The Flourishing of Islamic Finance in Malta By Reuben M Buttigieg and Muath Mubarak

Located in the heart of the Mediterranean, Malta is one of Europe’s smallest and most densely populated countries. It is also one of the most Catholic countries in the world, with more than 360 churches located in just over 300 square kilometre of land.

Along with many other non-Muslim countries, Malta is willing to offer Islamic fi nancial products and services based on the Quran and Sunnah. Even the Roman Catholic Church talks about the injustice of interest or usury and how it has become widely accepted. In this context, Islamic banking and fi nance is fl ourishing and the Maltese government and other regulatory bodies are taking initiatives to attract Islamic Finance Institutions (IFI) and investments to the country. Malta has a small open market economy with a well-developed and sound fi nancial system in place that is regulated to European Union (EU) standards. The country has excellent relations with all EU and North African countries and the World Economic Forum considers Malta as the 10th safest country to invest in. The banking sector is regulated by the Malta Financial Services Authority. 

The sector has undergone continuous development in tandem with the rapid growth of the global fi nancial sector with regards to fi nancial liberalization, integration and harmonization with other jurisdictions and respective laws, cross-border capital fl ows, and more. The Malta Financial Service Authority is a fully autonomous public institution that reports to Parliament on an annual basis. It is empowered to issue directives and establish other regulatory requirements for the sectors.

On the other hand, the Central Bank of Malta plays a vital role in the formulation and implementation of the government’s monetary policies and ensures the effi ciency of the country’s fi nancial system. It acts like any other European central bank such as the issue of currency, maintenance of external reserves and being a banker to the government and commercial banks.

The Banking Act regulates banking business activities with the adoption of EU directives for regulatory concepts and supervisory practices. Non-banking activities are regulated by The Financial Institution Act and The Investment Services Act.

One of the fastest growing sectors in Malta is the fi nancial sector which has been fuelled mainly by the country’s national policy. Malta is one of the fi rst six countries in the world to reach an advanced accord

on fi scal matters with the Organization for Economic Co-operation and Development (OECD). The country completed a decade-long program to reform its fi nancial sector legislation to be on par with international best practices, and has expanded its jurisdiction from offshore to onshore. This was done in a manner that maintains Malta as an attractive jurisdiction given its tax system and its 50 Double Taxation treaties - the most signifi cant being the treaty with Libya.

Other important developments that have taken place in recent years is the gaining of EU membership in 2004, removal of exchange controls in 2007, the adoption of the Euro and the formation of Single Euro Payments Area in 2008.

Malta offers a concrete tangible opportunity for IFIs though various legislative instruments. The country aims to act as a gateway for Islamic Finance to North Africa and Europe. In May 2008, the MaltaFinancial Services Authority issued a consultation document entitled “Islamic Finance in Malta – Application to Banking & Securities”, and received positive response from institutions interested in Islamic fi nance. Recently, the Malta Financial Services Authority issued the fi rst guidance notes on Shariah compliant funds.

The island state is eager to attract other Islamic fi nance instruments also, such as Sukuk (securitization through Special Purpose Vehicle), Takaful (Islamic insurance), Islamic equity markets, Islamic stock market and money market practices, Shariah compliant funds and trust certifi cates and more, along with proper corporate governance and risk management structures in place.

Malta offers solutions in all these areas, as is evident from the establishment of Islamic fi nance advisory fi rms and the launch of Islamic fi nance training courses and seminars. In order to increase awareness about Islamic fi nance among industry professionals, the number of Islamic banking and fi nance workshops and seminars has risen in recent years, and is in fact producing concrete results.

In fact, Malta has attracted a considerable number of SPVs within Islamic fi nance structures, given that Malta has offered solutions that no other tax attractive jurisdiction has come up with in the case of certain Islamic fi nance transactions within the EU, Malta is in fact now offering solutions for Sukuk issuance in the EU member states.

Furthermore, Malta is now experiencing the fi rst Shariah compliant funds registration as well as the fi rst re-Takaful application. A bank has also announced that it will be offering Islamic banking products in Malta.

The Trusts in Malta are also another instrument that is fl ourishing from an IFI point of view. The industry hopes that the Maltese government can attract Islamic fi nance investors through the issuance of a sovereign Sukuk for infrastructural projects, seeing that the country is strategically located to serve most of the Mediterranean countries. This will further enable infl ow of funds into the country. 

