National and Global Islamic Financial Architecture:
Prolems and Possible Solutions for the OIC Member Countries
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Human Capital and Knowledge Development Framework
There is some research and postgraduate training provided by German academic institutions.
5.2.3. Strategic Approach and Achievements: Luxembourg
Luxembourg’s position as one of the major financial markets in Europe is dominated by its
position in capital markets, and based on competitive pricing, incentives, speed of response
and access to European clients (ECB 2013). It is particularly strong in CIS, and is the second
largest investment fund centre in the world for regulated funds, after the US (LfF 2014). It
became the first EU jurisdiction to adopt the UCITS IV funds directive at the end of December
2010, and, already being a major domicile for both conventional and Islamic investment funds,
it had a first-mover advantage (ECB 2013). It is being promoted strongly by its government to
attract more Islamic business56 as well as foreign investments from oil-rich countries and
emerging wealthy nations.
In 2008, the Luxembourg government set up a cross-sector task force charged with identifying
obstacles to the development of Islamic finance in Luxembourg and ways to support its growth
(LfF 2014). Subsequently, Luxembourg for Finance, the agency for the development of the
financial centre and the Association of the Luxembourg Fund Industry (ALFI) established
working groups, including a regional working group in Dubai, focusing inter alia on Islamic
finance matters. A key finding of the working groups was that Islamic finance would not
require additional legislation. (Stainier and Shiblaq 2014) In 2009, the government announced
its programme for the diversification of the financial centre: it identified Islamic finance as a
key area for development, alongside microfinance and socially responsible investment. In the
same year, the Central Bank of Luxembourg became the first EU Central Bank to become a
member of the Islamic Financial Services Board (IFSB), and it hosted the IFSB’s annual Summit
in 2011.
In 2002, Luxembourg became the first European country to list a sukuk. In 2004, it passed a
Securitisation Law (amended in 2014) which provided for a range of securitisation vehicles
though this was not aimed exclusively at the sukuk market. Since then, several sukuk
structures have been implemented in Luxembourg and 20 sukuk have been listed on the
exchange (of which 19 were still listed at April 2015). Deutsche Bank has a sukuk issuance
platform based there (as at one time did another firm, Dar Al-Istithmar) (ECB 2013).
Luxembourg itself issued the first sovereign sukuk to be denominated in Euros, in 2014.
Luxembourg has the highest number of Shari’ah-compliant investment funds after Saudi
Arabia and Malaysia. By assets under management, it also ranks behind Jersey and the USA,
reflecting the relatively small average size of its funds. At the end of 2014, it had USD2.3 billion
Islamic AuM,57 largely in equity funds domiciled in Luxembourg and managed and promoted
by global investment companies. A favourable legal framework combined with the UCITS
qualification allows Islamic funds domiciled in Luxembourg to be a successful instrument for
Gulf investors wishing to tap the European market (Thomson Reuters 2015).
56 See, for example: nd the
brochure referenced there (LfF 2014). The Luxembourg Stock Exchange, with PwC, has also published a brochure on listing
sukuk.
57 Figure from Thomson Reuters (2015). The higher figure claimed in Luxembourg’s own brochure comes from the
Thomson Reuters-Lipper 2014 report. The differences in the figures between the two reports, which are not confined to
Luxembourg, suggest there may be issues of data quality and consistency.