LG 177

Banque & finance
More than 30 years of welcoming
Islamic finance to Luxembourg
During recent decades, Luxembourg has clearly demonstrated its ambition to become the
Eurozone hub for Islamic finance and has put the right wheels in motion to encourage
institutional investors who wish to serve Europe’s Muslim community.
Global trends in Islamic Finance
Islamic finance has grown into a global industry,
with total assets of around USD 1.9 trillion. The
Economist estimates that nearly 80% is entrusted
either to Islamic banks or to the Islamic units
of conventional banks, 15% to sukuks, 4% to
Islamic investment funds and 1% to takaful, the
Islamic version of insurance.
Jean-Michel Pacaud, Partner at EY
Luxembourg, explains: “We have not yet received
the final figures of 2014, but in 2013 the
global Islamic banking assets were at USD 1.7
trillion. The estimate is that by the end of 2014
the figure should be close to USD 1.9 trillion,
representing an annual growth of 16 % since
2008.”
Islamic banks serve about 40 million clients globally,
with the highest concentration in Saudi
Arabia, Malaysia, Turkey and Indonesia.
When asked about the driving factors behind
this growth, Jean-Michel Pacaud explains that
the authorities in high-growth emerging markets
consider Islamic finance an effective way to
build an inclusive financial system and to replace
the shadow economy.
S&P recently warned that global sukuk issuance
could be hampered in 2015 by a slowdown in
emerging markets as reduced confidence and
low oil prices may hit investor demand.
“It is still too early to analyse the consequences
of the lower oil price. The countries that are
strongly dependent on oil and gas might need
to issue debt. This debt could be conventional
or shariah compliant”, he says.
Demand for sovereign sukuks is strong. “In
today’senvironment of low interest rates, sukuks
offerabetter return based on the type of assets.
For example, in Luxembourgthe return is based
on three government properties, the two towers
of the Gate of Europe in Kirchberg and the
Gutenberg building in Strassen. The rental
income of the European Commission provides a
stable and predictable return”, he adds. “Also,
the majority of the state issuers from the region
are in a much better financial situation than
Western European countries. In other words, the
credit risk to the issuers is perceived to be lower.”
One financial centre, thousands of experts
Islamic finance remains a fast growing industry
that offers immense opportunities in need of a
growing number of finance professionals that
are acquainted with the specific services and
products. Relying on its expertise in international
finance, Luxembourg is well placed to further
develop the platform of knowledge sharing for
conventional and Islamic finance.
“Luxembourg is the largest domicile for Islamic
funds in Europe, and the third largest domicile for
Islamic funds worldwide, after Malaysia and Saudi-
Arabia”, explains Germain Birgen, Head of
Business Development at Banque de Luxembourg.
“Leveraging on the infrastructure and expertise in
conventional finance, many service providers in
Luxembourg started over ten years ago to add
Islamic finance to their offering. More than 40
Islamic investment funds have been created and
are currently serviced by Luxembourg banks, fund
administrators, legal and tax advisors and audited
by international audit firms”, he continues.
Adedicated committee within the fund administration
body, ALFI, was created in 2007 to focus
on the specific needs and expectations of Middle
Eastern clients as well as fund managers active in
Islamic finance. Representatives of various service
providers based in the region second this
committee.
“ALFI is planning to publish an updated version
of its ‘Collection of best practices in setting-up
and servicing Islamic funds’. The intention is to
continue attracting specialised fund managers to
use the Luxembourg experience and existing
market infrastructure to set-up and manage
funds that can be distributed globally to both
Muslim and non-Muslim investors”, points out
Germain Birgen.
2014: Luxemburg issues the first sovereign
Euro-denominated sukuk
For the third consecutive year, global sukuk
issuance has exceeded the USD 100 billion threshold.
2014 also saw new jurisdictions issuing
sukuk,among which countries such as the United
Kingdom, Hong Kong, South Africa, Senegal and
Luxembourgwith its debut sovereign sukuk.
The 200 million issue by Luxembour gwas the
first sovereign sukuk issued in Euro and was
more than twice over-subscribed.
“The Luxembourg Stock Exchange listed 3 important
sukuk issues in 2014, the Luxembourg and
South African sovereign sukuks as well as the
Goldman Sachs sukuk”, explains Germain Birgen.
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LG - Juin 2015