Two-day International Conference on
Islamic Finance & Investment in Dublin
Dr. Mozammel Haque
Dublin, Ireland: Ireland is positioning itself as an European hub for Islamic finance; infrastructure in place; greater efficiencies – cost and time; open dialogue between industry and government, said Mr. Tom Woods, Financial Services, Tax, KPMG Partner, Dublin, Ireland, at the Two-day International Conference on Islamic Finance & Investment, organised by the Irish Business Executives Forum (IBEF), Dr. Sheikh Shaheed Satardien, President of the Muslim Council of Ireland (MCI) and International Islamic Forum for Dialogue (IIFD, held on 5-6 June, 2012, at Dunboyne Castle Hotel, Dublin, Ireland.
Dr. Sheikh Shaheed Satardien
In his inaugural speech, Dr. Sheikh Shaheed Satardien, President of the Muslim Council of Ireland and the Executive Chairman of the Irish Business Executives Forum (IBEF) said, “Prophet Muhammad (peace be upon him) married a prominent businesswoman, Khadeejah, when he was 25 and she was 40 and a widow. Prophet Muhammad (pbuh) did not begin to receive revelations from God until he was 40, so he had been a merchant for nearly 30 years before being given his divine mission. He did not begin preaching Islam until he was 43 which he continued until his death at the age of 63. Thus the Prophet was a merchant for a longer period than he was a religious leader.”
“So the founder of Islam had huge experience of commerce prior to his revelations from God. The message he received from God on the subject of economics was thus readily understood by him. The Holy Qur’an states that interest must not charged in lending money. That is the most fundamental aspect of Islamic Finance. From an Islamic point of view an increase in capital without any services provided or risk incurred is forbidden. You may ask, if a bank or other lender, cannot charge interest how can it make a return on its money?” Dr. Satardien said.
Speaking about how big is Islamic Finance, Dr. Satardien mentioned, “According to Standard & Poor’s Rating Service Islamic finance assets reached at least $400 billion during 2009 with a potential market of $4 trillion. According to Forbes in 2008, there are at least $500 billion in assets being managed according to Islamic principles and that the market is growing at more than 10% per year. Although it may be much smaller than the non-Islamic financial industry, these figures are very significant. Many of the biggest Islamic banks are in Iran, with Bank Melli having assets of over $45 billion. Saudi Arabia, Kuwait, Malaysia and the United Arab Emirates are also big movers in the Islamic finance world.”
In his inaugural speech, Dr. Satardien raised a number of questions. He said, “Many of the problems which dominate our lives are economic problems. Why are some countries poor with very low growth rates while a small number of countries enjoy high living standards and high growth rates? What is the role of international trade, and the movement of capital from one country to another, in explaining these global inequalities? Why are some countries so much more successful at creating employment or reducing unemployment than other countries?”
“Within countries, why do some people earn so much more than others, and what are the best ways to tackle and reduce poverty? Is it possible to pursue economic growth and still protect our natural and physical environments? How should governments try to raise the finance needed to pay for health and education services and income support programmes? What is the proper role for government in the economy? Would we be better off with much lower taxes but also poorer social services than we presently enjoy? Dr. Satardien asked all these questions.
Mr. Eunan King
Mr. Eunan King, Director of King Research Ltd, Dublin, spoke on the Irish Crisis is now a Euro Crisis. He talked about the origin of crisis. He has given a picture of the economic boom in Ireland in the 1990s before Euro entry. He said Ireland was growing rapidly prior to Euro entry; low Euro interest rates, strong underlying demand for housing from demographic factors. So this credit boom was driven by low interest rates, rapid growth in household formation and inappropriate tax incentives. So there was credit boom. Strong growth boosted tax revenue. He said public finances appeared very robust as tax revenues surged; Government increased public sector pay and social welfare benefits substantially in and the Government still ran a budget surplus.
Then Mr. King said about boom to bust. How it happened? He mentioned that the bust was sparked by the international credit crunch; the degree of overheating in the domestic property market and the taxes fell sharply and the expenditure (pay/social welfare bills) remained very high. Mr. King also mentioned what happened to Mortgage lending and stamp duty. He said growth in credit fuelled property price inflation and property transaction volumes and taxes related to property sales (stamp duty) ballooned. So Mr. King said, both credit and tax revenue imploded when the bust came.
Speaking about Government debt level and %GDP, Mr. King mentioned large deficits and the socialisation of Bank debt led to a rapid increase in Government debt. The Bank debt assumed by the Government equates to nearly 30% of GDP.
But Mr. King said the case of Ireland is different from all other EU countries; because he mentioned there are large numbers of persons of working age; persons aged over 65 per 100 of working age. He said the IMF/EU provided a Euro 85bn Bailout Fund in 2010 mainly because of emerging banking crisis. The detailed “Blackrock” analysis of Banks’ Capital Requirements in 2011 reinforced the visibility of the bad loan position.
Mr. King said the measures taken to date to solve the Euro Crisis have been piecemeal. Fiscal issues, debt levels and Support for Banking Systems have to be addressed. He also said that a support mechanism for Bank is needed. The EU needs to set up a mechanism to fund Banks directly. The Irish model, in which the Government took on Bank debt, would be a disaster for the EU.
However, he summarises his presentation and concluded by saying, Ireland has managed to survive a major financial crisis. It has still significant hurdles to overcome. It will stay in the Euro: (Referendum “Yes” Vote). The Euro has to survive because the world financial system will be in peril if it breaks up, he said.
Under this situation, what the Islamic Finance can do? The next speaker, Mr. Tom Woods, Financial Services, Tax, KPMG Partner, Dublin, Ireland, spoke on the opportunities for Islamic Finance.
He gave a brief overview of Islamic Finance in Ireland. He said, Ireland has a well-developed, highly regarded and vibrant international financial centre (IFSC) and it has aviation, Funds, Securitisation and established gateway to European market.
Mr. Woods mentioned about the positive factors which Ireland has such as, Ireland is a founding member of Euro zone, English-speaking; young, dynamic and well-educated workforce; Single Financial Services Regulatory Authority is and Common law legal system.
He also mentioned, some other factors, such as transparent system, Time zone – East meets West, Lower cost base – significant competitiveness improvement. There is largest foreign direct investment in 2011 for over 10 years and it was voted 10th in the world for Ease of Doing Business, Mr. Woods mentioned.
Referring to opportunities, Mr. Woods said, 0% tax rate for qualifying funds; withholding tax exemptions on lease rentals, interests and dividends; 12.5% corporation tax rate – secure (lowest amongst OECD member countries).
He also mentioned about 66 tax treaties signed including UAE, Bahrain, Saudi Arabia, Malaysia, Egypt, Kuwait, India and Pakistan. There are lot of incentives for foreign employees. He said, 37.5% relief for R&D activities – extends to development in finance.
Speaking about the Islamic Finance developments in Ireland, Mr. Woods mentioned, in 2008, Financial Regulator established a team specialising in Sharia compliant funds in order to expedite approval process. In 2009, Woods mentioned, Irish Tax Authorities issued briefing confirming that Sharia compliant funds, Ijarah transactions and Takaful arrangements were to be taxed on the same basis as that applicable to the comparable conventional financial products.
In 2010, Woods mentioned Irish Tax Legislation was amended to tax Islamic Banking Products and Sukuk issuances on the same basis as their conventional equivalents. This includes Murabaha, Diminishing Musharaka and Wakala arrangements. Broadly, the return under such arrangements is treated for tax purposes in the same way as interest is. A person elects into the tax regime.
In 2011, Woods mentioned, Taoiseach, the Irish Prime Minister spoke of Government’s view of Islamic Finance as an area where there is significant potential for growth in Ireland. While the Funds industry in particular has been successful in developing and promoting Ireland as an attractive location for Islamic Funds there remains an opportunity for further growth and diversification particularly within the banking and securitisation markets. Islamic Finance is one of the major growth areas in international finance and the Government has indicated its commitment to playing its role to support the development of this sector in Ireland.
Speaking about the Islamic finance offering in Ireland, Mr. Woods mentioned, Double tax treaties with UAE, Bahrain, Saudi Arabia, Malaysia, Turkey, Pakistan, Egypt, Morocco and Kuwait. Treaty at concluding stages with Qatar; negotiations underway with Jordon, Libya and Tunisia; bilateral agreements entered into by Irish Regulator with UAE, Bahrain, Qatar and Dubai.
Mr.Woods also said dedicated team was established to expedite a sharia compliant fund applications; sharia compliant funds and leasing operations established in Ireland. He also mentioned, increasing interest in using Ireland as onshore location for Sukuk issuances; increasing interest in investing in aviation assets and renewable energy projects.
Woods also mentioned about the Islamic Chamber of Commerce/Irish Business Executives Forum.
Concluding his presentation, Mr. Woods observed, Ireland is positioning itself as an European hub for Islamic finance; infrastructure in place; greater efficiencies – cost and time; open dialogue between industry and government and proven truck record of delivering, he mentioned.
Earlier, Dr. Abdullah Omar Naseef, President of World Muslim Congress and Dr. Hamid al-Rifaie, spoke at the Conference opening day.
An interview with Dr. Naseef
I had the opportunity to interview Dr. Abdullah Omar Naseef, President of the World Muslim League, who came to Dublin from Saudi Arabia to attend and participate at the conference. He said, “There is no doubt Islamic Finance and Islamic economics in general has been very well developed to share the international finance arena through research and practical investment. All kinds of Islamic investments have become reality and it is now almost all big banks in the west are using it and because of the economic crisis in Europe, there are funds. In recent years, there is a big call that Islam can offer solution to the problem; can introduce still without calling it Islamic which will develop Western economy and try to overcome some of the difficulties they are facing.”
“And all these things are in my mind today because this is to bring better understanding and contacts and better connections between the Western Financial organisations and the Islamic world especially in Ireland because in Ireland Irish people are very much close to the Arabs and they want to develop and they have their own problems of economy. I think I am sure they will find solutions Islamic way of investment and finance, again without calling it Islamic. This is what has been talked today as Safe economy, which is very attending to the needs of the several societies and caring for the poor and so on,” Dr. Naseef said.
Dr. Naseef also recalled, “What I mentioned today that in 1978 or in 1979 there was an Islamic Economics Conference in Makkah about the Islamic Finance and the papers offered at that conference were very very great and very important and it shows now that it was very foresighted conference in Makkah.”