The government could issue a Sukuk to attract the attention of the Islamic world and to gauge interest in Malta's potential to become a centre of Shariah-compliant banking and finance, Islamic finance advisor Reuben Buttigieg said on Monday.
Malta is the only jurisdiction in the Mediterranean currently considering the introduction of an Islamic finance framework.
A Sukuk is an asset-backed, tradable bond structured in accordance with Shariah law. It represents proportionate beneficial ownership in the underlying asset, which will be leased to the client to yield the return on the Sukuk.
Mr Buttigieg made the proposal while addressing journalists on the first day of a week-long event themed "Islamic finance in a European financial services framework" at the Radisson Blu Resort in St Julians. The event opened with a day-long conference addressed by highly renowned experts in the field as a prelude to four days of workshops putting aspects like Shariah-compliant insurance and Islamic funds, banking and capital markets under the spotlight. Local and visiting legal and financial professionals will prepare reports on each workshop.
This is the third local event showcasing Islamic finance. For the last few years, Mr Buttigieg, chairman of the Malta Institute of Management, has lobbied for the introduction of a legislative framework that would allow Malta to become a centre of excellence for Islamic finance. He believes the country's geographical location and the lack of Shariah-compliant banking and finance facilities in the region could lure significant activity to Malta and make a considerable contribution to economic growth.
Islamic finance is underscored by Islamic values but clients and practitioners may belong to other faiths. No longer a novel concept, Islamic banking is now the fastest growing form of banking in the world. It has largely escaped the clutches of the recent banking meltdown as its activities are less exposed to risk.
Essentially, Islamic finance aims to eliminate exploitation and to establish a just society through the application of Islamic law to the operations of banks and financial institutions. It is a form of ethical investing or lending; loans must be interest-free. Most importantly, Islamic funds never knowingly invest in companies involved in gambling, alcohol or pork products.
The MIM's efforts to lobby for the introduction of Islamic finance in Malta have had the support of the Malta Union of Bank Employees and the Malta Employers' Association since early 2007. Finance Minister Tonio Fenech and Labour MP Charles Mangion publicly endorsed the vision to make an Islamic finance centre of excellence of Malta at the first conference on the issue that October. A similar event was held a year later.
Over 25 foreign participants are attending this week's conference which will serve to showcase the opportunities Malta could offer in the field. Local financial and services professionals are also attending the event which, among other things, aims to analyse Islamic finance activity or the lack of it in the Mediterranean and North African regions.
Mr Buttigieg is disappointed that progress on the introduction of a legislative framework that would allow Shariah-compliant banking and finance operations to take place in Malta is so slow. He has always maintained Malta should be among the first in the region to set up a framework if it is to capitalise on the opportunities this highly lucrative concept could present to Malta's economy.
The Malta Financial Services Authority issued a consultation document in mid-2008 and all stakeholders, including the banks, submitted their feedback. The regulator finished its report last May but there has been little news of progress since. Various political commitments have been made, including by the Prime Minister, on the introduction of Islamic finance. During a state visit to Qatar last month, President George Abela, who was accompanied by a trade mission, encouraged financial institutions to look at Malta's potential as a centre for Islamic banking. Maltese professionals, particularly lawyers and accountants, have shown increasing interest in the concept and have recognised the potential demand for their services an eventual framework could trigger.
"All the while Malta has been contemplating the introduction of Islamic finance, France, Germany, Spain and Luxembourg were working in earnest to seize the opportunities," Mr Buttigieg emphasised. "Luxembourg has been very successful in attracting Islamic funds and has slowly become what Malta could have become. In the meantime, our competing jurisdictions, Guernsey, Jersey, the Cayman Islands and Cyprus, are making significant progress. Guernsey is becoming a reputable Islamic finance centre, the Cayman Islands have managed to attract a number of special purpose vehicles, and Cyprus has registered two Islamic banks."
Officially, Malta has 6,000 Muslim residents who have no choice but to use conventional banks. They are, however, obliged to use Islamic banking facilities as soon as they become available in their country of domicile. An Islamic finance framework could also be a useful proposition for Maltese entrepreneurs seeking project finance, particularly involving developments in Libya.
Mr Buttigieg believes Italy's 1.5 million Muslims and 70,000 Arab holding companies which have limited access to Shariah-compliant banking could be attracted to do business in Malta when the framework becomes available - 90 per cent of Islamic finance is corporate-oriented. Malta's already attractive tax legislation would also be a major incentive for them to consider making Malta their domicile. Besides, our double taxation agreement with Italy could help mitigate tax implications. Similar agreements in place with Morocco, Tunisia, Egypt, Algeria and Lebanon are a further incentive in this regard.
Islamic finance is currently not permitted in Libya - one of Malta's most important trading partners - but the Central Bank of Libya has indicated that it is considering a legislative change to allow it, even as early as next year. Libyan banking seems it is on the verge of shifting its policies. Foreign banks are not allowed to operate in Libya - Bank of Valletta is one of just seven financial institutions to have strictly representative offices there - but significantly BNP Paribas recently clinched a 19 per cent stake in Sahara Bank, the country's second largest commercial bank.
William Portelli, president of the Malta Union of Bank Employees, believes the local banking talent pool is "very able" and could embrace Islamic banking: the memorandum of understanding signed with the MIM provided for a partnership on training opportunities.
"This is an opportunity to explore potential," he pointed out. "It is important that while the introduction of Islamic finance in Malta is pending, our practitioners continue their professional development with constant training to provide the correct 'environment'. Malta is in a perfect position and the MUBE has to support any initiative, both in the educational and economical spheres, to provide tangible results. A well-trained workforce is imperative."
Mr Portelli pointed out that other international banks represented in Malta could also provide Islamic banking 'windows' which could offer attractive opportunities for the local talent pool.
He pointed out that speakers at the conference had reaffirmed Malta's potential to be a centre of excellence - which, after all, fell within the government's Vision 2015 for Malta - and all the criteria were already in place.
Pierre Fava, president of the Malta Employers' Association, emphasised that an Islamic finance framework opened new doors to foreign direct investment and the potential to tap new markets. Malta stood to gain heavily in terms of tax income and revenue, he stressed.
"The Ministry of Finance and the Prime Minister need to see the opportunity," Mr Fava said. "The MEA will persevere. It is time to attract Islamic financial institutions and update the standard of knowledge and invest in the necessary technology."