It is too early to determine the implications of Libya’s plans for an Islamic banking structure for Maltese firms operating there, but they will certainly have to heighten their cultural awareness, Islamic finance expert Reuben Buttigieg told The Times Business.

Declaring Libya liberated on Sunday, three days after the death of Colonel Muammar Gaddafi, transitional leader Mustafa Abdul-Jalil said that Islamic Shariah law would be the “basic source” of legislation and all existing laws contradicting Islam would be nullified.

He said new banks would be established on banking principles which comply with Islam’s ban on interest and speculation. Interest would be cancelled from any personal loans already taken out for less than 10,000 Libyan dinars.

Islamic finance is a $1 trillion global industry and incorporates one of the fastest growing forms of banking.

“It is too early to determine the implications,” Mr Buttigieg said. “It all depends whether a dual system of banking will be allowed in Libya. If it is, then much will depend on Maltese firms’ partners and whether those organisations want to be Shariah-compliant.

“If a unique, Shariah-compliant system is adopted, then one needs to take this into account particularly when it comes to joint ventures and co-mingling of funds. Certainly, the introduction of Shariah-compliant financing in Libya and the way that Jalil communicated it makes one think that Maltese firms need to change their modus operandi with Libyan entities. Maltese entrepreneurs need to be more culture-conscious and aware of what can and cannot be proposed.”

Maltese authorities will have no choice but monitor the effects this will have on the Maltese economy and perhaps adopt a more proactive approach than Malta has so far, he added.

Mr Buttigieg, chairman of the Malta Institute of Management and who for the past few years has lobbied for the introduction of a legislative framework that would allow Malta to become a centre of excellence for Islamic finance, stressed Jalil’s statement was a major development for Islamic finance practitioners.

Maltese regulation allows some specific Islamic finance activity.

“This is an even greater opportunity for Malta,” Mr Buttigieg explained. “New governments and new regulators may not immediately have the structures and legislative instruments in place. There will be strong interest from investors, Islamic microfinance institutions, and Islamic banks to head to Libya, but they will need the necessary peace of mind that their transactions are within an appropriately regulated framework. Finance Malta and the Malta Financial Services Authority should ensure that Malta takes the proactive role necessary to tap into this unique economic opportunity that will also assist in Malta continuing its humanitarian role.”

He explained that many Libyan entrepreneurs will need financing and Malta could act as a conduit of financing into the North African country to support people realise their business ideas.

Malta, however, needed to step up its communications to make it clear that Islamic finance is welcome and to offer a helping hand to Islamic finance institutions expressing interest in Malta. Authorities and ambassadors needed to be more active in promoting Malta and in encouraging Maltese firms to tap this opportunity. The island’s role would be key if a clear strategy on Islamic finance is in place, he said.

Developments in Libya would have to continue to be watched closely for indications on when and if Libyan nationals move their deposits back home. Mr Buttigieg said Libya did not yet have its house in order and it will have to be seen when it would start building the necessary confidence and structures for people to move monies.

Even here, he pointed out, Malta could have a role to play in terms of training, consultancy and assistance on structure building, but it had to be pro-active and act fast.

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