected areas of a financial system were looked at, and the author concentrated on „financing instruments” applicable by „financial institutions” for „financing purposes”. Other tools also relevant in the financing sector, such as insurances, were not considered in this paper.

Asymmetries in terminologies exist throughout Muslim countries. These differences are, however, only in terms of spelling and not in meaning and utilization. In this work the assumed simplest spelling was chosen to make it more convenient for the reader.

One example shall point it out:

An interest-free loan in Iran is called Qard al-hasanah, Malaysia uses Al-qardhul hasan, Pakistan uses Qarz-e-hasna, Bangladesh uses Qard-e-hasana and Jordan Al-qird al-hassan. In this work the term Qard hassan was chosen, as it seemed simplest and it is often used in literature.

Table of Contents: