Ireland was put under the spotlight last week when its prime minister, Enda Kenny, declared to the country’s asset management industry that the government would pave the way for Ireland to become an Islamic finance hub for Europe. Such ambitious plans to rival the already established London and its closest competitor Luxembourg, were explored in detail in the 8th June IFN issue.
Ireland has started the ball rolling in terms of regulatory framework to ensure a level playing field between Islamic finance and its conventional counterpart by adapting its tax system last year, and further financial regulations are expected to enhance Islamic finance transactions. In addition, the country has also entered into double tax agreements with 62 countries including Bahrain, Kuwait and UAE.
Ireland’s asset management industry does not look to have suffered any serious backlash from the bailout of its banks, which cost over EUR60 billion (US$86.32 billion) and is expected to push the country’s budget deficit up to 32% of its gross domestic product. The net assets of Irish domiciled funds have reached almost EUR1 trillion (US$1.44 trillion) while its total assets under management have climbed to EUR1.87 trillion (US$2.68 trillion) from EUR1.4 trillion (US$2 trillion) in 2009.
In terms of UCITS (Undertakings for Collective Investments in Transferable Securities) compliant funds, Ireland is considered the fastest growing major cross-border domicile. A majority of Islamic funds are looking towards complying with the UCITS platform due to the ease in registering for worldwide distribution besides being well known.
The platform currently being used is UCITS III, with equity the main traditional asset class being largely promoted and sold. Luxembourg is moving to the forefront of the asset management industry by being the first country to introduce UCITS IV next month.
UCITS IV, a European Union (EU) initiative under the Lamfalussy Process, was adopted from the European Parliament and the Council of the EU directive on the 22nd June 2009. UCITS is said to be conducive for fund managers in terms of its investor protection, transparency and disclosure requirements.
Another country new to Islamic finance, and touted to have a positive impact on asset management industry, is Oman. According to industry experts, Oman could tap into a substantial part of the large Islamic wealth pool available globally, being a new investment destination.
Ashar Nazim, the head of Islamic financial services at Ernst & Young for the MENA region, reportedly said that fund managers are constantly looking for new markets for investment and once Oman opens its doors, there will be opportunities to tap a substantial part of the Islamic wealth.
Oman has up until now stood out among the GCC countries by its refusal to participate in Islamic finance. The country, with a population of 2.9 million, has a majority of Ibadi Muslims recognized for their moderate conservatism. After years of mulling over whether to introduce Islamic finance, the first Islamic product was launched three years ago in the form of a Shariah compliant mortgage product. Since then, several other products have been introduced. In May, the Central Bank of Oman finally approved the establishment of the first fully fledged Islamic bank in the sultanate.
Ireland, still considered to be the new kid on the block, has big shoes to fill if it wants to be considered in the same league as the likes of London and Luxembourg. If the predictions of industry experts hold water, Oman’s potential and Ireland’s ambitious plans may after all be the catalyst to propel the global Islamic fund industry past Ernst & Young’s current estimate of US$55 billion.