Finally, industry players believe that Islamic fi nance will truly render Malta a reputable Mediterranean fi nancial services hub, and send the country well towards its Vision 2015 of becoming an Islamic financial centre of excellence.

The leaders of Malta, president of the republic Dr Goerge Abela and prime minister Dr Lawrence Gonzi, have expressed their commitment to Islamic fi nance and actively encourage IFIs to utilize Malta as the Bahrain of the Mediterranean. It is believed that if Malta continues in the right direction it can compete with London as an Islamic finance hub in Europe.

Reuben M Buttigieg

Managing director

Erremme Business Advisors

Email: rmb@erremme.org

Muath Mubarak

Coordinator, fi nancial control & strategic planning

Barwa Bank, Qatar

Email: muath2015@gmail.com 

This was published by Red Money Group in IFN on 26-May-2010

interview: Islamic Finance can bring huge benefits to Malta

The managing director at the Malta Institute of Management, Reuben Buttigieg, talks to Gerald Fenech on how Islamic Finance works and the benefits it can bring to Malta if the country taps into the considerable commercial opportunities that are available.



The term Islamic Finance has been gaining currency recently but few know about the considerable opportunities of this system. What exactly is Islamic Finance?

Islamic Finance is based on Sharia law which to be fair are quite common to various religions. These include no investment in prostitution, immoral activities or companies which deal with the production of pork as obviously Muslims cannot eat pork. Money is not considered as a commodity in this system and speculation or charging of interest is not allowed. However even the Catholic religion speaks about the imposition of interest and this has now become accepted within reasonable limits. Similarly, both religions talk about social responsibility. In fact if one analysis the modus operandi practiced by APS Bank one finds that profit maximisation may not always be the prime objective. Islamic Finance is not actually linked to a religion but is a similar way of doing business to conventional methods with certain limitations.



What are the main pillars of Islamic Finance?

The main pillar is banking followed by insurance and capital markets. The main differences in banking may be explained through the fact that Islamic banks provide a house loan interest free as the property is initially purchased by the bank and then sold at a profit to the buyer who then pays back the loan over a period of time but interest free. One of the advantages in this type of transaction is that there is certainty as one does not have to worry about interest rate fluctuations. Banks also invest in projects directly with an equity stake instead of loaning out to individual companies so profit/loss sharing is carried out here. Banks also provide diverse methods to divest their holdings which may include a repayment programme as well as possible equity flotation.

The major part of Islamic banking is actually project financing and is not aimed at the individual.

Islamic banks also offer reasonable timeframes to pay back loans if an individual or a company goes bankrupt and profit maximisation is not an issue. But how does a bank survive with such methods?

First of all, Islamic banks are quite rigorous and cautious when lending money so the element of risk is considerably less than in other conventional situations. This is also a good thing as our society these days actually encourages credit beyond one’s means. An interesting study which has come to light recently shows that this method of financing is not new to the Mediterranean especially in Sicily and Malta. A typical example of banks investing directly in projects was the Valletta Investment Bank which had similar methods of financing. The other pillar is insurance where policyholders put their money into a fund which eventually covers costs but the money held is not owned by any insurance company but is actually owned by the policyholders. The fund will then appoint an operator to manage the fund. The operator is usually paid a fee or else a profit sharing arrangement on the returns of investments is agreed upon. The operator can actually be called to replenish the fund if the fund is at a deficit. Re-insurance has become an issue, with many Islamic Insurance companies turning to conventional re insurance to carry out certain transactions.

Malta actually had a similar method to Islamic insurance in the form of confraternities where the one dedicated to St Joseph eventually became a fully fledged investment fund which evolved into the APS Bank of today.



What about funds and capital markets?

Islamic companies cannot issue bonds strictly speaking as they cannot borrow money with interest. Furthermore, one cannot invest in companies which have a certain amount of debt – this is normally around 40/45 per cent depending on the screening process. The major stock indexes today such as Dow Jones and FTSE actually have Islamic indexes which are operated according to this method and this is growing considerably. Another controversy in the Islamic world is entertainment as one cannot invest in that sector although the rules have been relaxed somewhat for hotels and other similar areas.

An area of considerable interest and which is also growing considerably is the Islamic trust which can be beneficial to Malta as some countries are stalling to implement reforms with a taxation burden which is quite heavy. For example inheritance tax in Italy is quite heavy so the opportunity for Malta to attract some of these trusts here is substantial.



