MIM, MUBE, MEA call for more consultation on Islamic finance

The Malta Institute of Management (MIM), the Malta Union of Bank Employees (MUBE) and the Malta Employers Association (MEA) have welcomed the Malta Financial Servcies Authority's initiative to issue a consultation document on Islamic finance, and have, in turn, prepared a report analysing the authority's documents.

Islamic finance is consistent with Sharia principle and prohibits usury and the collection and payment of interest.

The three organisations' paper makes several recommendations for the development of the sector in Malta. It also includes general feedback on the necessary changes that need to be enacted in Malta's legislation.

The MFSA's consultation document is a good introduction but does not cover all the legislative changes required. A deeper analysis of the Islamic finance model and the various structures that could be created through the purification of conventional finance is needed. The consultation document also lacks analysis of some important features.

For example, Sukuk (securities that comply with Islamic law) are one of the fastest growing asset classes in the financial industry. This has been recognised by EU member states and the UK government is already working on the legislative changes necessary for the application of special purpose vehicles. These may include changes in duty, tax, VAT, and the eligibility of Sukuk as acceptable collateral by the Central Bank.

The MIM, the MUBE and the MEA believe that the MFSA should take a more inclusive approach to the introduction of Islamic finance in Malta. They were not consulted prior to the issue of the consultation document, and, apparently, neither was the Islamic community.

This document is made up of two papers commissioned by the MIM, the MUBE and the MEA. The first, by Reuben Buttigieg, looks into the various aspects of Islamic finance in Malta. The second, written by Dr James Muscat Azzopardi, takes a more legal focus. Both papers have been circulated to the members of the focus group set up by the organisations and to members of the sector.

The two papers make several recommendations. Among the most salient, the papers call for a good understanding of all available contracts in Islamic commercial law by people responsible for the development of the sector. Liaison with main international bodies on Islamic finance, particularly on standardisation issues, is a must.

The papers point out that Malta needs to avoid repeating the mistakes made with respect to the pension funds which resulted in failure to attract appropriate investment.

A team of experts should be brought together to monitor the developments and study ways to attract Islamic funds here. This may be carried out within Finance Malta which needs to invest in this lucrative niche.

However, the mechanics of this team should be different from that of the other expert groups in Finance Malta.

The Ministry of Foreign Affairs should be directly involved in the experts' group, particularly experts of relations with Islamic countries. Double taxation agreements should also be sought with major Islamic financial centres.

The focus group is concerned about issues relating to legal certainty and about the role of Sharia supervisory boards and also expressed concerns about transparency and corporate governance.

The group generally agrees with the MFSA's approach to-wards Sharia-compliant funds although it has some concerns. The group will continue to actively work in the area to help Malta tap into this lucrative market.