Islamic Finance in Luxembourg

Islamic Finance in Luxembourg
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assignment_ind Naveed
today 25th December 2014

Luxembourg is one of the major financial markets in Europe, its popularity is based on competitive pricing, incentives and access to European clients. Since 2002, when Luxembourg became the first European country to list a sukuk, there has been a total of 16 sukuk listed on the exchange. In 2014 Luxembourg issued its first Sovereign Sukuk, a Euro denominated Sukuk for €200m, and in 2013 it was announced the Eurozone’s first Islamic Bank called Eurisbank would be opened in Luxembourg.

Luxembourg is being promoted rather strongly by its government to attract more Islamic funds as well as foreign investments from oil-rich countries and emerging wealthy nations. It became the first EU jurisdiction to adopt UCITS IV at the end of December 2010, and as a major domicile for both conventional and Islamic investment funds it had a first-mover advantage.

In December 1982, the country saw the establishment of a family-owned Islamic insurance operator. Luxembourg has a large traditional life assurance industry, albeit driven by international business. However, given the small domestic Muslim population in Luxembourg, any Islamic insurance operator’s strategy was likely to be a cross-border one.

Luxembourg is the second largest investment fund centre in the world after the US. As regards Islamic funds with USD 1 billion Islamic AuM, they are largely equity funds domiciled in Luxembourg, managed and promoted by global investment companies. Today, Luxembourg emerges as the leading non-Muslim domicile for Shari’ah-compliant investments funds. In terms of sukuk, the Luxembourg Law of 22 March 2004 on securitisation 19 (the Securitisation Law) created a flexible and efficient regime for securitisation vehicles. Since then, several Shari’ahcompliant sukuk structures have been implemented in Luxembourg.

In 2009, the country’s position in Islamic finance was considerably enhanced with the admission of the Central Bank of Luxembourg as the first EU Central Bank to become a member of the IFSB. Also, that year a major German bank launched a trading platform, al-Mi’yar, in Luxembourg to facilitate the issuance of Islamic securities.

Other European countries have been looking to adopt a similar approach to attract foreign funds. The favourable legal framework combined with the UCITS qualification allows Islamic funds domiciled in Luxembourg to be a successful instrument for Gulf investors wishing to tap the
European market.

BALJEET KAUR GREWAL
European Central Bank

 

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