The rise of Islamic finance has made the West take notice. The City of London has galloped into the lead, with the French running at a canter and the Americans still at the starting gate, writes David Williams

What a turnaround. Western finance usually couldn’t bother to look over its shoulder to see what the young upstart, Islamic finance, was up to. Understandably. Our sector is tiny by comparison, and most products derive from the conventional offering. The old criticism that many Islamic finance products are nothing more than a Shariah-compliant “wrapper” stings with sharp truth.

The haemorrhaging of the West’s financial system has brought about a volte-face. Suddenly, western economies are looking to Islamic finance, not so much for inspiration or with admiration but for remedial capital to help alleviate their economic tension. France is one of the new kids on the block. With Europe’s largest Muslim population—about six million—it seems a natural country in which to attract and grow Islamic finance. In fact, you could ask why it has been so slow to exploit the large minority.

The answer is straightforward: cultural monogamy. French nationalism is entrenched and such is the unease with Islamic icons that the veil is banned in state schools and the burqa may soon be outlawed in public places.

The hypocrisy is a tad conspicuous, but it does illustrate the extent Western governments are prepared to go to bolster their economies. Taking its cause further, France has enlisted Malaysia’s help, drawing on its years of experience as an Islamic finance hub. Executives of both countries’ central banks met to discuss how to take Paris’s initiative forward and redirect some of the bright light from London as an Islamic banking centre.

The City of London has been quick to exploit its position as a leading capital of Western business and, like a chameleon, put on an acceptable face for Islamic bankers. Contrasting Paris’s and London’s efforts really is a tale of two cities.

First, London has been more tolerant of Islamic practices publicly and, for that matter, generally. It has not been consumed with the same fervour to keep the capital’s stereotype, whatever that may be. You’ll get what I mean when you try to recall the last time you spotted a City gent in a bowler hat.

Second, the British government has been more proactive in legislation and in courting Islamic banks. The abolition of double stamp duty put Shariah-compliant mortgages on a level playing field, and the City’s charged market dynamics and warm welcome to commerce have lured the sector's biggest names.
The next big stop for Islamic finance is America. It will still take a while for the US to embrace it with more feeling, but that is merely a matter of time.