So what can Malta gain from Islamic Finance and is enough being done to raise awareness on the issue?

In most Mediterranean countries, Islamic Finance is basically nonexistent so these countries are using conventional banking methods. However in countries such as Morocco there is a fear that as soon as Islamic Finance is introduced, the conventional banks there could go bankrupt so this offers a window of opportunity for us as other countries dither. We can use Malta through Special Purpose Vehicles to take the opportunity to offer Islamic banking to those who wish to practice it. Another country where there are opportunities for this method is Libya where the possibility of Islamic Finance has only recently started to be discussed.

The Muslim religion is also the fastest growing religion in the world so opportunities will increase and not decrease. Countries such as Italy also face cultural problems to introduce Islamic Finance so we can start using Maltese financial institutions to tap into this sector.

I believe that an Islamic retail bank in Malta is a bit off the mark at least for the time being but there are considerable opportunities in project financing which we can start tapping into. To be fair, the Prime Minister has committed himself a number of times to this vision but so far nothing much has been done to move the concept forward. The MFSA had also published a consultation document on Islamic Finance and although I am aware that there was positive feedback from the industry, nothing has happened either. The direction we seem to be taking is also slightly misleading as we are trying to put a system of banking into another system of banking but this will not work out. We do have distinct parts of legislation which can be used but unfortunately nothing much is being done to advance the cause. A typical example is what is happening in Luxembourg which is flourishing considerably in the Islamic Funds sector and we have an advantage over this country as they only go for considerable large amounts in funds.

We can attract smaller funds here to Malta and this would not be in competition with larger financial centres. Insurance and Special Purpose Vehicles are other instruments which we can promote and we have advantages over other countries in the sense that we are onshore and EU members and not offshore destinations. Malta could issue what is called a ‘Sukuk’ or an Islamic bond which could finance say the Cirkewwa port which is sold to a group of investors who then rent out the port back to government and with a separate contract drawn up committing the owners to sell the port back to government after a fixed period of years. That way government will not pay interest but will only pay rent. This transaction will eventually put Malta on the Islamic finance map and this will definitely create substantial interest in the country as an investment destination.

There is considerable hunger for Sukuk investments so this is a window of opportunity waiting to be opened. Our stock exchange could also develop considerably in this area where transactions in Islamic equities and investment instruments could happen with even a possible Islamic Finance Mediterranean Stock Exchange in the offing. Why Malta is taking it easy, I fail to understand.

Link: http://www.maltabusinessweekly.com.mt/news.asp?newsitemid=7884

Prime Minister confirms Malta will allow Sharia compliant banking

Malta is preparing legislation to allow Sharia compliant banking and other financial services to attract investment, Prime Minister Lawrence Gonzi told Hedge Funds Review in an interview.

An excerpt of the interview was published online yesterday.

He revealed that the government is keen to expand the financial services industry offering to the Arab world by allowing banking in consistency with the principles of Islamic law.

“The concept is to grow exponentially. The potential is there. When the times come we will target other regions and states but first we are looking to develop our relationships with the Middle East,” confirmed Dr Gonzi.

He believes the area has enormous potential growth “and that’s the future sector for our growth”. Dr Gonzi was speaking about the potential of the hedge funds industry in Malta. Although a newcomer to the industry, Malta is one of the few, if not only, significant hedge fund jurisdictions to have seen substantial growth in 2008 and in 2009.

Dr Gonzi explained that Malta is strategically positioned geographically and culturally as the “only financial centre in the European Union and eurozone able to offer a range of services. The advantage Malta has is that we are comfortable with the Arab world and the Arab world trusts and engages with us.”

Commonwealth membership is another significant advantage, he continued, as Malta’s associations with 52 former British colonies are “natural”. This will help Malta expand the reach of the financial services industry globally.

The government has prioritised development of the financial services industry and is particularly keen to boost its standing as a hedge fund jurisdiction of choice within the EU.

The full interview with Dr Gonzi will be published in the Malta supplement with the November issue of Hedge Funds Review.
Link: http://www.independent.com.mt/news.asp?newsitemid=96012

Malta seen as the 'Bahrain in the Mediterranean'

Malta is strategically well-positioned to act as the “Bahrain in the Mediterranean” from where Islamic Finance Institutions may reach and penetrate the markets of the European Union and North African. An international meeting on Islamic Finance was held in Malta.

