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Malta has designs on Islamic finance.

Summary: The island nation aims to establish itself as an offshore (literally) financial centre for North Africa and a gateway to the European Union

Malta's financial services sector is now a major force in the country's economy. Malta has some significant strengths to offer the industry including a well-trained, motivated workforce; a low-cost environment; and an advantageous tax regime backed up by more than 60 double taxation agreements; including with five out of six of the GCC nations (the exception being Oman) and with Egypt, Jordan, Lebanon, Syria, Libya, Tunisia and Morocco elsewhere in the Arab world. Add in membership of the European Union, a world-class information and communications technology infrastructure, English as an official language, and its strategic location.

Malta is actively marketing itself to Gulf nations as a business destination. During a visit to Malta by HE Hamad Buamin, President and CEO of Dubai Chamber of Commerce and Industry, Tony Casapinta, Chairman of Malta's Middle East Business Council said, "The establishment of a very active Middle East Business Council... signifies the intention of the Malta Chamber - as well as of its members - to look at the Gulf region as a strategic priority area, with a view to widening further our trade- and investment opportunities...

"We are making solid progress in the establishment of guidelines for Shari'ah-compliant financial services, an achievement which we must credit especially to FinanceMalta, but an objective which I am proud to say that the Middle East Business Council within the Malta Chamber has spearheaded.

According to Dubai Chamber research, Dubai and Maltese businesses could benefit from strong mutual synergy across a range of financial services, including the growing Islamic finance sector. A combination of UAE business experience in Islamic finance with Maltese business experience in international finance would allow both to tap the strong expected growth in Islamic finance in North Africa.

SEEKING SUKUK

Kenneth Farrugia, Chairman of the public-private initiative set up to promote Malta's International Financial Centre, FinanceMalta, said, "We want to attract Sukuk issuance in Malta. We believe that as a jurisdiction we have all the credentials in place, especially our geographic position." Noting political instability in North Africa, he believes it would be difficult for some countries to issue locally and attract capital whereas Malta is well- place to act as a platform for Sukuk throughout the region. Further, as a member of the European Union (EU), investment funds in Malta can be 'passported' and sold cross-border throughout Europe.

Malta's legislation provides for the setting up of both UCITS(Undertakings for Collective Investment in Transferable Securities) and non-UCITS retail funds as well as Professional Investor Funds (PIFs). PIFs are non- retail funds for financially literate, high-net-worth investors. They are not regulated as tightly as UCITS. Hedge funds, private equity funds and property funds usually take the form of PIFs.

UCITS are harmonised European retail fund products that can operate throughout the EU on the basis of a single authorisation from one member state provided that it follows certain notification procedures. UCITS offer a high degree of investor protection and are recognised by regulators worldwide. They can be marketed to both retail and institutional investors.

WHY MALTA?

structure. Of course, he is not alone in doing so - as perusal of listings in London, Dublin and Luxembourg would attest. So, why Malta? As Farrugia admitted, "You can only be relevant if you differentiate your proposition."

What differentiates Malta is, first of all, its human resource - an educated, motivated and inexpensive workforce. Then there is that range of double taxation treaties mentioned above, among other benefits. He also believes, given Malta's proximity to North Africa, '55 minutes from Libya, 45minutesfromTunisia',thatIslamic financial institutions should consider the island as an ideal jurisdiction in which to establish representative offices and branches from which to transact business along the North African littoral rather than from the Gulf.

Cliff Pace, Business and Product Development Manager at the Malta Stock Exchange (MSE), believes that Malta is well-placed to be a Sukuk venue while his boss, Eileen V Muscat, Chief Executive Officer of the MSE, highlights the benefits of what she characterises as 'regional visibility'.

NOT READY FOR ISLAMIC BANKING?

The island's single regulatory authority is the Malta Financial Services Authority (MFSA). Reviewing Malta's readiness to accommodate Islamic instruments, Professor Joe V. Bannister, Chairman of the MFSA, said that the regulatory framework is already compatible with Shari'ah-compliant instruments are far as Sukuk, Takaful and investment funds are concerned. However, he did point out a problem with banking. Legislation governing mortgages in Malta stipulates limitations on how banks may own property and resolving this is, said Bannister, 'a political issue'. However, he reiterated that 'everything is in place for Sukuk' but added that domestic interest in an Islamic bond might be limited.

Bank of Valletta (BoV) and HSBC together jointly account for some 95 per cent of the banking activity in Malta with the business split roughly 50-50 between, according to Charles Borg, Chief Executive Officer of BoV. He reiterated the point that, as far as the domestic Maltese market itself is concerned, legislation would need to change to establish an Islamic bank and that there was no domestic demand for such an institution.

However, Borg has held discussions with banks interested in setting up in Malta, using the island as a stepping stone, and said, "We can help them." Separately, the MFSA's Professor Bannister also noted interest from Islamic institutions in the Gulf looking to establish a presence in Malta to 'passport' merchant banking and commercial banking into the rest of Europe.

GOVERNMENT SUPPORT

Malta's Economy Minister, Hon. Chris Cardona, is firmly of the opinion that, "We can provide the GCC countries with a platform in order to penetrate the European, North African and African markets," adding that, "We are discussing Sukuk in Malta with partners in the UAE." He said the model to be adopted was still under discussion but a government Sukuk structure backed by real estate assets is one solution currently being studied. He said, "By end of this year, we will be in a position to identify at least one test, one trial..."

Malta's potential as a centre for Shari'ah compliant activities is not limited to Islamic finance. Cardona went on to say that he had held discussions in Dubai about the establishment of a centre in Malta for the certification and standardisation of Halal products before they enter the EU!

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Publication:Islamic Business & Finance
Geographic Code:60NOR
Date:Dec 10, 2014
Words:1079
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