Islamic Finance: Shariah-Compliant Investment Funds

 

Luxembourg is not a newcomer to the world of Islamic Finance. In 1978, the first Islamic institution in Europe appeared in Luxembourg, As far back as in 1983, Luxembourg was the chosen domicile of the first Shariah-compliant insurance company in Europe. The Luxembourg Stock Exchange was the first European stock exchange to list a sukuk. Today, the Luxembourg Stock Exchange has become one of the most important in Europe for sukuk listing.

 

Islamic Finance has the full support of the Luxembourg authorities and financial establishment. In April 2008, the Minister of Finance set up a task force bringing together key parties in Islamic finance. Its mission: to look at how Islamic Finance can be further developed in Luxembourg. The Central Bank of Luxembourg became a member of the IFSB (Islamic Financial Services Board) in 2009. This makes the Central Bank of Luxembourg the first Central Bank of the European Union to become a member. Most leading financial institutions, law firms and audit companies have specialized teams in Islamic Finance. The IFBL offers a training program in Islamic Finance. In 2008, ALFI launched a working group focusing on the development of Luxembourg as a centre of excellence for Shariah compliant funds.

 

 

Luxembourg is rapidly becoming a hub for Shariah-compliant investment funds, with promoters keen to harness the country’s strengths and expertise in cross-border fund distribution. The figures speak for themselves: Ernst & Young’s 2009 Islamic Funds & Investments Report ranks Luxembourg fourth as a domicile for Shariah-compliant investment funds, and it is the only non-Muslim country in the top 5.

 

 

Luxembourg offers a variety of attractive fund structures for Shariah-compliant investment vehicles. The majority of funds domiciled in Luxembourg are UCITS funds. These funds are allowed to market their shares freely in all member states of the European Union and are increasingly accepted in many non-European countries. This is especially the case in Asia Latin America and increasingly in the Middle East. For example, more than 700 Luxembourg funds are registered in Bahrain. This makes Luxembourg the ideal location for the domiciliation of Shariah-compliant funds intended for international distribution to retail or institutional investors.

 

In addition, more flexible structures such as the Specialised Investment Fund (SIF), which allows a wide variety of different investment strategies, can be used for Shariah-compliant private equity, property or other alternative investment schemes mainly aimed at institutional or high net worth investors. SIFs used either for Shariah compliant funds or for conventional funds, have proven to be highly successful with Middle Eastern investors

 

The SICAR is a venture capital investment vehicle. The specificities of the SICAR makes it well suited for Islamic finance investments in and through Luxembourg.