Islamic finance in Europe: revival ahead
The IFN Europe Forum was held for the first time in Luxembourg, attracting over 267 practitioners from 55 countries. Welcoming the Islamic finance community to Luxembourg, Minister of Finance Pierre Gramegna confirmed the support of the new government in continuity with the past. Alongside the Chinese RMB, Mr Gramegna identified Islamic finance as a key sector in plans to diversify the financial services industry, building on existing skill sets.
Last week’s sovereign sukuk issue by the UK has been welcomed enthusiastically in Luxembourg, where the Government is also close to issuing a sovereign sukuk.
It is hoped that the two issues may re-awaken the dormant corporate sukuk market. The issues are comparable but not identical; the UK placed £200m at 2.035%, whereas Luxembourg will issue just €200m at a lower yield. However, the UK deal set an important precedent: the five year sterling sukuk was priced at par with a traditional gilt and was nearly 12x over-subscribed.
This news, coinciding as it did with the IFN Europe Islamic Finance Forum, enhanced the event by injecting a live deal that closed during the conference.
IFN, reporting on the event, commented that according to a number of delegates, the address was “the strongest and most committed statement yet of support for Islamic finance from the Luxembourg government.”
Robert Scharfe, chairman of the Luxembourg Stock Exchange, was the first of many speakers to address the question of “responsible investing”, pointing out the potential of Islamic investments to bridge the gap between the two financial systems.
The conference was preceded by a half day closed Round Table dedicated to developments in the Luxembourg Islamic finance sector. The event provoked some interesting discussions, from the pricing and selling strategy for corporate sukuk, via taxation policy (parity yes; incentives no) through to the ever-present question of how to attract European institutional investors.
Three points became clear; underneath a seemingly still surface the wheels of Islamic finance are turning fast; European financial centres are surprisingly complementary but competition is useful because it confirms the existence of a desirable market and drives innovation; and there is a need to position shariah compliant investment funds as an investible choice for institutional investors in order to overcome the linked problems of sub-optimal size and performance.