Tánaiste's Address at the International Fiscal Association Ireland Seminar
Speech by the Tánaiste and Minister for Foreign Affairs and Trade, Mr. Eamon Gilmore TD at the International Fiscal Association Ireland Seminar
Ireland: A European hub for Islamic Finance
Wednesday 18 April 2012
I would like to thank the International Fiscal Association Ireland for organising this morning’s event – as I am sure many of you are all aware, developing Ireland’s involvement in Islamic Finance has been identified as a priority for the Government. We see potential for significant growth in this area and it forms an important part of our strategy for international financial services in Ireland. We are determined to ensure that the IFSC will develop as a Centre of Excellence for Islamic Finance and are engaging with key stakeholders to move towards achieving this goal.
Today’s seminar can play an important part in that engagement.
My own role here this morning is to situate the development of Islamic Finance within our broader economic strategy. And to explain why, to someone like myself who has no particular expertise in the area, Islamic Finance looks like a good fit for Ireland.
We all know how badly Ireland has suffered as a result of the economic crisis. This Government is determined to deal with the crisis, to promote growth and job creation, and to re-gain our economic independence. After 13 months in office, we have made important progress. Last weekend, at the Labour Party Conference, I set out the six stages in the economic strategy that the Government is pursing.
We began with the important work of restoring Ireland’s reputation as a place to invest and do business. As a small open economy, our reputation is critical to everything we do.
Secondly, we have to re-focus on exports as the main driver of growth. Obviously this includes both merchandise trade and internationally traded services including the financial services sector. Again, we are making good progress here.
Thirdly, we need to do more to stimulate activity in the domestic economy, including bringing greater stability to the property market, and driving investment that does not impact on the Government balance sheet.
Fourthly, we have to deal with the issue of distressed mortgages. Firth – we have to deal with improving our debt sustainability, including achievement of our budget deficit reduction targets. And, sixthly, we have to get back into the sovereign bond markets, saying goodbye to our friends from the Troika.
Clearly, our objective is to increase employment as quickly as we can. But we also have to think about longer term strategic objectives. One of the many lessons of the crisis for Ireland is the need for diversification. We cannot ever rely on the domestic economy as much as we did during the property boom, and we cannot ever rely again on any one industry sector or market. That is why, as Minister for Foreign Affairs and Trade, I have continuously emphasised the need to increase Ireland’s presence in emerging economies, including China. For the Government, there may not be immediate returns, but for the country, we need to think longer term. This also requires us to go beyond our comfort zone. To build economic, political and cultural relationships that go beyond our traditional focus on the US, the UK, and Europe. They will of course continue to be our key partners, but we have to start to think in more truly global terms, if we are to create the good jobs that we need, and to ensure future stability.
We have to think of Ireland, in the words of President Clinton, not just as a gateway to Europe, but as a gateway to the world.
It is in that context, that I see the role of Islamic Finance in Ireland. It is not, perhaps, an obvious area for Ireland to develop. Yet, it fits well with the strategic approach I have outlined. We need to develop our exporting and trading activities in, what are for us in Ireland, are relatively new areas of activity with high growth potential. We need to build on areas where we already have strengths, such as in financial services, but expand our horizons and our activities to create more and better jobs.
Internationally Islamic finance, or Shari’ah compliant finance, has demonstrated impressive growth rates - annual growth rates have been estimated at 15 -20%. The global Islamic finance industry is currently valued at approximately $1.3 trillion. A product that has been particularly successful in recent years is sukuk – as I understand it – the Islamic equivalent of a bond, where, rather than interest, the income received by the investor is the income generated by their share of an underlying asset. $47.77 billion worth of sukuk were issued globally in 2010, with the vast majority issued in Malaysia. Standard and Poors estimated that the global sukuk market was worth €100bn.
From an Irish perspective there is some Islamic Finance activity already underway in Ireland. Ireland has already been successful in attracting Shari’ah compliant funds - it is estimated that Ireland is a location for 20% of Islamic funds domiciled outside of the Middle East. PwC have reported that there are €2.5 billion of serviced Shari’ah compliant funds in Ireland. In addition a number of Shari’ah compliant funds have chosen to list on the Irish Stock Exchange. The next step will be to expand the range of products that we provide in Ireland, particularly in terms of banking products.
So Islamic finance is an attractive proposition for Ireland. But why is Ireland a good fit for Islamic finance activities?
Firstly, Ireland already has an extremely successful international financial services sector. Indeed the IFSC has been seen as a model for international financial sectors across the world. But, we cannot be complacent and must continue to focus on new opportunities for this sector. Islamic finance has the potential to help us continue to grow our international finance offering, building on the existing financial services architecture and well educated and experienced staff available here in Ireland.
We also have significant education and training opportunities available for those interested in Islamic Finance in Ireland – the Chartered Institute of Management Accountants (CIMA) is already providing a Diploma in Islamic Finance and will be launching its Advanced Diploma later this month. While the CIMA course is available globally, students in Ireland have a unique opportunity to discuss the course material with an internationally renowned Shari’ah scholar.
Islamic finance also links in well with other sectors where Ireland is already a world leader. In particular aircraft financing offers opportunities for Ireland to extend its existing activities to incorporate Shari’ah compliant products. Aircraft leasing has a clear underlying asset with an income stream. Internationally General Electric has issued $500 million of AA+ rated Sukuk trust certificates to fund aircraft and related leases indicating that there is a market for these products.
The concept of an Irish sovereign sukuk received some press coverage earlier in the year and while Ireland is of course currently out of that market we are open to considering such an option in the future.
A further important attraction is our global network of double taxation treaties. Ireland has been active in concluding double taxation agreements with important Islamic States, including recently Saudi Arabia, Bahrain, Kuwait and the UAE. This facilitates increased interaction with and importantly, investment from these States.
Finally, and probably most relevantly to members of the International Fiscal Association, we have recognised the importance of Islamic Finance in the global financial system through adapting our tax system and financial regulatory system to ensure a level playing field between Islamic Finance and conventional measures.
A key focus of efforts in this area in recent years has been in the area of taxation, and Mr Jim Byrne from Revenue will be addressing you later this morning.
The purpose of these changes was to ensure that Islamic Finance products were not at a disadvantage to other more conventional products in terms of tax requirements. The provisions were designed to extend the tax treatment applicable to conventional finance transactions to Shari’ah compliant or Islamic financial products which are the same in substance as the conventional products. While the main changes were in the 2010 Finance Act, the 2012 Finance Act also contained some small changes to further enhance the provisions in the tax code governing Islamic Financial Transactions.
So, then, there is an opportunity here for Ireland. Your work today is to see how we can take that opportunity on, and convert it into a reality.