Islamic finance started to emerge in France towards the end of the millennium. The publication of the Jouini-Pastré report of 2008 was an indicator that France had finally realised the potential of the market. That same year, at the second conference held on Islamic finance, the then Minister of the Economy, Christine Lagarde, announced: ‘We wish to make Paris a better market for Islamic finance, particularly in this background of crisis, credit excess, volatility and cupidity.’ The Jouini-Pastré report suggested several reforms such as greater publicity, establishing legal and fiscal certainty for Islamic finance instruments, a stock exchange index of Islamic funds created by NYSE Euronext similar to the US’s S&P Shariah Indices, a strategy for the collecting of savings, the creation of a secondary market for sukuk, the development of Islamic insurance with products such as takaful and retakaful, making it easier for IFIs to obtain banking licences and teaching Islamic finance in French universities.
The challenge was and still is to incorporate Islamic finance in the French legal system and still respect its religious principles. The French legal system is relatively shariah-friendly. The concept of contractual freedom facilitates the transfer of the core concepts of Islamic finance. As a result, no specific amendments to French regulations appear necessary to accommodate Islamic transactions. For example, the French legal requirement for a determinable object of the contract, in accordance with article 1163 of the Civil Code, is similar to the prohibition of gharar; the concept of haram is also very similar to the rule of ‘public order’, etc.
Decree No. 2016-131 dated 10 February 2016 reforming the French Civil Code (the Reform of the French Civil Code), which entered into force on 1 October 2016 and was subsequently ratified by Law No. 2018-287 dated 20 April 2018, has reaffirmed and specified some of the core concepts of French civil law. Good faith has always ruled business relationships and has been reasserted as the leading principle governing the negotiation, execution and performance of any civil law contract. Like the haram principle, the existing ‘public order’ rule has also been reasserted (new article 1102 of the Civil Code as amended by the Reform of the French Civil Code, in addition to the existing article 6 of the Civil Code) as a limit to contractual freedom, this rule governing the negotiation, content and purpose of the contract. The Reform of the French Civil Code also introduced a new rule, in line with the maysir principle, according to which a court can force the parties to an agreement, the enforcement of which has become substantially unaffordable for one of the parties, to renegotiate the agreement in order to find a new economic balance; otherwise, the parties can agree to terminate the contract (new article 1195 of the Civil Code). Also, the Reform of the French Civil Code, in its article 1163 of the Civil Code, reasserts that any civil contract will need to have content that is certain or at least determinable (by indicating, for a purchase contract for example, the quantity or the quality of the goods), which is a rule ad valitatem (a court would rule that any such purchase contract that does not sufficiently determine the elements of the purchase is null and void). All the above principles have values in common with Islamic finance rules. As a result, no specific amendments to French regulations appear necessary to accommodate Islamic transactions.
Further, in the context of international transactions, Islamic finance can be implemented in France through international agreements. Pursuant to the Rome I Regulation, international agreements can refer to any law, even non-state law, on condition that this law is publicly known and accessible and that the author is impartial. Some sources claim that shariah law is insufficiently precise and accessible, and does not fulfil the above conditions; others say it can be applied by judges ruling on international agreements, the same as international custom and the lex mercatoria.
Nevertheless, in practice, the above situation seldom arises because judges apply a foreign law that incorporates shariah law or that can contain the same principles.
Shariah can also be applied pursuant to article 1103 of the Civil Code, which states: ‘Agreements lawfully established serve as law for those who have entered into them.’
Yet obstacles exist to the incorporation of Islamic finance in France. First, a good public relations campaign is necessary to overcome reluctance in some areas.
Second, French courts are not bound by the parties’ characterisation of their agreement and may reclassify it as another type of contract. If, for example, a judge were to characterise an agreement as a lease-to-own agreement, how could one justify the absence of reference to any interest provision or to the global effective rate, failing which the lender’s remuneration might be nullified?
Reforms would be useful to easily avoid double taxation.
Moreover, it appears that implementation of Islamic products or contracts can be effected through existing types of contracts. The only drawback is that it sometimes appears that the implementation of a shariah-compliant product under French law leads to a sophisticated structure, and this may increase the transaction costs compared with those incurred for their equivalent conventional products. This is why Islamic finance is, at this stage, an industry that needs to be further tested to be accepted and standardised.
Back to top