Islamic Finance in Malta…Remedying the damage of manoeuvres past

The Malta Stock Exchange has placed Islamic Finance high on its agenda, to the extent that it is part of the National Capital Markets Strategic Plan.  The Malta Stock Exchange is once again at the forefront in identifying new markets in which Malta has huge potential.  During 2016 it launched the Islamic Listing on which 8 companies are listed and certified as shariah compliant by the world known consultancy firm Dar Al Shariah.

This is a major step in the right direction, albeit we still need to see some effort that incentivises listing of Sukuk and shariah compliant companies on the Malta Stock Exchange. Initially this may require some forward looking actions, such as allowing for Dual Listings. To do this the MSE will have to engage in various memoranda of understanding with other stock exchanges in the MENA region as well as in the far east.  The MSE may provide to medium companies in this region not only a route to Europe and the commonwealth but also an access to finance which seems to be currently available in Malta.

Hopefully, the MSE will continue to build on its forward looking strategy and does not repeat the mistakes that the Malta Financial Services Authority as well as subsequent Governments have made in the past. The first blunder was that of the MFSA, which through the publishing of a paper for Islamic Funds, showed the Islamic Finance world that it has no idea whatsoever of Islamic Finance. The paper which was vetted by an unknown scholar, whose name seems to be a security secret, contained significant errors and showed that whoever prepared it is not familiar with actual reality and the standard setting bodies, such as AAOIFI and IFSB. To add insult to injury, the then Prime Minister, Dr Lawrence Gonzi boasted in Bahrain that Malta is open for Islamic Finance, whilst in reality, this couldn’t have been more further from the truth.

The MFSA has also promised to issue further papers on Sukuk and Takaful, but this never materialised, in spite of the apparent political goodwill. When Mr Tonio Fenech was Minister for Finance, it was agreed that there was to be a strategic document for the development of Islamic Finance. Mr.Oliver Agha was brought on board to do this and the MFSA was supposed to collaborate with the same. Yet, once again the MFSA refrained from taking matters forward, under the presumption that everything was in place for Islamic Finance. Once again, it gave a clear message that it had no interest in Islamic Finance and that it had no idea of the subject matter, at all. Plenty of damage was caused by the same MFSA in this shameful episode, as those involved were highly reputable persons in the Islamic Finance world.

Under this Government, we had seen the light, when Minister for Finance, Professor Scicluna had announced in the 2014 Budget that the Government will be considering Islamic Banking and Sukuk.  Interest in Malta was obviously apparent, particularly in the issuance of a sovereign Sukuk. However, MFSA kept engaging into anti-Islamic Finance lobbying. One may recall that large banks like Doha Islamic Bank wanted to launch funds in Malta and were in discussions with a local bank to do so. One may also recall Germaine Birgen, who at the time was Head of Funds for HSBC who had stated that if Malta truly opens for Islamic Funds, he would be the first who would direct funds to Malta as Malta has the potential to handle funds which they would not be able to handle in Luxembourg due to its cost structure. The list of opportunities continues. MFSA keeps blaming the market for its intrinsic inertia in addressing this issue, but the reality is that the true problem is the MFSA’s attitude; the arrogance in the manner it treated Islamic Finance officials and its all-pervading know-it-all attitude.

The financial services industry is at the moment in an unprecedented slowdown in Malta. It is clear that we need fresh ideas and a new strategy. MSE has recognised this and is taking various measures to stimulate capital markets and to attract new business to Malta.  Unfortunately, the Government of Malta has not backed the MSE the way it should. In order to send a strong, positive message to the Islamic Finance world and to repair the damage inflicted by the MFSA and various Governments, it should have launched a Sovereign Sukuk.  The Government can do this without destabilising the existing Government Bonds markets, as it may engage in national huge projects that will not happen, unless we have a forward looking Prime Minister who can assess what is truly beneficial to the country and looks beyond the reasons why certain authorities use such a destructive lobbying strategy.

In spite of this, it is anticipated that if the MSE engages in proper marketing, a promotional campaign and invests further in the Islamic Capital Market, we may witness a new era for the stock exchange and the financial services in general.

If the Government expends the same energy in the sector as that it expended in the Individual Investor Programme and it encourages head of states in the MENA region to look at Malta, the country may well be on its way to becoming an Islamic Finance hub. Luxembourg has been very successful in this and had clearly given the remit to its ambassadors to attract Islamic finance to Luxembourg with the promise of doing whatever changes necessary to stimulate the market. Luxembourg, which has no or little historic connections with the Arab world, has succeeded where Malta is clearly failing. Now, that we have an organisation like MSE which is acting concretely, will the Government give its full commitment in order to assist the MSE in this worthy endeavour?