Italy's Muslims 'waiting' for Maltese Shariah-compliant banking

Times of Malta:Italy's one million Muslims could be among the first customers of a Shariah-compliant finance structure in Malta as they wait for the island to give them the opportunity to invest, finance projects and create wealth, Malta Institute of Management chairman Reuben Buttigieg believes.

Mr Buttigieg says an Islamic finance structure for Italy is under discussion but there is a long way to go for the necessary legislative changes to be in place. One of the reasons, he points out, is the structure of the Berlusconi government.

"There are some 70,000 Arab holding companies in Italy and some one million Muslims," Mr Buttigieg says. "Companies seem to resort to banks in the Middle East to obtain Shariah-compliant finance. Malta is 90 kilometres away and an EU member. It would be much more efficient for them to use the available funds in Malta or to invest excessive cash here. Islamic finance in euro is also something that seems to be lacking, while it is available in sterling and dollar. There is substantial cost-saving on this aspect alone.

"If the government wants to attract a massive inflow of investment it should issue Sukuk (asset-backed trust certificates) itself, and then the entire Muslim world would be looking at Malta, particularly people in European countries with no investment opportunities. We are not the first in Europe, and that is positive because we can learn from others' experience. Being among the first is, however, crucial."

In late November, Mr Buttigieg relayed this message to the 100-odd participants at a second seminar on Islamic finance organised jointly by the MIM, the Malta Union of Bank Employees and the Malta Employers' Association.

The event aimed to dispel misconceptions on Islamic finance and to raise awareness among financial services professionals and lawyers who "need to do their homework if they want to attract business to Malta".

Islamic banking is the world's fastest growing sector in world finance. There are over 300 Islamic financial institutions in over 70 countries.

Mr Buttigieg, who is managing director of Erremme Business Advisors, insists the financial services and business community should be well prepared to face this challenge as soon as the government gives it the green light.

"There can be opportunities for both employers and employees in other industries if Islamic finance is introduced in Malta," Mr Buttigieg points out. "The MEA recognised this from the start and is encouraging employers to investigate further. The association wants to ensure that it presents more and more opportunities to its members. From a social policy aspect, the MEA and the government will have to address certain issues. So the seminar is only a first step.

"The MEA recently organised a breakfast meeting on family-friendly measures, an issue at the heart of Islamic finance given its social principles. The same goes for the MUBE, whose members must have the necessary training. The MIM views Islamic finance as an opportunity for professional managers who want to steer their firms into this lucrative market."

Europe's experience with Islamic finance has been positive so far, both in the UK and also in a region in Germany, and Mr Buttigieg believes Malta, through its financial regime structure and strategic location, can also target North African markets, and Libya in particular.

Libya's financial sector is less robust than Malta's - Mr Buttigieg points out that Muslims there have no opportunity to use their money in a Shariah-compliant manner. Many North African countries are in the same situation.

In Malta, the members of the 3,000-strong Muslim community who use our retail banks have to donate any income they derive as it would be considered usury and not Shariah-compliant.

Overseas, HSBC has an Islamic 'window', HSBC Ammanah. Malta's banks may set up similar operations, but Malta could lure European and Middle Eastern banks to operate here.

Tax planning opportunities also await. Mr Buttigieg says they would differ from country to country and according to the type of operation.

"There are various structures that could be used in Islamic finance which depend very much on the product," he explains. "Today there are Islamic finance institutions that are setting up in the Cayman Islands to try to tap into Libya and benefit from the tax legislation.

"Malta can offer that advantage too, with even more added value to it. Our legislation on trusts is also a tool we can use with respect to Islamic finance structures. However, it depends on the jurisdiction we are addressing. It is also an opportunity for our government to enter into more double taxation agreements with Arab countries."

Islamic finance has sailed through the economic crisis as ethical operations and the underlying assets behind all Islamic finance transactions means the structure is more resistant.

"It does not mean Islamic finance institutions will not be affected by a recession," Mr Buttigieg warns. "In a recession, even underlying assets will be affected. For example, if property prices continue to fall, then Islamic funds investing in property will be affected too."

