I am researching many things that have to do with Luxembourg these days, and here's a tidbit that I found quite interesting--Luxembourg has been promoting itself (to Islamic countries I assume) as a country that has Sharia-compliant financial instruments. It is a shareholder, and its central bank a member of the International Islamic Liquidity Management Corporation (IILM). Other central banks involved are those of Indonesia, Kuwait, Iran, Malaysia, Mauritius, Niger, Qatar, Saudi Arabia, Sudan, Turkey, and the UAE.
So why am I mentioning this? I am of course wondering what the PD ramifications of these partnerships are. They are obviously promoted to Islamic countries, but I am imagining that Luxembourg doesn't brag about those partnerships outside of the specifric countries mentioned, otherwise what is obviously benefitting them financially could certainly begin to raise eyebrows with regard to this activity, and a tool designed to ease international financial flows between these particular states.
But the more I've been reading about Islamic finance, it actually has some pretty cool features. Interest is not allowed, and a contract based upon the occurance or non-occurance of future events is also not permitted. In addition, capital should have a social or ethical purpose beyond merely piling on more returns, and speculation is strictly forbidden. So Islamic financial instruments involve for example profit-sharing, joint ventures, asset-backed securities, buying and leasing equipment for a rental fee and so on, to respect these basic tenets. In principle, these are all non-risky ventures that should inspire investor confidence.
But then there's the stuff specifically linked to Islam: no financing of anything involving pork, alcohol, or gambling. Okay, whatever. But there's nothing really radical about these instruments. And with the exception of the pork thing (which even after living in Islamic countries for nine years I never have understood), the funds sound much like the U.S. equivalent to socially responsible investments.
Luxembourg also offers the advantage of "light regulation" and "unique advantages" with these instruments. Says Jean-Florent Richard, a senior associate who mans the Dubai desk at Loyens & Loeff Luxembourg, a Luxembourg investment firm, "Luxembourg is positioning itself as the first mover in the European Islamic finance sector in general, and Sharia’a-compliant investment funds in particular."
It's just that they SOUND bad--sharia-compliant investments? Yikes! Although the Luxembourg Government is said to be openly concentrating efforts to promote the development of Islamic finance, it doesn't loudly promote these (the investments do not appear in any obvious place on the official Luxembourg government website, even where private sector interests are promoted) but rather like the above example from a Luxembourg financial firm they appear to be letting the private sector do the promotional work for them. Businesses though are openly concentrating on these instruments.
In any case, it seems to be working for Luxembourg. More of their PD efforts specifically target Islamic countries of interest for these types of investments. Luxembourg could also be said to be differentiating itself in the financial sector through these partnerships--Switzerland, for example, is not on the list of countries involved. It also may help promotionally that Luxembourg still has a royal family...for those parts of the Middle East that have not yet undergone radical transformation, that is. Still, the sector is supposed to grow over the next ten years, and Luxembourg appears well-placed to take advantage of these investments.
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