Islamic Finance in Europe
The 2nd International forum for Islamic
banks and financial institutions
April 3, 2014
European market conditions are favorable to sustain a
steady growth of the Islamic finance products
Encouraging
demographics
• Large untapped customer base with more than 20 million Muslims in the EU
• Significant market growth potential
• European countries are looking for new sources of liquidity and financing
Favorable
economic
momentum
• Saving rates of European Muslims are higher than those of other European populations
• Muslims retail and corporate deposits (that are not Shari'ah-compliant) are forecasted to
expand in the next years
• European Islamic related industries are set to growth
European
market
characteristics
• Increasing business relationships between Europe and Islamic countries
Shari'ah-friendly
legal
environment
• Government and regulatory authorities strongly support the Islamic finance model
• Unified regulatory framework within the European Union
• Low penetration rates of Islamic banking products in Europe (Lack of supply)
Little
competition /
Strong Demand
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Islamic finance in Europe
• Strong demand from clients for Shari'ah-compliant services
• There is already a good demand for Socially Responsible Investments in the region
partially served by “conventional” institutions
© 2014 Deloitte Tax & Consulting
The share of the Muslim population in Europe is expected
to increase during the next decades
Muslim population as a share of overall
population in Europe
Muslim population by country
10%
08%
06%
2,869
4.6%
02%
00%
1990
4,119
5.0%
433
5.7%
1,583
2.6%
1,021
2.3%
Number of people (000’s)
% of population
06%
08%
04%
914
638 5.5%
6.0%
4,704
7.5%
04%
05%
07%
2000
2010
2020
2030
Projected increase in number of Muslims
per country (thousands)
475
5.7%
Country
Muslims 2010
Muslims 2030
Δ
UK
2,869
5,567
2,698
France
4,704
6,860
2,156
Italy
1,583
3,199
1,617
Germany
4,119
5,454
1,426
Spain
1,021
1,859
838
Sweden
451
993
542
Belgium
638
1,149
511
Netherlands
914
1,365
451
Austria
475
799
324
Sources: PEW Research 2010
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Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
Bilateral trade between the EU and MENA countries is
growing overall
EU exports (USD billion and yoy Δ (%))
120
100
80
60
40
20
0
+16
+21
-7
+1
+12
+5
+3
-5
96,6
9
12,4
14,3
19,8
27
38,6
47,7
EU imports (USD billion and yoy Δ (%))
-15
70
60
50
40
30
20
10
0
-19
-11
-31
-12
+8
+12
-8
61,4
41,9
10,7
10,9
12,2
13
44,4
19,8
Sources: WTO World Trade Organization International Trade Statistics 2012
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Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
While the UK hosts several Islamic banks, Luxembourg is
recognized as a leading hub for Islamic funds
Islamic funds domiciles
Others
171
Domiciles
Malaysia
263
Jersey
33
Ireland
53
Indonesia
53
Malaysia
Saudi Arabia
Luxembourg
Pakistan
Indonesia
Ireland
Jersey
Others
Number of
Islamic funds
263
163
111
62
53
53
33
171
AuM (USD
million)
10,164
6,056
3,401
2,364
2,157
1,742
1,286
2,443
Saudi Arabia
163
Pakistan
62
Luxembourg
111
Sources: Lipper – Thomson Reuters «Global Islamic Asset Management report 2014»
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Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
Several European countries have a strong culture of
ethical investing
SRI1 retail funds by country by AuM (€M, 2013)
38
40
30
18,2
20
10
0,8
2,3
3,3
6,4
6,4
8,5 10,3
0
SRI1 retail funds by country by number (2013)
250
200
150
100
50
0
204 238
12
14
38
41
52
87
100
1. Socially Responsible Investment, June 2013
Sources: Vigeo Rating
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Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
Countries focus
Sources:
- European Central Bank “Islamic fiannce in Europe”, June 2013
- “Islamic Banking and Finance in the EU – a challenge”, M. Fahim Khan and Mario Porzio
- Deloitte experience
© 2014 Deloitte Tax & Consulting
Islamic finance in Europe
Focus on France
Strong support from authorities have led to a
friendly environment
•
Investments funds and sukuk allowed in 2007
Parity of tax treatment is guaranteed
•
•
•
Compensation paid by sukuk is deductible from
taxable income
Non-resident sukuk investors are exempt from
