Key Opportunities in Islamic Finance

Regulation & Legislation

Malta has done much over the past few years to build a strong finance sector. The island also has modern pragmatic legislation and a reputation for being innovative when it comes to launching new products.

The Regulator

The Malta Financial Services Authority (MFSA) is the single regulator of all financial services in Malta. The MFSA’s approach to regulation and supervision is based on principles rather than on rules and is proportionate to the size and nature of the business, without undermining investor protection. The country’s small size allows a direct contact with all licensees, which gives the MFSA a good understanding of the soundness of the licence holders. Businesses are encouraged to meet with the regulator prior to applying for a licence to discuss the application of regulations.

Shariah Compliance

While operators in Malta are seeing opportunities to offer Shariah-compliant products, they are faced with the challenge of applying two sets of rules to Islamic finance transactions: Malta’s regulatory framework and Shariah law. Although Malta is still at the beginning of its journey to becoming an Islamic finance centre, the MFSA is taking pride in financial innovation. The MFSA has already issued formal guidelines on Sharia-compliant investments funds, giving investors and fund service providers direction on the structuring of funds. The island’s government has also expressed its willingness to develop a framework for Islamic banking, ultimately broadening the country’s Islamic product and service offering. Malta’s financial centre also stands out for its extensive experience in serving international clientele in areas such as insurance, capital markets and wealth management, all of which could cater to an Islamic audience.

Investment Funds

Malta is regarded as a well-established fund  domicile. Retaining its popular Professional Investor Funds (PIF) regime, while implementing the EU’s Alternative Investment Funds Directive (AIFMD), is one of the biggest recent developments in Malta’s fund landscape. Today Malta continues to offer PIFs, with the addition of Alternative Investment Funds (AIFs), Undertakings for Collective Investment in Transferable Securities (UCITS) and non-UCITS retail funds. All these types of funds could be used to set up Shariah-compliant structures.

Capital Markets

The Malta Stock Exchange (MSE) is a dynamic European exchange constantly evolving and providing new opportunities for both conventional and Islamic finance structures. With the relevant infrastructure already in place, this is an exciting prospect for investors and issuers to launch for example sukuk structures using Malta as a hub from which to market to European investors through a European exchange.

Insurance

Islamic insurance is gaining popularity as it is based on risk sharing rather than risk transfer. Malta already has a thriving insurance industry, possesses the right legislative instruments to set up Takaful instruments, and is the only full EU member state with legislation that allows for Protected Cell Companies (PCCs) and Incorporated Cell Companies (ICCs). Malta also has potential as an ideal base for reinsurance, or Retakaful, providers given that there are only a few Retakaful providers globally. This means that Takaful firms are often forced to transfer some of their risk to conventional reinsurers, creating a window of opportunity for Malta to attract new Islamic reinsurers into the market.

Banking

As an alternative form of finance, which prohibits interest on loans and generates profits in a socially responsible manner, international banks and financial services providers in Europe and elsewhere are increasingly offering Islamic products. Although barriers for Islamic retail banking exist in Malta due to the fact that banks are only allowed to own property up to a certain percentage of their total assets, Shariah-compliant investment banking, project and trade finance could be offered to neighbouring countries from Malta.

Corporate Structuring

An open economy, effective tax rates and excellent professional services have been the natural strengths of Malta for decades and have established it as a key centre for corporate structuring and a prime jurisdiction in which to incorporate Special Purpose Vehicles (SPVs). The island is increasingly capturing the attention of Islamic finance practitioners since a Malta company offers an easy solution to the most varied international business needs.

Trusts & Foundations

A key feature in the growth of Malta as a financial centre has been the provision of wealth management services. The concept of a trust is very similar to the Islamic waqf. The island is one of the few jurisdictions where both trusts and foundations can be set up. Both structures allow the creation of customised solutions that fit diverse personal and business needs, ranging from succession planning to estate management.

Immediate Opportunities in Malta

  • Islamic Funds – PIF legislation
  • Project Financing
  • Islamic Stock Broking
  • Takaful Insurance
  • Special Purpose Vehicle (SPV)

 

Family Offices

Malta is positioning itself as one of Europe’s main family office locations. Offering a wide range of investment tools, as well as residency options and a citizenship by investment programme, the island is emerging as a European base for Islamic wealth managers and an alternative to the traditional Western family office locations of the US, UK and Switzerland.

Intellectual Property

Manufacturers and service providers in the consumer goods industry are developing and offering increasing numbers of Halal products. The availability of Shariah-compliant products in areas such as health, lifestyle and food is evidence of this. Malta is providing corporations with unparalleled opportunities to exploit the Intellectual Property (IP) of these products. The island is seen as a trusted platform for international IP transactions offering support across the entire IP value chain, including protecting, managing and commercialising ideas and innovations.

Maritime & Aviation

Malta has forged a reputation as a key centre of activity in the global maritime and aviation industry and has gradually built up the experience needed to compete in a highly technical industry. The island has transformed itself into a competitive location for the registration and financing of both planes and ships. Strong interests from financiers and investors for Shariah-compliant investment and financing instruments in the maritime and aviation industry is now fuelling demand for Islamic structures that could be set up in Malta in the form of funds, special purpose vehicles and sukuk.

Financial Software Development

Malta is seeking to grow its financial technology cluster (Fintech) and is highlighting its potential to Islamic Fintech entrepreneurs. With an established state-of-the-art telecoms infrastructure, Malta provides a tailor-made environment vastly conducive to Fintech companies that could use the island’s data centres in addition to developing and offering Fintech services. Malta’s small size and low costs make it an ideal start-up location, while potential synergies with Malta’s finance centre also make it a natural choice for companies seeking to use the island as a springboard to nearby markets.

Education & Training

With Islamic finance estimated to grow up to 20 per cent annually, the need for specialised human capital in the industry is higher than ever. There is currently a shortage of staff with extensive experience in Islamic markets, and this issue needs to be addressed with the industry’s rapid growth. With English as one of its official languages and building on its international reputation as a centre for learning and training, Malta is well placed to host Islamic finance training institutions.

Regional Headquarters

The combination of its central Mediterranean location, highly skilled international workforce, strong network of double tax treaties and high quality of life make Malta an attractive choice for companies looking for a location from where to oversee investment in the developed and emerging countries of the region. Malta is often regarded as the hub linking the EU’s market of 500 million people and the rapidly evolving markets of Africa.

Philanthropy

Philanthropists interested in impact and social investing are now looking at Malta due to the fact that the island offers both trusts and foundations as tools for charitable giving. The country’s strong regulatory framework and sound financial sector are expected to help Malta appeal to Muslims living in Europe and beyond.

Payments Industry

The rising demand for Islamic banking products and services are creating significant opportunities for Shariah-compliant card products, including debit cards, charge cards and credit cards offering new ways of how credit is structured and marketed to consumers with risks and profits shared among all parties involved. A strong and innovative regulatory framework, state-of-the-art telecommunications infrastructure capable of hosting and delivering round-the-clock connectivity to mainland Europe, and Malta’s accessibility and lower costs could turn out to be a major draw to payment providers seeking a secure environment to offer Shariah-compliant transaction channels.