We are pleased to note that, from a political perspective and in terms of effective transactions, there have been various positive developments over these years.
The Malta Institute of Management’s contribution include its publications on Islamic Finance and its involvement, through myself as Chair, in the formulation of various position papers, among them that of the European Economic and Social Committee (EESC). It was indeed an honour for MIM and for me personally to see the EESC fully endorsing this paper with only one person voting against.
The road ahead is not without its challenges. There still exist, for instance, some myths possibly originating from individuals operating in certain circles of authority, who perhaps have yet to understand well enough what Islamic Finance is really all about. However, I feel confident that, with better knowledge and understanding, one would be able to move on to a better climate in this regard.
Myth 1 – The decision of countries whether to adopt or not Islamic Finance is at the discretion of Financial Authorities. This is incorrect. For most European and North African Countries, this is a Political Decision and not an FSA decision. Various IMF studies show that, following the implementation of Islamic Finance, trade relations with GCC Countries and with the Far East increased significantly. This was greatly recognised by our EU counterparts.
Only last week, the conference of the Associazione Bancaria Italiana was informed that the UK now has an expert on Islamic Finance on every trade mission it engages into with these countries.
Last Friday, the Italian deputy Minister for Economic Development, Adolfo Urso, announced that Italy is planning big strides as regards Islamic Finance.
Luxembourg, which as you may be aware now hosts more than 50 per cent of the listed Islamic Funds and Sukuk in the world, has opened an office in Dubai specifically on Islamic Finance.
These are just three examples of what other EU Member States are doing.
Malta registered its strong political commitment, as regards Islamic Finance, through various statements made by the President of Malta, Dr George Abela, Prime Minister Lawrence Gonzi, and the Minister for Finance, the Economy and Investment, Tonio Fenech. The Labour Party is backing such initiatives too.
Malta’s next step, in my view, should be the setting up of an adequate task force with the aim of ensuring stronger and swifter concrete action towards attracting more and more Islamic Finance activity. Such a task force should include Shariah experts, representatives of the Islamic community, local specialised lawyers, tax experts, diplomatic experts and representatives of the FSA.
Islamic Finance is an integral part of our internationalisation process. It may also be one of the solutions to maintain a good momentum of structural projects while adhering to our international obligations in terms of our financial deficit. Indeed, the rules concerning such deficit render Islamic Finance a very attractive option with regard to financing national projects.
Myth 2 – Islamic Finance is only for Muslims. This is incorrect. Islamic Finance is for all of humanity and not only for Muslims. Statistics referred to in the ABI conference show that 70 per cent of those making use of Islamic finance in Malaysia are non-Muslims. Moreover, 20 per cent of HSBC Ammanah clients are non-Muslims and 16 per cent of Albaraka Banking Group clients are also non-Muslims. Furthermore, various non-traditionally Muslim banks have opened Islamic Windows, among them Lloyds and Barclays. These were also assisted by a friendly UK environment that now hosts five Islamic Banks and 17 Islamic Finance Windows.
Myth 3 – There does not seem to be enough interest to ensure a sufficient market for Islamic Finance in Malta. This is also incorrect. The fact finding visit of CIMB Islamic showed that many local entrepreneurs look positively to this type of finance. So, apart from the benefits of having Malta acting as an Islamic Finance conduit for other countries through its advantageous legislative instruments, Malta also has its own domestic promising market for Islamic finance. With the same arguments put forward then, certain conventional banks would have never come to Malta.
Myth 4 – The EU directives do not allow Islamic Finance. By way of example, the UK, Germany and Luxembourg are all part of the EU and they all practice Islamic Finance.
Myth 5 – Malta’s Legislation is not Shariah friendly. As we will be able to see in the coming discussions and, if I may, as one can see from Erremme Business Advisors’ monthly newsletter on Islamic Finance, Malta is the most Shariah friendly country in the EU and North Africa. Suffice it to mention among others the PCC legislation, the trust and trustees act, the Merchant Shipping Act, the Finance Leasing Rules, Funds, the aviation legislation, the investment banks regulations. The minimal issue is vis-a-vis the Retail Banks.
Myths remain myths. The real issues lie elsewhere. Three of them, two of which are similar to certain circumstances that occurred in the UK, where they have been addressed in a very simple way, are the following:
1. Certain tax matters which possibly do not require even legislative changes but a policy from the Commissioner of Inland Revenue.
2. A minor (and I insist on the word minor) change in the Banking Act.
3. The ‘Marcello Lippi Syndrome’, or addressing new challenges with old methods. As you are aware, in 2006 Marcello Lippi led Italy to win the Football World Cup. Following that success, Lippi winded up. It so happened that the Italian national team then experienced various disastrous performances. The Italian Football Federation (FIGC), believing that Lippi could solve the issues again for them, entrusted him with the 2010 mission. Unfortunately, Mr Lippi’s approach was one of the past. He was unable to identify, grasp and evaluate properly the changes that had been taking place and the response required by the new challenges surrounding him. As a result, Italy went to the World Cup finals weak particularly on the striking front. Football enthusiasts know what the result was. In substance strategies that might have worked well in other areas of finance may not necessarily be winning strategies in Islamic Finance
I believe these three issues can be easily addressed without the need for drastic measures. We have already made big steps ahead. We also have the potential to excel in this front through our legal instruments and through our surrounding markets.
Quite a few transactions are already in the process of materialising through proposed funds and through SPVs and Trusts. Now, through some minor changes, potentially accompanied by an active approach by Finance Malta, we can accelerate the momentum. Finance Malta can possibly issue Guides based on existing legislation to assist IFIs. Meanwhile, our legislative instruments need better promotion. Perhaps just like Luxembourg, we could even consider having a unit within Finance Malta focusing on Islamic Finance. Such a unit could help, among other things, to ensure that Malta provides the right response to certain specific queries and in being present in the appropriate fora.
This approach is in line with the Government of Malta’s 2015 Vision of growth in the financial services sector and of Malta becoming a centre of excellence in education. It is also in line with other sections of this Vision, considering what IFIs usually invest in, for instance Green Technologies and Health.
Further and faster political commitment and implementation, including through the establishment of the aforementioned much advisable task force and through ensuring appropriate Memorandum of Understandings with the relevant countries, would surely be an investment in a right direction.
We are doing our part. Indeed, we believe the signing of the Memorandum of Understanding amounts to the first step towards having Malta being seen, as in the case of Bahrain, as a leader in Islamic Finance. Indeed Malta will be the Bahrain in the Mediterranean with a strong regulatory framework, a cost effective structure, an advantageous tax regime and a unique geo strategic position.
Source : http://www.maltabusinessweekly.com.mt/news.asp?newsitemid=9833 - Oct 28, 2010
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