JAKARTA, Indonesia -- Liechtenstein wants to lure wealthy Muslims to its private banks as it seeks to revive an industry hurt by the loss of the nation's status as a tax haven.
The principality of 37,000 people nestled between Switzerland and Austria will host its first Islamic finance conference Tuesday and is seeking to find out what rule changes are needed to develop Shariah-compliant products, said Urs Philipp Roth-Cuony, chairman of the country's Financial Market Authority. The nation's lenders managed $126 billion in 2013, down from $179 billion in 2007, Liechtenstein Bankers Association data show.
Liechtenstein's decision last year to enter exchange agreements with five European countries and sign a treaty with the United States were decisive steps in moving away from its tax-haven past, Simon Tribelhorn, director of the bankers association, said in June. It follows other nations from beyond Islamic finance's traditional strongholds, such as the United Kingdom, South Africa and Luxembourg, in seeking to tap an industry whose assets are predicted by Bank Negara Malaysia to more than triple to $6.5 trillion by 2020.
"This is an industry that is skyrocketing, whether we're talking about sukuk [financial certificates] issuance or private banking," Fares Mourad, managing partner at Peak Values, a Zurich-based asset manager, said. "I've heard conventional bankers here saying they are thinking seriously of converting to Islamic banking simply so they won't be excluded from the opportunities."
The number of individuals in the Middle East with $30 million or more of wealth excluding private homes will increase by 35 percent to 9,498 through 2023, according to a March report by Knight Frank. That compares with projected growth of 21 percent in Europe and 20 percent in North America.
A crackdown on offshore tax havens following the 2007-08 financial crisis increased pressure on Liechtenstein to conform with global rules against tax evasion. The principality signed an Organization for Economic Cooperation and Development standard last November, pledging to agree on bilateral treaties for automatic exchange of bank data with Germany, France, the U.K., Italy and Spain.
Private banking is personalized wealth management for high net worth individuals that ranges from property investment to inheritance preparation. LGT Group, a private lender owned by the Liechtenstein royal family, opened a Middle East unit in 2012 and has offices in United Arab Emirates and Bahrain.
"There's a growing population of clients who look for sustainable investments and a part of that is religion-based investing," the market authority's Roth-Cuony said Tuesday in a phone interview from the capital Vaduz. "So we want to be able to offer a host of products to cater to the Islamic population in Europe and elsewhere."
Shariah-compliant financial assets probably exceed $2 trillion following 17 percent average growth over the last five years, according to a Sept. 30 report by Bank Negara Malaysia. Ernst & Young estimates the industry will almost double in the four years through 2018 to $3.4 trillion in assets.
Worldwide issuance of bonds that pay returns on assets to comply with Islam's ban on interest rose 13 percent to $37.6 billion so far in 2014 from a year earlier, according to data compiled by Bloomberg.
The U.K. sold $320 million of sovereign sukuk in its debut offer in June, which was followed by sales from Hong Kong and Luxembourg last month. While the U.K. and Hong Kong have said they want to become Islamic finance hubs, they are still at the early stages of a long process.
Liechtenstein would have to offer products "not in existence" in the Middle East to lure clients to its banks, Ahmed Shehada, head of advisory and institutions at NBAD Securities in Abu Dhabi, said in an interview Wednesday.
"Offshore vehicles are getting more and more interesting," he said.
SundayMonday Business on 10/26/2014