Sukuk issuance: Luxembourg is a prime location
There has been a recent surge in demand for Sharia’a-compliant instruments from both Islamic and other investors (Sukuk issuance). This has accelerated the growth of Sharia’a-compliant entities investing in a wide range of sectors such as equities, real estate, private equity, infrastructure, etc.
Islamic finance in Luxembourg
Worldwide, there are more than 800 Sharia’a-compliant investment funds and their number is growing. These Sharia’a-compliant investment vehicles manage assets of US$1.5 trillion (regulated and non-regulated funds). It is clear that Luxembourg is a key player in this sector.
Islamic financial products differ from conventional financial products due to prohibitions on interest, gambling, uncertainty, short selling and trading in products deemed incompatible with Sharia’a law (e.g. alcoholic drinks, weapons, adult entertainment). Under Sharia’a principles, an investor is a business partner seeking to obtain profits from underlying assets or businesses (but is generally exposed to the losses as well) and can never be a creditor expecting a fixed interest return on loans.
Luxembourg has become a domicile of choice for Islamic finance in Europe, with a history of innovation in this field. For example, Europe’s first Islamic financial institution was licensed in Luxembourg, and carried out operations from 1978 to the 1990s. In 1983, Luxembourg was the first European country to host a Sharia’a-compliant insurance company (Takaful). Luxembourg’s stock market was the first in Europe to list a Sukuk in 2002, and since that date, 16 Sukuk have been listed on the Luxembourg Stock Exchange.