Islamic Finance in Malta
Malta is in an ideal position to make the most out of the growing Islamic Finance
sector and become a European centre of Islamic finance. Due to Malta
’s strategic location in the middle of the Mediterranean Sea it provides a springboard for working with neighbouring economies.
FinanceMalta Sector Guide - Islamic Finance
According to Forbes.com, at least $500 billion in assets around the world are managed in accordance with Sharia, or Islamic law, and the sector is growing at 10-15% per year.
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What is Islamic Finance?
Islamic finance refers to financial services systems that are consistent with Islamic (Sharia) law. In particular, Islamic law prohibits usury, the collection and payment of interest, and investing in businesses that are considered unlawful, or haraam - such as businesses that sell alcohol or pork, or businesses that produce media such as gossip columns or pornography, which are contrary to Islamic values.
Consultation and Legislation about Islamic Finance in Malta
Malta has one regulating institution for financial services, the Malta Financial Services Authority (MFSA), which is in constant discussion with the financial services industry – the prime mover in the Maltese economy. The MFSA issued a consultation process to analyse the changes that are required in Maltese legislation in order to facilitate the licensing of Islamic Financial Institutions (IFIs).
In June 2008, the MFSA issued a consultation document on the application of ‘Islamic Finance to Banking & Securities in Malta’, whilst in March 2010 they issued, a ‘Guidance Note for Sharia Compliant Funds’ setting out how the legal and regulatory framework established under the Investment Services Act would apply to Sharia-compliant funds established under Maltese law.
The MFSA is the only EU regulator that has issued formal guidelines on Sharia-compliant investments.
Following the public consultation period on the introduction of Islamic Finance in Malta, the MFSA set up an Expert Group to identify, in further detail, the necessary regulatory changes at:
- Level 1 (i.e. legislative revisions)
- Level 2 (revisions to Regulations)
- Level 3 (drafting new or revising Rules for Sharia Institutions) – relating to Sharia Institutions and Sharia Funds, as applicable; and to assist in the proper implementation of the proposed revisions.
The ultimate goal of the Expert Group is to ensure that Malta has a regulatory and legislative system that appreciates and recognises the specific needs of Sharia Institutions such that Malta becomes a domicile of choice for the setting up of Sharia Institut.
The MFSA is now expected to give its recommendations to Government in preparation of the introduction of the necessary changes in Maltese legislation.
The Opportunities & Advantages of Islamic Finance in Malta
The introduction of Islamic Finance in Malta foresees a number of opportunities for the setting up of Malta-based Islamic banking institutions, as well as a number of opportunities for the setting up of Sharia-compliant funds in Malta.
Islamic Financial Institutions incorporated in Malta would benefit greatly from:
- Malta’s efficient tax structures – competitive corporate tax and a full imputation tax system assist the pro-business environment
- Strong network of Double Taxation Agreements with neighbouring countries, including Libya
- Efficient cost structure
- Highly trained multi-lingual professionals in financial services
- Malta’s geo-strategic position in the middle of the Mediterranean Sea with well-connected flights
- Stronger links with all EU member states and North African countries, in particular with Libya, Tunisia and Egypt, due to EU membership, the Eurozone and the OECD
- Passporting rights in the EU with the potential to reach a population of approximately 500 million people
- IFIs who consider setting up in Malta now will find a valuable resource in the professional enthusiasm that currently exists in this sector.