MFSA to consult Sharia experts on Islamic Finance
The Malta Financial Services Authority is planning to consult Sharia (Islamic law) experts with the view of possibly allowing Islamic Finance in Malta. The MFSA will be establishing an expert group to look at changes necessary to legislation and...
The Malta Financial Services Authority is planning to consult Sharia (Islamic law) experts with the view of possibly allowing Islamic Finance in Malta.
The MFSA will be establishing an expert group to look at changes necessary to legislation and existing regulations, as well as any new regulation related specifically to Islamic financial institutions. The expert group is expected to start meeting shortly.
Feedback on the MFSA consultation document on Islamic Finance in Malta: Application to Banking and Securities was published on October 30. This consultation was the first of three being planned: the second, focusing on Islamic bonds (sukuk) is expected before the end of this year, with a third consultation document on Shariah-compliant insurance early in 2009.
The consultation sought feedback from financial services practitioners on how Shariah-compliant financial services could fit into Malta's financial regulation structure. In general, feedback was positive but a number of concerns were raised.
On the one hand there was concern that a number of changes, especially to taxation structures and a few to regulations, would be necessary to take into account the different structure of contracts used in Islamic finance. On the other, a number of respondents raised questions about the corporate governance of Shariah-compliant foundations and how Shariah supervisory boards would be constituted, and on how standards would be applied.
The MFSA will be consulting Sharia experts on the issues raised. "The expert group will need to include people who know the principles of Shariah finance well and others who are familiar with Maltese regulatory structures," Douglas Nelson, General Manager of The International Banking Corporation (Malta) said.
The bank is a subsidiary of the Bahraini-based TIBC, and offers Islamic financial products in its Gulf operations. It is a leader in the Islamic securities market. The Malta subsidiary, established earlier this year, is concentrating on trade finance and treasury operations, but it has not ruled out offering Shariah-compliant services in the future.
"TIBC is able to draw upon the skills and experience of experts in Islamic finance," Mr Nelson added.
Reuben Buttigieg of Erremme Business Advisors said: "There are a lot of opportunities available with Shariah-compliant finance. In the UK, which changed its tax structures to facilitate Islamic mortgages a few years ago, there is a substantial domestic demand, but in Malta the focus will be external."
Mr Buttigieg pointed out that there is a large and growing - and underserved - market in North Africa and the Middle East. In particular, Libya looks set for substantial development.
Islamic or Sharia-compliant finance is one of the fastest growing segments of the world's financial services markets. There are now more than 300 Shariah-compliant finance institutions in 75 countries, and the segment has been growing at between 10 per cent and 15 per cent per annum for the past 10 years. The Islamic asset market is expected to hit $4 trillion by 2009. One particular form, the Sukuk, a Shariah-compliant asset-backed bond, is expected to account for $200 billion by 2010.
The Islamic banking market is also moving out of its niche areas of interest and becoming mainstream. By far the largest volume of the market is in Islamic countries like the Gulf States and Malaysia, or caters to the needs of the Muslim communities in Western countries. But interest - and participation - is spreading. In 2004 the German state of Saxony-Anhalt turned to a sukuk to raise funds, the first non-Islamic state to do so, and a number of corporate sukuk have been issued in the UK and the US.
Islamic financial products and investments have also begun to attract the interest of hedge funds seeking diversification, and of the substantial and growing community of people seeking ethical investment opportunities.
"One issue at a conference I attended recently was whether the name Islamic Banking was correct. The decision was that it should possibly be changed, but the time is not yet right," Mr Buttigieg said, demonstrating just how close to the mainstream contemporary Islamic banking, which only got under way in a small Egyptian town in 1963, has come.
The basic differences between Sharia-compliant finance and more familiar banking practices revolve around a ban on interest and on investments in businesses that are considered immoral: these include alcohol and pork products, armaments, pornography and gambling. Many of the structures developed in Islamic finance are techniques designed to get a financial market working with these restrictions.
In general, the solutions involve an element of risk sharing and participation between the bank and its client, or the treatment of a loan to buy a particular item as a lease agreement, with the bank buying the item and then leasing it to its client so as to cover the price and a fee over a period of time. Basically, working on the Sharia principle that money per se has no intrinsic value, an Islamic financial transaction will need to be backed up by a physical transaction entailing physical goods.
