Bahrain-based Islamic lender Al Baraka Banking Group said on Wednesday it planned to enter the French market to tap into Western Europe's largest Muslim community.

The penetration of Muslim populations in European countries is seen as a key element for future growth of the nascent Islamic finance industry, but penetration has been slowed by the need for national regulation to cover Islamic product structures.

France is currently changing its legal system to allow Islamic financial institutions to provide services to its 5 million Muslims.

Al-Baraka's units in North Africa are planning tie-ups with French partners to "establish Islamic banking in France", it said in a statement on the Nasdaq Dubai, where it is also listed.

"However, there are no agreements entered into up to now, (nor any) legal arrangements being processed," it said.

Paris Europlace, the body promoting Paris as a financial centre, told the news agency Reuters' Islamic Finance Summit last week France would license its first Islamic bank by end-June.

Gilles Saint Marc, chairman of the body's Islamic finance committee, said a licence application was placed in early March and that the bank was likely to launch with 40 million euros in capital raised with investors in Gulf Arab states Bahrain and Qatar.

A French financial institution plans to sell a 1 billion euro sukuk this year, marking the first issuance of Islamic corporate debt in Europe.

Islamic banks cater to investors who want to avoid paying or earning interest, which is forbidden under Islamic law.