The French Parliament has passed a law which will facilitate the issuance of sukuk or Islamic bonds despite opposition from leftist parties.

The adoption of the law on Sept. 17 which was voted in by the Senate, or upper house of Parliament, on June 9 modifies the legal framework for what is known as “fiducie,” the French equivalent of trust in the United Kingdom. In theory, this should facilitate the issuance of sukuk, although the government has been working on an alternative tool for issuing such debt, which could involve further legal measures.

The move is part of France’s two-year drive to create a new European hub for Islamic finance, whose value globally is estimated at $1 trillion. “It shows a positive willingness by the French government to develop this market,” said Farmida Bi, partner at law firm Norton Rose. The law, however, does not necessarily sweep away all the obstacles to sukuk issuance. “In particular it is not clear how the trust law will work in practice,” she said.

The ruling UMP party and the New Center voted for the law while opposition came from the Socialist Party and other left-leaning groups, highlighting resistance from some quarters in France to altering the law in a way that could be seen to affect secular traditions. “We are introducing Islamic law into the French legal framework,” said Henri Emmanuelli from the Socialist Party.

“This deeply shocks us, it is unacceptable,” he said. Some experts hope that France will now be able to attract more investors from the Middle East to invest in domestic projects and companies, especially small and medium-sized ones, in ways that are Shariah-compliant. Expectations are growing that a company or sub-sovereign body could issue the country’s first sukuk, which pays no interest but offers returns on underlying physical assets, in the coming months.

A day before the passage of the law, an adviser on a plan to issue France’s first sukuk bond, originally expected in October, said that the issue had been delayed due to technical obstacles.

Mohammad Farrukh Raza, managing director of Islamic Finance Advisory & Assurance Services (IFAAS), told Reuters that the unnamed French financial institution would still issue the sukuk, but later this year or in early 2010.

The delay was caused by “a number of challenges from the Shariah and legal point of view,” he said.

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