Despite calls from Spanish businesses for the government to facilitate greater access to the $2 trillion Islamic finance market, the country's banking and tax legislation is blocking the way
Due to the underlying structural problems that continue to
plague the Spanish economy, parts of the country's business
sector have been calling for modifications to national laws that
would encourage the use of Islamic finance, but leading lawyers say
Spain's banking and tax regulations are not suited to this form
of finance.
Though Spanish
government statistics showed that the number of registered
employees in Spain rose by more than 540,000 in 2016, critics argue
that the country's economic prospects, while looking fairly
positive in the short term, are quite bleak when a longer term
perspective is taken. They say that there are structural problems
in the labour market, specifically too many temporary and
short-term contracts, as well as low salaries and low
productivity.
Ethical lending
Given these conditions, businesses in Spain have called on the
government to help facilitate the greater use of Islamic finance.
Among the promoters of this type of finance is the Saudi-Spanish
Centre for Islamic Economics and Finance (SCIEF), which works in
partnership with the IE Business School in Madrid. Among the key
characteristics of Islamic finance are the prohibition of the
accruement of interest, the requirement that lending is ethical, as
well as the prohibition of speculative lending, which is viewed as
gambling. For example, with regard to the condition related to
ethical financing, SCIEF highlights that an institution proving
Islamic finance would not be willing to finance a casino or a
company producing pornographic material.
It is estimated that the global market for Islamic finance is now
worth $2 trillion and the UK, in particular, has spotted the
potential for utilising this type of finance. There are believed to
be more than 20 international banks with Islamic finance
operations, while more than 20 law firms with offices in the UK
currently offer legal services related to Islamic finance.
Untapped market
However, so far Spain has largely failed to tap into this
potentially lucrative market, despite high demand for such finance
from the country's business sector. Guillermo Canalejo, partner
at Uría Menéndez in Madrid, says the use of Islamic
finance in Spain has been very limited. He adds: "With the
exception of the UK, the presence of Islamic investment in Europe
has been of little significance, but countries such as France, the
Netherlands and Luxembourg have taken the necessary steps to
facilitate the arrival of such funds."
Canalejo says that Spain's banking, regulatory and tax
regulations are not suited to contracts and practices governed by
the precepts of Sharia law. He adds the Islamic alternatives to
traditional mortgage agreements, for example, would require
modifications to Spanish laws, and there are regulatory obstacles
and tax penalisations that hinder the use of such alternative
financing. Canalejo says that a key advantage of Islamic finance is
its abundance, while the SCIEF says that Islamic finance offers
numerous advantages including ensuring greater social justice, for
example.
"There is no doubt that Spain, as with other countries in
Europe, is a particularly attractive market for foreign investment,
including Islamic investment," says Canalejo. He adds:
"Spain's business sector and institutions have been
promoting the introduction of the necessary measures to make Spain
a more 'friendly' country for such alternative
financing." In this respect, Canalejo highlights the
"extraordinary lobbying" carried out by IE Business
School and the SCIEF.
But despite the positive steps taken, more needs to be done to
foster an environment in Spain that is receptive to Islamic
finance, according to Canalejo. "Greater support from
government institutions is vital, without this the project to make
Spain an attractive market to such investment funds, or at least a
market that does not penalise Islamic finance, will not be
realised."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.