withholding tax in France
No double stamp duties on sukuk issuances
Plan to pursue Islamic friendly approach
•
•
Launch of Shari’ah compliant deposit schemes
Tax regulation for musharakah and mudarabah
Good potential
•
•
•
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Asset under management of USD 147.2 million
High trade flow with Islamic countries
Population originating from Islamic countries
Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
Islamic finance in Europe
Focus on Germany
First Western country to tap into the Islamic
capital market in 2004 (Saxony-Anhalt
sukuk)
In 2009 the regulator accepted a Shari’ah
compliant banking operation request
•
Limited scope of offering
Development of Islamic finance has solid
prospects
9
•
Largest Economy in Europe
•
Strong demand for alternative sources of
funding
•
Trading partnership with Islamic countries
(Turkey)
Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
Islamic finance in Europe
Focus on Italy
Islamic retail banking deposits are planned
to rapidly increase
•
USD 5.8 billion by 2015; 33.4 billion by 2050
And generate significant revenues
•
USD 218 million by 2015; 1.2 billion by 2050
Plan to launch a “Mediterranean
Partnership Fund”
•
•
Part of which would be Shari’ah compliant
In collaboration with Arab governments and
Islamic development bank
Good future prospects
•
•
•
10
Some institutions are active on Islamic capital
market (trade finance)
Italian banks are active in the GCC region
Bilateral trade ties covered by Islamic
insurances are in place
Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
Islamic finance in Europe
Focus on Ireland
Strong foundation for the Islamic finance
industry
•
Comprehensive tax treaty network
•
Specific tax code for Islamic instruments
Highly supportive to Islamic finance
development
•
Dedicated FSA team to deal with the
establishment of Shari’ah compliant
investments funds
Optimal market and economical conditions
11
•
Home to more than 50 world-class fund service
providers
•
Home to 20% of Islamic funds outside Middle
East
•
Easy access to European market
Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
Islamic finance in Europe
Focus on United Kingdom
Advanced Islamic financial market in
Europe
•
Islamic financial activities started in 1980s
•
First fully fledged Shari’ah compliant retail
bank in Europe (currently 5)
•
Major global provider of the specialist legal
expertise required for Islamic finance
Strong government support
12
•
Government Islamic Finance Task Force
•
Abolition of double taxations in 2004
•
The whole Islamic financial sector operates
under a single piece of legislation (Financial
Services and Market Act 2000)
•
Initiatives to ensure consistent regulatory
treatment of Islamic finance with its statutory
objectives and principles
Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
Luxembourg
© 2014 Deloitte Tax & Consulting
Islamic finance has come of age in Luxembourg
Luxembourg has
become a
domicile of
choice for
Islamic finance in
Europe and has
a history of
innovation in this
field
Luxembourg was
the first European
country to host a
Shari’ah compliant
insurance company
(Takaful)
1970s
1983
14
Around 45
regulated
Shari'ah
compliant
investment
funds and subfunds have
been
established in
Luxembourg
16 Sukuk
have been
listed on the
Luxembourg
Stock
Exchange
Since
2002
2010
1978
2002
2009
First Islamic
financial
institution in
Europe was
licensed in
Luxembour
g in 1978
(discontinue
d its
services in
the 1990s)
The
Luxembourg
Stock
Exchange was
the first
European stock
exchange to list
a Sukuk
Luxembourg was
the first European
country (central
bank) which
became a member
of the Islamic
Financial Services
Board (IFSB) –
based in Malaysia,
and the
prudential/supervis
ory standard
setting body for
Islamic Finance
Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
Islamic finance in Europe
Focus on Luxembourg
• Advanced Islamic financial market
•
First European country to list a Sukuk (2002)
•
16 Sukuk have been listed
•
Strong government promotion to attract
Islamic funds
•
First EU country to adopt UCITS IV (first
mover advantage)
• Best market conditions
15
•
Flexible and efficient regime for securitization
vehicles
•
Second largest investment fund center in the
world
•
Regulated Islamic funds reaching USD 5