The five-day event held between October 12 and 16, based on daily workshops, attracted world renowned speakers such as Dr Mohammed Nedal Alchaar, Dr Hussein Hamid Hassan, Prof Abdulla Al Shami, Mr. Reuben Buttigieg, Mr Nazmi Camalzaman and Mr. Oliver Agha. The delegates were from throughout the European Union and elsewhere, including Italy, Luxembourg, Latvia, the United Kingdom, Turkey, Malta and Slovenia.

The first session concentrated on an overview of Islamic Finance and its potential in Europe and the Mediterranean. The other four days addressed different pillars of Islamic finance, including Insurance, Banking, Funds and Sukuk and Islamic Capital Markets. The workshops were chaired by different personalities including Malta’s Dr Max Ganado, Mr Francis J Vassallo, Mr Peter Grima and Mr Reuben Buttigieg.

The advantages identified with regards to Malta’s potential as a centre for Islamic Finance in the Mediterranean include its geographical position, the extensive network of double taxation treaties that mitigate the tax effects of certain legislations on Islamic finance transactions, including with Libya.

Malta can cater for small funds which no other EU jurisdiction can. It is considered by the World Economic forum as the 10th safest country to invest in and it has excellent relations with all EU countries and North African countries.

During the workshops various structures were considered particularly vis-a-vis Italy, Malta and Spain. The Malta formula was seen as a potential vehicle to assist Muslim Communities and Investors in these countries to have the alternative financing they require.

The opportunity of Borzamed as a Mediterranean platform for Islamic Capital Markets was also discussed.

Link: http://www.di-ve.com/Default.aspx?ID=72&Action=1&NewsID=65184&newscategory=4

Increasing trade finance in Malta

Trade finance plays an important role in facilitating trade transactions between buyers and sellers. It is a form of short term banking facility to help the buyers and sellers in managing their cash flow in the short run. For years banks worldwide have been practicing the conventional method of trade financing until in the last few decades when Islamic Banking emerged. The system has become very popular because it offers an excellent alternative to customers.

Islamic trade finance operation is a specialised area of Islamic banking utilising various concepts that need to be understood by the parties involved, particularly bankers and traders. Essentially, the underlying contracts in trade finance such as guarantee (Kafalah) and agency (Wakalah) are similar to those in conventional finance. However, the financing mechanisms that accompany these types of contracts vary significantly.

This is mainly because interest based financing (in conventional finance) is replaced with Shariah approved financial arrangements. Malta is gradually gaining momentum in international trade finance. This is mainly attributable to financial institutions registered in Malta with mainly foreign shareholding which use Malta as a hub for trade finance. This hub concept can also be used for Islamic trade finance.

The most common trade finance used are, for example, the documentary credit/letters of credit. In Islamic Finance letters of credit are basically based on a Kafalah (guarantee) contract complemented with a Wakalah (agency) contract in order to affect the undertaking/guarantee. There are three different main underlying contracts in Islamic letters of credit, namely the Musharakah, Murabahah and Wakalah with their particular modus operandi.

The financing amount with the Musharaka LC is basically an arrangement entered into between the financial institution and the customer for an identified commercial purpose. Basically the buyer/importer and the financial institution will share the profit from the venture as provided by the Musharakah (partnership) agreement. On the other hand a Murabahah LC (cost plus mark up) is a facility that has similar features to the conventional LC coupled with a finance element for the buyer to finance the trade.

There is also the Wakalah letter of credit. In this type of facility the financial institution will act as the agent for the customer and issue a LC to effect payment for the imported goods on behalf of the customer. No financing is required from the financial institution in the case of the Wakalah LC.

Qatar is investing heavily in international business. The Emir of Qatar, Hamad Bin Khalifa Al Thani, has stated that the State of Qatar is going a long way in diversifying its economy. Indeed it is doing so and the strong welcome given to the President of Malta and the Maltese business delegation is evidence of this. Maltese and Qatari businesses and enterprises now have an opportunity in front of them. The possible increase in trade will also lead to an increased activity in financial services between the two countries.

In order to facilitate this trade with Qatar but with also other Muslim communities, Maltese financial services institutions may want to consider tapping into this lucrative market of alternative method of finance while assisting the commercial community to increase their international trade. Visits like the Qatari one should be followed and nurtured regularly also through ensuring that the necessary basic infrastructure to service the trade between the two countries is fully operational. Is Malta achieving this?

