Learning from the experts
Luxembourg should play to its strengths in Islamic finance: this was the advice from a high-ranking delegation from the Malaysian financial centre. Over 200 people accepted LFF’s invitation to attend an Islamic Finance debate between representatives of the Malaysian central bank (Bank Negara), Securities Commission and stock exchange and their Luxembourg counterparts. The event was hosted by the University of Luxembourg.
The “Malaysia-Luxembourg” seminar was organised to facilitate an exchange views and to enable practitioners and students to learn from the financial centre that has pioneered international Islamic financial services and is setting the pace today. The overwhelming response from the public, which resulted in a last minute change of venue, is witness to the growing interest in this sector.
The first panel addressed institutional themes: what sort of legal, regulatory and supervisory system is required in order to operate a diversified Islamic financial centre? The Malaysians spoke candidly about their experiences since the creation of the first shariah compliant savings facility in 1963 and the gradual development of the dual system that operates today.
The centre developed in five recognisable stages: the setting up of that first facility to enable Muslims to save up for the Hajj pilgrimage led to the creation of the first Islamic bank in the 1980s; then in 1993 conventional banks were allowed to open up an Islamic finance window; this in turn led to the central bank setting up the National Shariah Advisory Council as an apex authority on shariah matters.
In a fourth stage, the central bank issued a series of benchmark sukuks (shariah compliant bonds) of different maturities in order to establish an interbank money market. The final stage saw banks spinning off their Islamic finance windows as subsidiaries with an independent board and brand name.
Speakers stressed that shariah law should not be seen as a limiting factor but as an “enabler”. What the market needs, said Nik Mohamed Din Nik Musa of Bank Negara, is not more conventional products converted to shariah compliance but genuinely innovative products that are grown out of Islamic law.
The second panel addressed specific products, and in particular the sukuk and investment fund markets that are developing rapidly in Luxembourg.
Speaking in answer to a question from the floor on the way forward for Luxembourg, Mrs Raja Teh Maimunah of the Bursa Malaysia advised Luxembourg to play to its strengths in order to fill market gaps: in particular, to develop the use of shariah compliant UCITS and (stating that this was an opportunity for the taking) to create a money market in euro denominated sukuk by making a series of benchmark issues.
Pricing was key, she added: it was difficult to place sukuk in GCC countries because they were used to double digit yields in on domestic issues.David Kinloch of the Labuan International Business and Financial Centre presented this offshore Malaysian territory and recommended their recent Islamic Financial Services Act as an example for any country that was planning to pass a comprehensive piece of legislation in the matter.