May 10 Islamic finance is fast gaining momentum
around the globe as countries look to cash in on a market that
ratings agency Moody's forecasts could hit $5 trillion over
But Islamic finance has no global standardisation, which
means individual countries have to tweak regulations to
accommodate the market.
Here are examples of what some nations have done to
accommodate Islamic finance and what they still need to do.
MALAYSIA - Malaysia's central bank has tightened sharia
rules for Islamic banks by requiring them to set up sharia
review, audit and risk management functions to reinforce
compliance. Rules for standardising Islamic financing structures
such as ijara, mudaraba and musharaka are seen by the end of
Malaysia also has a national sharia council whose financial
rulings are used throughout the country's Islamic financial
institutions. Some critics, however, think Malaysia's regulators
are too liberal in their interpretation of sharia and allow
products to mimic conventional banking products.
UNITED ARAB EMIRATES - The UAE has launched a series of
Islamic finance tailored handbooks designed to help firms
embarking on Islamic finance in the Dubai International
Financial Centre. All Islamic finance companies within the DIFC
are expected to adhere to AAOIFI guidelines and Islamic banking
activities are guided by the central bank. The appointment of
sharia committees at these companies depends on the approval of
the Ministry of Islamic Affairs.
SAUDI ARABIA - Saudi laws, by definition, are required to
adhere to sharia so the Saudi Arabian Monetary Agency makes no
differentiation between conventional and sharia-compliant
banking. The kingdom is planning to issue its first
sharia-compliant mortgage law which is expected to fuel more
Islamic home finance in both individual and corporate
The plan has been in the works for over two years but is
expected to pass in 2010. In addition, experts say Saudi will
play a major role in sukuk issuances this year given its
liquidity and high focus on infrastructure buildup. Saudi's Dar
Al Arkan was the first sukuk to price this year in an otherwise
BAHRAIN - Bahrain's central bank was the first to make
AAOIFI standards mandatory for all Islamic institutions. The
central bank also has rules covering capitalisation, risk
management, financial crime and disclosure and is pushing to
train sharia scholars to aid industry growth.
UNITED KINGDOM - The nation aims to be the global capital of
Islamic finance. The UK introduced legislation to provide relief
from capital gains tax and stamp duty land tax for sukuk
issuances and sharia-compliant home mortgages. Value added tax,
however, remains a concern for some transactions.
FRANCE - France has taken baby steps to changing its
taxation rules for financial transactions. It has issued tax
guidelines to potentially avoid value added tax on murabaha
contracts and is addressing whether sukuk payment is a
tax-deductible item for the issuer. It has been touting the
possibility of issuing a 1 billion Euro sukuk but that has not
LUXEMBOURG - The country is promoting itself as a haven for
sukuk and Islamic investment funds. It has signed tax treaties
with the UAE, Qatar, Kuwait and Bahrain. Currently Islamic
investors enjoy no double stamp duty, no wealth tax and no
liability to Luxembourg tax on profits and income.
UNITED STATES OF AMERICA - Islamic finance is largely
confined to allowing for sharia-compliant mortgage products for
ijara or murabaha structures.
Under regulatory rules, a bank must be a lender, which
inhibits the development of standalone sharia-compliant
institutions. And political risks also cast Islamic finance in a
INDONESIA - The parliament passed a law last year removing
double taxation on Islamic instruments as of April 2010. But
experts say the government must create a sukuk issuance law to
boost the market. Given the huge Muslim population, changes to
the regulatory framework could make Indonesia a powerful player.
AUSTRALIA - Australia's assistant treasurer recently went on
a tour of the Gulf states with Islamic finance in his sights.
The country is looking to revamp some of its taxation laws to
accommodate Islamic finance growth in the country. Experts see
it as a hot market for the industry, once laws are overhauled.
INDIA - The finance ministry is now considering allowing for
non-banking finance companies to offer Islamic banking products
in the country but under current rules, such businesses would
face double taxation. Commercial banks are still prohibited from
offering Islamic finance products.
(Reporting by Shaheen Pasha, Cecilia Valente and Frederik
Richter and Mazen Zein; Editing by Sitaraman Shankar)