Islamic Banking Lands In The Heart Of Europe

Germany's first Sharia-compliant bank wants to revolutionize the finance sector of the European economic juggernaut. Investment in businesses related to alcohol and gambling are prohibited, as is the practice of charging interest, and Muslim and non-

Kuveyt Turk Islamic Bank, now available for Germany's four million Muslims
Kuveyt Turk Islamic Bank, now available for Germany's four million Muslims
Julia Giertz

BERLIN — Despite a significant Muslim population, up to now Germany has been unchartered territory for Islamic banking, whose largest European hub is in London. But Muslims from Flensburg to Lake Constance will soon have a banking alternative that embraces their religious values.

Five years after opening a financial service institute in Mannheim, the Kuveyt Turk (KT) Bank has obtained a full banking license, making it the first Islamic bank in Germany. With headquarters in Frankfurt, and branches opening in Mannheim and Berlin in July, the bank's core audience are the nearly four million Muslims living in Germany.

"But our offer may be of interest to Christians, Jews and others who share our standards," says general manager Ugurlu Soylu, who has a staff of 70.

Its parent bank is Istanbul-based KT Katilim Bankasi, which reported total assets of 31 million euros at the end of 2014. General director Ufuk Uyan speaks of the outstanding international growth of Islamic banking and Germany's enormous market potential.

But how does the business ethos of an Islamic bank differ from a conventional Western one? Investments in businesses relating to arms, alcohol, gambling, tobacco products and prostitution are strictly prohibited. An ethics committee, consisting of members with degrees in Islamic studies and economic sciences, will ensure the bank's adherence to these responsibilities.

But even among other so-called ethical banks serving niche clientele, KT Bank is distinctive. "We have a narrower business area than most conventional banks but a broader business area than most ethical banks active in Germany," Soylu says.

Waiving interest rates

As part of its religiously driven approach to business, KT Bank waives interest rates. The background for this is a Koran verse in which Allah allows trade but prohibits charging interest, proclaiming the practice the work of the devil. But how is a customer supposed to earn a return on savings and how is a bank supposed to earn a profit if charging interest is forbidden?

"We have a relaxed relationship with making profit," Soylu says. But an Islamic bank doesn't manage virtual investment opportunities, which is how it is different than a conventional bank. "Every single transaction is based on buying real goods, such as a car or a house," he says. The bank functions as the buyer and sells it to its customer with an added markup. The re-payment is then made in installments. "To our customers, this is exactly the same as paying interest," Soylu says.

The University of Muenster's Matthias Casper views this business practice of multi-level purchase agreements as being similar to Western lending. Although, in Soylu's opinion, his form of banking has a more positive economic influence because it "strengthens the real economy."

Shareholding banks

In Islamic banking, lending is financed from one single pool in which the savings of all customers is gathered. The customer then receives a share of the yield from all lending business. That's why, in Turkey, Islamic banks are known as shareholding banks. As opposed to conventional banking, there are no interest rates that are directly linked to a customer's deposit.

This way, a total collapse isn't possible and risks are spread more evenly, Soylu explains. Stuttgart-based expert Hans-Peter Burghof says that "the community spirit is at the heart of the matter" in Islamic banking.

Casper believes that the risk of a speculation bubble is significantly lower in this model than in Western banking. "The case of Dubai, however, has shown that the development of bubbles is nonetheless possible," Casper says, referring to the emirate's property inflation. Burghof and Casper both believe the system is attractive and argue that it "will diversify and enrich the banking system."

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How China Flipped From Tech Copycat To Tech Leader

Long perceived as a country chasing Western tech, China's business and technological innovations are now influencing the rest of the world. Still lagging on some fronts, the future is now up for grabs.

At the World Semiconductor Conference in Nanjing, China, on June 9

Emmanuel Grasland

BEIJING — China's tech tycoons have fallen out of favor: Jack Ma (Alibaba), Colin Huang (Pinduoduo), Richard Liu (Tencent) and Zhang Yiming (ByteDance) have all been pressured by Beijing to leave their jobs or step back from a public role. Their time may be coming to an end, but the legacy remains exceptional. Under their reign, China has become a veritable window to the global future of technology.

TikTok is the perfect example. Launched in 2016, the video messaging app has been downloaded over two billion times worldwide. It has passed the 100-million active user mark in the United States. Thanks to TikTok's success, ByteDance, its parent company, has reached an exceptional level of influence on the internet.