Furthermore, Maltese Financial Institutions may wish to ride upon the opportunity that Qatar is offering. The Qatar Financial Services Authority is gearing itself to gain substantial momentum in the growth of the sector. Various international organisations are looking positively at Qatar given the opportunities that it offers.

Certain Maltese financial institutions may have the sufficient resources to ride upon the openings given by a wealthy state which aims to excel in financial services. While there is both Islamic and conventional finance in Qatar, it seems that the largest business is determined by the Islamic finance institutions. In this context, Maltese organisations may want to start gearing themselves to provide these type of alternative finance too.

There are various parts of Islamic finance that are not new to Malta and hence with sufficient knowledge one may build upon Malta's own history. Also, given Malta's political interface and portfolio of double taxation treaties (including that with Qatar) Malta financial institutions are at an advantage over other countries' organisations targeting Qatar.

The media in Malta has already reported that Maltese businesses have closed interesting deals with Qatari organisations. Given the lack of appropriate Islamic financing in Malta one wonders whether these transactions will result in higher activities for Islamic Banks elsewhere. I am however, optimistic that Maltese financial institutions will take the opportunity and create a hub of services in Islamic finance. Qatar may be Malta's first opportunity to start heading towards its vision of becoming a centre of Islamic finance in the Mediterranean.

The author is managing director at Erremme Business Advisors and chairman of the education section of the Malta Institute of Management.

Rueben Buttigieg

rmb@erremme.org

Towards a Mediterranean Islamic Stock Exchange in Malta

Reuben Buttigieg

Malta has now been discussing the introduction of Islamic Finance for nearly three years. Nonetheless, unfortunately Malta has yet to introduce the necessary legislative changes to ensure dealing with discrimination against Islamic Finance in a timely manner.

In early 2007, the Malta Institute of Management, the Malta Employers’ Association and the Malta Union of Bank Employees all expressed a positive vision with respect to this lucrative and fast growing sector. The major political parties endorsed this vision too. This was before the last General Elections. But one still has to see some effective light at the end of the tunnel. Indeed, one continues to hope that the Prime Minister’s political commitment will translate as early as possible into the necessary action to set all essential legislative changes on a fast track to ensure that Malta builds a good reputation in good time and before its competitors.

One fully understands that the Prime Minister and his government have their own list of legislative priorities. However, one also believes that, Islamic Finance today presents a kind of competitive race which Malta cannot afford to risk losing by not arriving, and do so decisively, in good time. Malta has to ensure that it will not end up second to any other jurisdiction , as otherwise it will once again collect leftovers. On the contrary, Malta should have its name on the Islamic Finance map as fast as possible.

The term Islamic Capital Market (ICM) is perhaps a misnomer to many as technically the majority of the features required by an ICM derive from the conventional market. Islamic shares, for example, can be conventional company shares purchased on the Malta Stock Exchange as long as they are Shariah compliant. However, it is my opinion that there are sufficient components of a capital market unique to Islamic Finance. By way of example, a capital market needs agencies to rate the companies whose shares are traded on stock exchanges. Many such agencies exist specifically to address issues of Shariah Compliance and to rate shares that are traded as Islamic, such as the Dow Jones Islamic Market.

The Malta Stock Exchange is in an ideal position to engage into facilitating such a market. If Malta provides such an opportunity to the Islamic Finance \world at an accelerated pace, I believe Malta could establish itself as the Mediterranean Centre for Islamic Finance. The Malta Stock Exchange, being such a small Exchange needs to find niche growing markets for it to develop at the levels Malta deserves.

With Libya opening up to Islamic Finance, with a considerable amount of transactions being done in Italy, France, Switzerland, Egypt, Algeria and Tunisia, amongst others, this is the right time to penetrate the market and to establish the Malta Stock Exchange as The Islamic Mediterranean Stock Exchange.

The proliferation of ICM products has been gathering momentum since the year 2000 in the far and Middle East. In the Euro Med market it appears that ICM is gaining a growth in momentum right now. Indeed, a considerable number of Islamic investment funds have been delivered by conventional institutions such as UBS, Deutsche Bank, ABN Ambro and BNP Paribas. In this growth scenario, with even smaller names investing in the region, Malta needs and has to take a concrete timely decision on whether if Malta wants to truly benefit from this proposition.