billion AuM
•
Competitive pricing, incentives and access to
European market
Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
Luxembourg offers robust macro-economic
environment, …
 Central position in the heart of Europe
 Stable and sound economic, political, social and fiscal
environment (AAA rating)
 Government is accessible and willing to accommodate
investor needs
 One of the favourite platforms in Europe for the listing of
Sukuk
 Domicile to several Shari’ah compliant Investment
vehicles
UK
 Favourable tax environment
NL
B
 Stable inflation rate
DE
 Member of the Eurozone
 Skilled and multilingual labour force
 Robust, flexible, legal & regulatory regime
FR
CH
 One of the lowest debt of EU countries
IT
ES
 Home to many EU institutions
 Low unemployment rate
Sources: Luxembourg for Finance, Luxembourg Stock Exchange (2012)
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Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
…a supportive regulatory framework for (Islamic) financial
services…
• The financial sector accounts for 45% of GDP
and is supervised by the CSSF (Commission de
Surveillance du Secteur Financier) and the BCL
(Banque Centrale du Luxembourg), ensuring a
high level of security to investors
143 banks
employing 26,000
people
More than 230
other financial
market
professionals
(brokers, asset
managers)
Around 60% of all
international bonds
registered in Europe are
listed on the
Luxembourg stock
exchange
• Banking licenses issued by the CSSF are
universal (i.e. valid for all banking activities),
unlike those issued in other countries (e.g. UK)
4167 investment
funds from more
than 20 countries
• The Central Bank of Luxembourg is the only
EU country that is an active member of the
Islamic Financial Services Board
Financial
industry
243 captive
reinsurance
companies
91 insurance
companies
44,369
securities listed
on the
Luxembourg
stock exchange
• Islamic finance is well known, understood
and highly desired in Luxembourg
• 1st Wealth Management center in the
Eurozone, focuses on private banking and
asset management
• 2nd largest investment fund center in the
world
• The stock exchange specializes in the listing
of bonds and Sukuk
• Total balance sheet of banks: €748 billion
Sources: Luxembourg for Finance, Luxembourg Stock Exchange (2012)
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Islamic finance in Europe
• Business-driven regulatory bodies, ensuring
efficient application process
© 2014 Deloitte Tax & Consulting
…as well as a growing Double Tax Treaties Network
(as at March 10, 2014)
69 DTTs in force
25 DTTs pending with
new countries
Europe and Central Asia
Albania
Andorra
Armenia
Austria
Azerbaijan
Belgium
Bulgaria
Czech Republic
Croatia
Cyprus
Denmark
Estonia
Finland
France
Guernsey
Georgia
Germany
Greece
America
Argentina
Barbados
Brazil
Canada
Mexico
Panama
Trinidad &Tobago
United States
Uruguay
Islamic finance in Europe
Hungary
Iceland
Ireland
Isle of Man
Italy
Jersey
Kazakhstan
Kirgizstan
Latvia
Liechtenstein
Lithuania
Macedonia
Africa and Middle East
Bahrain
Bostwana
Egypt
Israel
Kuwait
Lebanon
Mauritius
Morocco
Oman
Qatar
Saudi Arabia
Seychelles
Portugal
Romania
Russia
San Marino
Serbia
Slovakia
Malta
Monaco
Moldova
Netherlands
Norway
Poland
Slovenia
Spain
Sweden
Switzerland
Syria
Poland
Portugal
Tadjikistan
Turkey
Ukraine
United Kingdom
Uzbekistan
Oceania, South and East Asia
Senegal
South Africa
Tunisia
U.A.E
Brunei
China
Hong-Kong
India
Indonesia
Japan
Pakistan
Singapore
South Korea
Mongolia
(terminated as at 01.01.2014) Sri Lanka
Taiwan
New Zealand
Vietnam
Laos
Malaysia
© 2014 Deloitte Tax & Consulting
Therefore, Luxembourg could serve as a hub for Islamic
finance products to Europe and beyond
Europe – benefitting from the “EU passport”
Asia
IE
UK
Middle East
NL
B
DE
L
FR
AT
CH
IT
ES
North Africa
Sources: Deloitte project experience
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Islamic finance in Europe
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Questions
20
Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
Your contact
Martin Flaunet
Partner
Banking Leader
Tel: +352 451 452 334
Mail: [email protected]
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Islamic finance in Europe
© 2014 Deloitte Tax & Consulting
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