For a long time, the West viewed China's digital ecosystem as a cheap imitation of Silicon Valley. The European and American media described the giants of the Asian superpower as the "Chinese Google" or "Chinese Amazon." But the tables have turned.

No Western equivalent to WeChat

The Asian superpower has forged cutting-edge business models that do not exist elsewhere. It is impossible to find a Western equivalent to the WeChat super-app (1.2 billion users), which is used for shopping as much as for making a medical appointment or obtaining credit.

The flow of innovation is now changing direction.

The roles have actually reversed: In a recent article, Les Echos describes the California-based social network IRL, as a "WeChat of the Western world."

Grégory Boutté, digital and customer relations director at the multinational luxury group Kering, explains, "The Chinese digital ecosystem is incredibly different, and its speed of evolution is impressive. Above all, the flow of innovation is now changing direction."

This is illustrated by the recent creation of "live shopping" events in France, which are hosted by celebrities and taken from a concept already popular in China.

10,000 new startups per day

There is an explosion of this phenomenon in the digital sphere. Rachel Daydou, Partner & China General Manager of the consulting firm Fabernovel in Shanghai, says, "With Libra, Facebook is trying to create a financial entity based on social media, just as WeChat did with WeChat Pay. Facebook Shop looks suspiciously like WeChat's mini-programs. Amazon Live is inspired by Taobao Live and YouTube Shopping by Douyin, the Chinese equivalent of TikTok."

In China, it is possible to go to fully robotized restaurants or to give a panhandler some change via mobile payment. Your wallet is destined to be obsolete because your phone can read restaurant menus and pay for your meal via a QR Code.

The country uses shared mobile chargers the way Europeans use bicycles, and is already testing electric car battery swap stations to avoid 30 minutes of recharging time.

Michael David, chief omnichannel director at LVMH, says, "The Chinese ecosystem is permanently bubbling with innovation. About 10,000 start-ups are created every day in the country."

China is also the most advanced country in the electric car market. With 370 models at the end of 2020, it had an offering that was almost twice as large as Europe's, according to the International Energy Agency.

Photo of a phone's screen displaying the logo of \u200bChina's super-app WeChat

China's super-app WeChat

Omar Marques/SOPA Images/ZUMA

The whole market runs on tech

Luca de Meo, CEO of French automaker Renault, said in June that China is "ahead of Europe in many areas, whether it's electric cars, connectivity or autonomous driving. You have to be there to know what's going on."

As a market, China is also a source of technological inspiration for Western companies, a world leader in e-commerce, solar, mobile payments, digital currency and facial recognition. It has the largest 5G network, with more than one million antennas up and running, compared to 400,000 in Europe.

Self-driving cars offer an interesting point of divergence between China and the West.

Just take the number of connected devices (1.1 billion), the time spent on mobile (six hours per day) and, above all, the magnitude of data collected to deploy and improve artificial intelligence algorithms faster than in Europe or the United States.

The groundbreaking field of self-driving cars offers an interesting point of divergence between China and the West. Artificial intelligence guru Kai-Fu Lee explains that China believes that we should teach the highway to speak to the car, imagining new services and rethinking cities to avoid cars crossing pedestrians, while the West does not intend to go that far.

Still lagging in some key sectors

There are areas where China is still struggling, such as semiconductors. Despite a production increase of nearly 50% per year, the country produces less than 40% of the chips it consumes, according to official data. This dependence threatens its ambitions in artificial intelligence, telecoms and autonomous vehicles. Chinese manufacturers work with an engraving fineness of 28 nm or more, far from those of Intel, Samsung or TSMC. They are unable to produce processors for high-performance PCs.

China's aerospace industry is also lagging behind the West. There are also no Chinese players among the top 20 life science companies on the stock market and there are doubts surrounding the efficacy of Sinovac and Sinopharm's COVID-19 vaccines. As of 2019, the country files more patents per year than the U.S., but far fewer are converted into marketable products.

Beijing knows its weaknesses and is working to eliminate them. Adopted in March, the nation's 14th five-year plan calls for a 7% annual increase in R&D spending between now and 2025, compared with 12% under the previous plan. Big data aside, that is basic math anyone can understand.
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