Needless to say, this will work only if all the tools and instruments are in place. Ergo, we will again depend on whether the Authorities will identify and set up the appropriate resources to act in a timely manner. Furthermore, as in anything else, it is also a question of marketing and commitment. Will the Government of Malta succeed in attracting the necessary attention of the Islamic Finance World by being the first in the EU to issue a Sovereign Sukuk at state level? Also in this case, we have an opportunity ahead of us with the various Capital projects that Government has in the pipeline.

Thanks,

Reuben Buttigieg

rmb@erremme.org

The Potential - Islamic Finance

Italy

Malta may be primarily used by Islamic Finance Institutions to reach the Islamic community in Italy. Around 1.4 million Muslims live in Italy and there are 70 thousand companies set up by citizens coming from Arab countries. However, an Islamic bank is far from appearing in Italy, despite the fact that investors are saying they are ready for it. Analysts are of the opinion that Italy does not have the tax and regulatory framework to deal with the basic products of Shariah Finance.

In this despite, Italy has seen the first Murabahah deal which has been conclded in Pavia. It featured the acquisition of an industrial building by a special purpose vehicle and its disposal to a local Muslim Association for its use as a cultural center. It seems that this will be followed by an Ijarah wa iqtina transaction. However, the double stamp issue made this transaction very costly

Malta may offer the solution to mitigate such double taxation. Given the jurisdictional rules that Malta has together with its Double Taxation agreement in Italy, the above mentioned Murabahah deal could have avoided the double stamp rules in Italy. This may have been achieved through a holding company in Malta that has a 100 percent subsidiary in Italy. Henceforth, Islamic Financing is possible in Italy through the use of Special Purpose Vehicles in Malta. It must be emphasised that the costs of maintaining special purposes vehicles in Malta is considered to be highly cost efficient.

North Africa

After years of watching from the sidelines, North Africa has begun to embrace Islamic finance. Growth could be far slower than in the Middle East given resistance from political and business elites and more flexible views on which loans and investments qualify as Islamic, analysts predict.

As previously stated, Malta has a Double Taxation Agreement with Libya. This allows Malta to act as channel for Shariah Financing in Libya. The Malta and Libya relations have been traditionally very strong with a clear mutual political sympathy and understanding. In fact Malta, has acted as a strong base for conventional banks to reap the opportunities offered by Libya. Evidence of this is the strong presence of Turkish Banks and Austrian Banks in Malta as well as the representation offices in Libya of Malta banks.

Malta can in this sense assist Islamic Finance Institutions to reap the benefits that Libya offers. Furthermore, through this opportunity Malta may be also giving a social contribution to various North Africans that do not have access to financing.

Apart from Libya, Malta is also an ideal location to reach other North African Countries such as Tunisia.

The Domestic Market
There is a tremendous demand in Malta for project financing that Islamic Financial Institutions may tap into. This is particularly so in the Real Estate as well as other Shariah Compliant projects. IFIs that are looking for investment opportunities should look to Malta as opportunities are guaranteed. In this sense, Malta can be used as a test market in the EU. Given its size IFIs can start testing the waters through smaller investments which would have the required profits and the social contribution necessary.
Malta - The Opportunity

Apart from being in the ideal strategic location Malta offers various other advantages. Given Malta’s Tax Regime, Islamic Financial Institutions establishing in Malta shall be at an advantage with respect to achieving tax efficiency as opposed to those establishing in other EU member states. This is not only with respect to various special purpose vehicles as aforementioned but also for example with respect to the registration of Islamic Funds in Malta.

Establishing in Malta also means the possibility of accessing the other 26 EU member states. Through the integration of financial markets in the EU this is becoming all the more possible. The so called EU passporting where an institution authorised in an EU country may offer products throughout the EU without the need to have a separate authorization renders Malta an even more attractive place for Islamic Financing.

Malta offers an efficient cost structure with highly trained multi-lingual professionals in financial services. The Malta Institute of Management is also training professionals in Islamic Finance to ensure that the necessary resources are available in Malta. This is being done in collaboration with International organisations.


