In Germany, Islamic finance covers the Sharia-compliant accounts, home financing and investments offered under ordinary German banking law, with no specific regime, by one dedicated BaFin-licensed institution and by a number of fund managers.
An unexpected pioneer: the Saxony-Anhalt sukuk
In 2004 the state of Saxony-Anhalt issued a 100 million euro sukuk, the first by a European public issuer. Structured as an ijara on administrative buildings, it showed that a German public body could raise compliant funding without changing its legislation.
A deal the public sector never repeated
Despite this precedent, neither the federal government nor other states repeated the experiment on a lasting basis. The legal cost of an asset-based structure, compared with cheap access to the conventional bond market, largely explains public issuers' lack of interest.
BaFin's neutrality towards Islamic products
BaFin applies the principle of same business, same risk, same rules: a Sharia-compliant product gains neither a regulatory advantage nor a handicap. It is assessed by economic substance, for example murabaha financing as a lending business requiring a licence.
Why an investment account raises questions under German law
A profit-and-loss sharing account does not guarantee capital. Yet German banking law links taking repayable deposits to lending business, so banks must classify each product precisely, something the regulator examines during the licensing process.
KT Bank, the first licensed Islamic bank in the eurozone
A subsidiary of Turkey's Kuveyt Türk, itself controlled by Kuwait Finance House, KT Bank AG received a full banking licence from BaFin in 2015 and opened in Frankfurt. It is described as the first fully licensed Islamic bank in the eurozone.
An ethics committee within German corporate governance
German company law provides for a management board and a supervisory board, but no religious body. KT Bank therefore set up a Sharia advisory committee whose opinions guide management, without removing the board's legal responsibility towards BaFin.
Deposits covered as in any licensed bank
As a German credit institution, KT Bank falls under the statutory deposit guarantee scheme, which protects up to 100,000 euros per customer. Customers should check in the contractual terms how each type of account is classified with regard to this protection.
Variable profit rates on term accounts
On a participation account, the bank announces an indicative profit rate and then distributes the actual result of the financed portfolio. A saver placing 20,000 euros for twelve months therefore knows an estimate, not a contractually fixed return as on a conventional term deposit.
Double transfer tax on property murabaha
Unlike the United Kingdom, German law contains no dedicated tax provisions. If the bank buys a home and resells it to the client, the real estate transfer tax, Grunderwerbsteuer, may fall due twice, which makes the transaction considerably more expensive.
Avoiding the double transfer while staying compliant
To limit this extra cost, structures favour arrangements in which ownership does not pass twice through the land register, such as diminishing co-ownership or acquisition financing directly in the client's name, each arrangement being approved by the Sharia committee.
Compliant funds and ETFs available to German savers
Outside banks, savers can buy through their broker funds and ETFs tracking Sharia indices, often domiciled in Ireland or Luxembourg and authorised for sale in Germany. Screening excludes alcohol, weapons and interest-based finance and caps companies' debt.
Takaful and pensions: gaps in the offer
No takaful insurer has a significant presence in the German market. For liability cover or mandatory health insurance, practising Muslims use conventional contracts, while compliant pension products remain rare and often rely on screened equity funds.
Specialist external source
BaFin, the federal financial supervisory authority, presents its tasks and publications there, including analyses of how Islamic financial products fit into existing German law.