This resistance has made Islamic finance more attractive to non-Muslims, especially in the UK. Maltese customers could use Islamic finance.

Mr Buttigieg explains: "The fundamentals of the main religions in the world are similar. Most religions are against usury, for example, and there are other social issues. Certain structures in Islamic finance are not new to Malta.

"The foundation of APS Bank is similar to what is called a 'donation contract' in Takaful (Islamic insurance). Islamic finance is a different system of doing finance. It focuses on ethics, on avoiding uncertainty and investing according to specific rules."

Realistically, how far is Malta from introducing fully-fledged Islamic banking and finance, insurance, and bonds?

"If Malta wants to head that way, we could have the three main branches of Islamic finance in the span of a year," Mr Buttigieg replies.

"There obviously needs to be the will and the political commitment. The good news is that the two political parties have expressed themselves in favour of enabling Islamic finance. Finance Minister Tonio Fenech has also spoken positively about the issue.

"The Malta Financial Services Authority has issued the first consultation document to which the industry has given its feedback.

"It is expected that two other consultation documents will be issued next year regarding Takaful and Sukuk. After that, it very much depends on the MFSA and government to ensure we do not miss this golden boat."

Consultation ends on introduction of Islamic finance to Malta

By David Lindsay : A public consultation period on the introduction of Islamic finance to Malta expires today, after which the Malta Financial Services Authority is to begin wading through feedback on the issue from financial services stakeholders and the public at large.

Following the present consultation, the MFSA intends to continue its work on Islamic finance by issuing a consultation document on Islamic Bonds (Sukuk) by the end of 2008 and another on Sharia Insurance early in 2009.

Islamic finance refers to financial services systems that are consistent with Islamic (Sharia) law. In particular, Islamic law prohibits usury, the collection and payment of interest, and prohibits investing in businesses that are considered unlawful, or haraam – such as businesses that sell alcohol or pork, or businesses that produce media such as gossip columns or pornography, which are contrary to Islamic values.

The MFSA envisages a number of opportunities for the setting up of Malta-based Islamic financial institutions as fully fledged banking institutions, as well as a number of opportunities for the setting up of Sharia compliant funds in Malta.

Publishing their joint feedback this week the Malta Union for Bank Employees, the Malta Employers Association and the Malta Institute of Managers welcomed the MFSA’s initiative and pronounced themselves as firm believers in Malta’s potential to attract Islamic finance.

The joint feedback from the MEA, MUBE and MiM advocated a good understanding of all available contracts in Islamic Commercial law by those responsible for the development of the sector while such persons must also liase with the main international bodies dealing with Islamic Finance and standardisation issues.

They also advised that, “Malta needs to avoid repeating the mistakes made with respect to the Pension Funds, which resulted in the failure to attract appropriate investment.

“In this respect, a team of experts should be set up in order to monitor the developments and study ways on how to attract Islamic Funds to Malta. This may be done within Finance Malta. However, the mechanics of this team should be different from that of the other expert groups in Finance Malta. Finance Malta needs to invest in this lucrative niche.”

The MEA, MUBE and MiM also advised that double taxation agreements be sought with major Islamic Financial Centres, while the foreign affairs ministry should also be involved in an expert group, particularly with experts of relations with Islamic countries.

A focus group set up by the trio, however, expressed concern over issues related to legal certainty and the role of Sharia Supervisory Boards, as well as on other issues on transparency and corporate governance

On the issue of the development of Sharia compliant funds, the group said it had some concerns along these lines but generally agreed with the MFSA’s approach toward the matter.

In its paper, the MIM, MUBE and the MEA stated they are “firm believers in Malta’s potential to attract Islamic finance”.

The organisations have also been organising activities and discussing matters related to Islamic Finance for a number of months. The organisations’ focus group is to continue actively working in the area so as to assist Malta in tapping the “lucrative market”. It adds it is “willing to meet with the appropriate section within the Malta Financial Services Authority in order to develop further its arguments and recommendations”.