Shariah Funds – The Malta Financial Services Authority (MFSA) is of the opinion that Shariah funds may be set up immediately as there are no major changes necessary to Maltese legislation The MFSA in its analyses has considered various types of funds including Ijarah Funds, Murabaha Funds and Commodity Funds. Particular structures through the use of special purpose vehicles or the use of mixed funds are also possible. Even in these cases the Malta tax system puts certain Islamic Funds at a level playing field.

Islamic Banking - With respect to Islamic Banking as opposed to Shariah Funds the Maltese Legislation will be going through some legislative changes in order to ensure that they accommodate the operational structure of a Shariah Compliant Bank and hence granting a fully fletched licence. Changes in the Banking Act and the Financial Institutions Act are expected shortly. Furthermore, there are Income Tax Act, Duty on Documents and Transfers Act and VAT Act changes that are being proposed in order to ensure that Shariah Institutions are not at a disadvantage.

The analysis engaged into so far by the MFSA includes various types of contracts including Musharaka, Mudaraba, Murabaha, Bai’muajjal, Ijara, Bai’Salam. The various types of bank accounts have also been analysed. The MFSA seems to see no difficulty in adapting the current legislation to enable the functionality of these contracts. The Financial Services Industry has proposed evaluation and analysis of other types of contracts as well.


Takaful and Sukuk - These are not new concepts to Malta particularly Takaful. A similar concept existed in Malta with the co-fraternities. The origins of the APS Bank (the bank owned by the Church in Malta) are actually based on similar principles as Takaful. No major changes to the legislation are expected. It is the opinion of the author that both Takaful and Sukuk are already possible in Malta. There might be certain tax implications with respect to certain structures which may be dealt with directly with the Commissioner for Inland Revenue.
Conclusion
As the legislation stands there are various Islamic Finance Transactions that can take place in Malta both in the domestic market as well as in the Euromed region. On the other hand the Maltese Authorities are actively working in order to ensure that more Shariah Compliant transactions are facilitated.

Islamic Financial Institutions establishing now may benefit of the professional enthusiasm that currently exists towards the sector in Malta and its neighbouring partners. There are various structures already possible and there will be more to come.

Malta is an advantageous location for Islamic Finance in the Mediterranean and Islamic Financial Institutions are encouraged to benefit from the opportunities this country in the Mediterranean provides.

Thanks: Reuben M Buttigieg

Malta – The Mediterranean centre for Trade

Throughout the years Malta has always resulted to be the centre for trade in the Mediterranean. Its geo strategic position renders it unique for international trade. This position has led to Malta also developing as a geopolitical country. In fact Malta has been in various historical moments the location of reconciliation between cultures and nations.

Malta has kept its identity in this sense and today various cultures and religions respect each other on the island. This facilitates international business whereby Europeans, Arabs and Americans find Malta as the ideal platform to perform business.

This culture and mentality is reflected also in its international political relations. Malta currently has 48 Double Taxation Agreements (DTAs)which is a significant portfolio of DTAs. Significant are the ones with Libya as Malta is the only European Union Member state that has such an agreement. In fact Malta is constantly used by Libyan investors to penetrate the European Market and vice versa by Europeans to tap into the opportunities offered by Libya.

Islamic Finance in Malta
The discussion on Islamic Finance in Malta originated by the Financial Services Sector in Malta following a number of queries from Islamic Financial Institutions on the potential of Malta acting as an Islamic Financial Services Centre. The discussion was spearheaded by the Malta Institute of Management, the Malta Union of Bank Employees and the Malta Employers Association.

Apart from the aforementioned geostrategic position Malta has the advantage that it has one regulator which is in constant discussion with the financial services industry. This ensures that Malta is constantly at the forefront in the developments within the financial services sector. In fact, following a period of discussions, the Malta Financial Services Authority (MFSA) has published a consultation document on “Islamic Finance in Malta – Banking and Securities”. This document had the aim to analyse the necessary changes required in the Malta Legislation in order that Islamic finance is not discouraged but possibly encouraged in Malta. Another consultation document is expected shortly on Takaful and Sukuk.

The Financial Services Industry including the social partners have provided the MFSA with their feedback and comments on Islamic Finance in Malta. Government is expected to shortly make the necessary changes in the Maltese Legislation.

With the existent legislation, Malta offers substantial opportunities for Islamic Financial Institutions as its current legislation puts IFIs at a level playing field with the conventional institutions as it is further elaborated hereunder. Further changes will allow even more Islamic Finance Transactions.

Thanks: Reuben M Buttigieg