Interview of Bishr Shiblaq & Florence Stainier, Arendt & Medernach, Luxembourg, Member of ISFIN

ISFIN – Islamic Finance in Luxembourg – An introduction

How do you see the development of investments emerging from Islamic countries in Luxembourg?

Luxembourg has been successful in positioning itself in this growing sector. Whilst other countries are still reviewing their domestic legislation, in order to become more attractive for Islamic finance, Luxembourg has quietly established itself as the  European hub. This is not surprising for those who know Luxembourg and the strong position it has gained over the years. The country has gained global recognition as an international financial market combining the expertise of its service providers with a flexible regulatory environment and social, economic and political stability. Over the last 25 years it has become an international player, offering a diverse range of products, from highly regulated, lightly regulated to unregulated vehicles that can be used for conventional or alternative investments. This service offering has made Luxembourg the premier captive reinsurance market in the EU, the premier private banking centre in the Eurozone and the second largest investment fund centre in the world.

This development has been equally true for Islamic finance, where Luxembourg is a European leader. Although there have been Islamic investments in Luxembourg itself, these transactions are insignificant when compared to the amount of Islamic investment structures set up in Luxembourg to invest around the world. Many Shari’a compliant institutions have used these Luxembourg investment structures for their international real estate and private equity investments. Luxembourg has also become the leading European jurisdiction for the set-up of Islamic funds.

How could Luxembourg’s government develop a Shariah friendly legal environment to attract Islamic investors? What are the regulatory issues and perspectives?

The Luxembourg government is a strong supporter of the development of Luxembourg as a centre for Islamic finance. The Luxembourg Supervisory Authority of the Financial Sector (CSSF) and Luxembourg authorities are showing a proactive and flexible approach to accommodate the interests of the financial industry. A set of guidances have been issued by the tax authorities, as well as the CSSF, to clarify the treatment of certain instruments and vehicles. However, these circulars did not change the existing treatment of Islamic finance instruments and funds, but provided guidance on their qualification or clarified that no additional requirements, other than those existing for conventional instruments, were necessary from a Luxembourg perspective. Furthermore, the Luxembourg Central Bank and the Luxembourg Stock Exchange were not only accommodating Islamic finance but have spearheaded its development in Luxembourg. While the Luxembourg Stock Exchange was the first European stock exchange to enter the sukuk market, the Luxembourg Central Bank remains the only EU central bank to accede to membership of the Islamic Financial Services Board (IFSB), one of the two standard setting bodies in Islamic finance, and is also a founding member and equity subscriber of the recently established International Islamic Liquidity Management Corporation.

What are Luxembourg’s main challenges to enable proper development of Islamic finance there?

So far the Islamic contracts and modes of financing were largely compatible with the Luxembourg legal framework and practice has proved that the legal context in Luxembourg has been favourable for the creation for Shari’a compliant investment structures. As a leading centre for investment management with a proactive government supporting the development of Islamic finance and service providers that are keen on developing this sector, Luxembourg is very well equipped to remain a preferred jurisdiction for the structuring of Islamic finance products.

How have you structured the Islamic Finance team in your firm?

Arendt has formed a dedicated Islamic finance team which consists of members of different practice groups, uniting the skills needed to advise on all Luxembourg law aspects of complex Islamic finance transactions. Our team has gained considerable experience and expertise in Islamic finance transactions where we have acted for a large number of the world's leading Islamic finance institutions, investment and commercial banks as well as major corporates. All of the members of the team remain up to date with the latest regulatory developments as they are involved in many committees within specialised professional associations.

Our Dubai office enhances additionally our ability to work on Islamic finance transactions, as it is at the heartbeat of the development of Islamic finance, well connected with the regional Islamic finance players and is able to assist our clients from the Middle East during local working hours.

Contact
Bishr Shiblaq
Head of Dubai Representative Office
Arendt & Medernach
T. +971 50 100 29 88
E. bishr.shiblaq@arendt.com

Florence Stainier
Partner
Arendt & Medernach
T. +352 40 78 78 543
E. florence.stainier@arendt.com 

W. www.arendt.com