In July 2007, the Labour Party promised it would “promote Malta as a Mediterranean centre for the development of Islamic finance”. And yet nine years later,  the idea has still not really taken off. The Business Observer asked stakeholders what is holding things up.

Kenneth Farrugia

Chairman – FinanceMalta

Islamic finance is popular in a number of regions particularly in the Middle East and we are seeing emergent interest in Europe with countries such as the UK and Luxembourg launching sukuks on the market. Nonetheless when compared to conventional finance, the gap is still significant and while Islamic finance-based products and services may be sought by certain clients, conventional products still lead the demand.

Insofar as Malta is concerned, the demand for Shariah-compliant finance products and the setting up of operations to provide Islamic banking services is still subdued. On the product side, the MFSA has introduced guidance notes for the setting up of Shariah-compliant funds. However, on the banking side our legislation and regulatory framework still needs to be reviewed to cater for such operations. FinanceMalta also provides information about the opportunities in this space which are equally supported through a number of initiatives.  Nonetheless Shariah-compliant operations/services are not key sectors but rather subsets of established areas of business particularly asset management and insurance business.

Patrick Mangion

Principal/Financial Services Industry – Deloitte Services Ltd

Today Malta is a jurisdiction of choice for financial services but up to a few years back we were still relatively unknown. The most challenging aspect to building and growing this sector was enticing the first few promoters to establish a regulated entity in Malta. This enabled us to build a track record and, to use a cliché, the rest is now history. One draws similar comparisons to what we are trying to do with Islamic finance.

Today it is possible to set up a number of regulated structures which are Shariah-compliant. Although there are a few potential projects in the pipeline, Islamic finance has not, up to the present day, really kicked off locally.

Little (if any) concrete steps have been taken towards the issue of a sovereign sukuk

My expectation is that as soon as the jurisdiction wins the first few Islamic finance mandates, we will create momentum to propel this increasingly important financial services segment forward.

Deloitte Malta is particularly attuned to the potential of Islamic finance. We are leveraging on our close contacts and collaboration with Deloitte Middle East to ensure that our jurisdiction has the best possible chances of success in becoming a European Union jurisdiction of choice for Islamic finance.

David Zahra

David Zahra & Associates Advocates

Malta’s financial services offering needs to re-invent itself. Our tax system is facing significant challenges as international organisations press for a fairer international tax environment. And the economic growth we constantly boast about is borne out of sectors that are, at best, of questionable moral standing.

The question we must ask ourselves is: are we innovating ourselves enough to be able to sustain our economic growth should any of the factors on which our economy is based today significantly change?

For years now, together with other practitioners, I have lobbied successive governments in favour of introducing a regulatory framework that is allows ethical financial alternatives, particularly Islamic finance.

Islamic finance is a growing niche in the world of financial services that already has a strong foothold in Europe, particularly in the UK and Luxembourg. Both the UK and Luxembourg are significant players in the financial services world and, admittedly, Malta aspires to emulate their successful models.

As a result of such lobbying, a number of seminars, workshops and conferences have been organised. FinanceMalta supports these initiatives – it has organised technical workshops together with other industry associations and also issued a sector guide entirely dedicated to Islamic finance.

However, the most important development (and least known, I dare say) took place in 2008 when the MFSA issued Guidance Notes on the establishment of investments funds operated on the basis of the principles of Shariah. To my knowledge, these are unique in that they are guidance notes issued by a European regulator (as opposed to the practitioner-driven guidelines which exist in other jurisdictions).

Islamic investment funds are an interesting opportunity because they open up conventional methods of finance to investors who are obliged or willing to make investments in an ethical manner, in lines with the principles of Islamic law. Our EU membership, in turn, grants such Islamic funds (in certain circumstances depending on their typology) passporting opportunities throughout the European Union.

In my view, should these Guidance Notes be more widely known, they would enhance significantly enhance Malta’s appeal and versatility as a domicile for alternative investment funds.

Unfortunately, few people in the Middle East, which I visit frequently, are aware of these structures. This is a pity. It is only recently that practitioners, the Chamber of Commerce (through its Middle East Business Council) and FinanceMalta have upped their efforts to promote these Guidance Notes with one-to-one meetings, roadshows and business delegations to the Middle East.

A common response I get from Islamic finance practitioners in the Middle East is that Malta is not yet placed on the Islamic finance world. In the same way as the United Kingdom and Luxembourg have issued sovereign sukuk (or Islamic bonds) as a strong political message that they are open for business to the Islamic financial world, Malta should do the same. There seems to have been the political will to do the same some time back. The Prime Minister was quoted by CPI Financial, an influential Dubai financial magazine, as saying that Malta was considering issuing a small sukuk “to see what the reaction of the markets would be and to give a political message that this is the sort of instrument we are in favour of.”

Unfortunately, other than a very vague (and incorrect) paragraph in the minister’s budget speech for 2015, little (if any) concrete steps have been taken towards the issue of this sovereign instrument. Sukuk would offer an alternative way of raising money in the international markets and also offering a viable option to those investors investing according to their religious principles (such as those applying under the citizenship programme who are obliged to acquire interest-bearing sovereign paper).

The issuance of sovereign sukuk will show that the Maltese government is truly committed to strengthening trade links with the Middle East and to creating new sectors and niches in our financial services offering as a jurisdiction.

And let us not forget the launch by the Malta Stock Exchange of a Shariah-equity index – another important strong message to the Islamic financial world.