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May 19 2011

Luxembourg stands tall

By John Foster You don't have to big to be mighty, and Luxembourg is living proof of that. This tiny land-locked nation at the heart of Europe has always punched well above its weight in terms of financial services, and despite its small geographical size and a population shy of half a million, Luxembourg can lay claim to being the world's second largest investment fund center after the US, the most important private banking center in the Eurozone and Europe's leading center for reinsurance.

The Grand Duchy is now making a play to become Europe's leader in Islamic finance and has already assembled an impressive set of tools in its box, as Daud Vicary Abdullah, global leader for Islamic finance for Deloitte told The Islamic Globe: "I think that Luxembourg is going to be an important Islamic finance centre because there is a commitment from the regulators to become involved in Islamic finance and a close partnership between the public and private sector and whatever Luxembourg has turned its hand to in the past has always been successful."

The Grand Duchy recently nosed ahead of London in terms of European domicile for Islamic funds, but this is hardly surprising as the country has a history of innovation and 'firsts' for Islamic finance. Way back in 1983, Luxembourg was the chosen domicile of the first Shari'ah compliant insurance company in Europe, and the Luxembourg Stock Exchange was the first European stock exchange to enter the Sukuk market in 2002. Since then a further 15 Sukuk have been listed on the LSX. The Banque Centrale du Luxembourg is the first European central bank to gain membership of the Islamic Financial Services Board, and recently hosted the IFSB's 8th Annual Summit - again the first time the IFSB has been hosted in continental Europe.

Eleanor de Rosmorduc, communications manager for Luxembourg for Finance, the government agency for the development of Luxembourg Financial Centre, explained to The Islamic Globe: "We believe that Luxembourg has everything that is needed to become the primary Islamic finance centre in Europe. We have the political, social and economic stability which is required for any cross-border business, and a legislative framework that is already in place and adequate for any of the different vehicles that are required [by the Islamic finance industry]."

The regulator has been especially sympathetic to Islamic finance, but in this instance Luxembourg's size is a distinct advantage as all the major decision makers and stakeholders can assemble quickly, sit around a table and find an acceptable solution swiftly and efficiently. As Yves Mersch, governor of the BCdL, argued: "One advantage of a small country is close collaboration between the private sector and public sector - between the government, BCdL, private banks and so on."

This collegiate mentality, as Rosmorduc portrays it, has helped Luxembourg excel in a vital area for the industry, the cross-border distribution of financial products, she said: "...if Islamic finance is going to grow in Europe, it is necessary to have cross-border products which can be sold throughout Europe and take advantage of the European passport system..."

Luxembourg has set itself up as a center of excellence in this field with, according to Serene Shtayyeh, assurance partner at PwC in Luxembourg, 43 of the world's 50 top investment management groups distributing their funds from Luxembourg to 58 countries - many of these in the Middle East. But for inward focused funds, the domicile of Luxembourg is the distribution gateway to 500m European consumers for foreign fund managers. This has attracted numerous fund managers from the other hubs of global Islamic finance in South East Asia and the Middle East, as Mark Smyth, managing director of Amanie Advisors told The Islamic Globe: "We chose Luxembourg for the headquarters of our European business for a several reasons. In Luxembourg you can passport your fund into a number of other jurisdictions throughout the EU member countries. This is a huge advantage for firms looking to expand their distribution outside of their home markets...Luxembourg offers a welcoming and pragmatic government and finance watchdog and a pro-business environment."

© The Islamic Globe 2011


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