These require a series of transfers of title, rather than just one in more mainstream Western transactions. One of the biggest challenges is to treat these multiple transfers as one for tax purposes: otherwise, buying a house with an Islamic mortgage can mean that tax is charged twice.
The MFSA will be establishing an expert group to look at changes necessary to legislation and existing regulations, as well as any new regulation related specifically to Islamic financial institutions. The expert group is expected to start meeting shortly.
Feedback on the MFSA consultation document on Islamic Finance in Malta: Application to Banking and Securities was published on October 30. This consultation was the first of three being planned: the second, focusing on Islamic bonds (sukuk) is expected before the end of this year, with a third consultation document on Shariah-compliant insurance early in 2009.
The consultation sought feedback from financial services practitioners on how Shariah-compliant financial services could fit into Malta's financial regulation structure. In general, feedback was positive but a number of concerns were raised.
On the one hand there was concern that a number of changes, especially to taxation structures and a few to regulations, would be necessary to take into account the different structure of contracts used in Islamic finance. On the other, a number of respondents raised questions about the corporate governance of Shariah-compliant foundations and how Shariah supervisory boards would be constituted, and on how standards would be applied.
The MFSA will be consulting Sharia experts on the issues raised. "The expert group will need to include people who know the principles of Shariah finance well and others who are familiar with Maltese regulatory structures," Douglas Nelson, General Manager of The International Banking Corporation (Malta) said.
The bank is a subsidiary of the Bahraini-based TIBC, and offers Islamic financial products in its Gulf operations. It is a leader in the Islamic securities market. The Malta subsidiary, established earlier this year, is concentrating on trade finance and treasury operations, but it has not ruled out offering Shariah-compliant services in the future.
"TIBC is able to draw upon the skills and experience of experts in Islamic finance," Mr Nelson added.
Reuben Buttigieg of Erremme Business Advisors said: "There are a lot of opportunities available with Shariah-compliant finance. In the UK, which changed its tax structures to facilitate Islamic mortgages a few years ago, there is a substantial domestic demand, but in Malta the focus will be external."
Mr Buttigieg pointed out that there is a large and growing - and underserved - market in North Africa and the Middle East. In particular, Libya looks set for substantial development.
Islamic or Sharia-compliant finance is one of the fastest growing segments of the world's financial services markets. There are now more than 300 Shariah-compliant finance institutions in 75 countries, and the segment has been growing at between 10 per cent and 15 per cent per annum for the past 10 years. The Islamic asset market is expected to hit $4 trillion by 2009. One particular form, the Sukuk, a Shariah-compliant asset-backed bond, is expected to account for $200 billion by 2010.
The Islamic banking market is also moving out of its niche areas of interest and becoming mainstream. By far the largest volume of the market is in Islamic countries like the Gulf States and Malaysia, or caters to the needs of the Muslim communities in Western countries. But interest - and participation - is spreading. In 2004 the German state of Saxony-Anhalt turned to a sukuk to raise funds, the first non-Islamic state to do so, and a number of corporate sukuk have been issued in the UK and the US.
Islamic financial products and investments have also begun to attract the interest of hedge funds seeking diversification, and of the substantial and growing community of people seeking ethical investment opportunities.
"One issue at a conference I attended recently was whether the name Islamic Banking was correct. The decision was that it should possibly be changed, but the time is not yet right," Mr Buttigieg said, demonstrating just how close to the mainstream contemporary Islamic banking, which only got under way in a small Egyptian town in 1963, has come.
The basic differences between Sharia-compliant finance and more familiar banking practices revolve around a ban on interest and on investments in businesses that are considered immoral: these include alcohol and pork products, armaments, pornography and gambling. Many of the structures developed in Islamic finance are techniques designed to get a financial market working with these restrictions.
In general, the solutions involve an element of risk sharing and participation between the bank and its client, or the treatment of a loan to buy a particular item as a lease agreement, with the bank buying the item and then leasing it to its client so as to cover the price and a fee over a period of time. Basically, working on the Sharia principle that money per se has no intrinsic value, an Islamic financial transaction will need to be backed up by a physical transaction entailing physical goods.
These require a series of transfers of title, rather than just one in more mainstream Western transactions. One of the biggest challenges is to treat these multiple transfers as one for tax purposes: otherwise, buying a house with an Islamic mortgage can mean that tax is charged twice.