Islamic finance in Italy refers to the studies, draft laws and occasional transactions aimed at fitting Sharia-compliant contracts into Italian banking and tax law, in a country which, to date, still has no licensed Islamic bank.
A large European economy left on the sidelines
Unlike the United Kingdom, France or Luxembourg, Italy has never adapted its legislation to accommodate Islamic products. No Islamic bank is licensed there, and initiatives announced since the late 2000s have remained at the stage of studies or proposals.
The central bank's Rome seminar
In November 2009 the Bank of Italy gathered central bankers, regulators and experts at Palazzo Koch, including the governor of Malaysia's central bank and IFSB representatives, to examine the monetary and prudential questions raised by Islamic banks in Europe.
The 2010 report on conventional systems
In October 2010 a Bank of Italy team published an analysis concluding that Islamic intermediaries are not necessarily riskier but harder to supervise, especially regarding profit-sharing deposits, liquidity management and access to payment systems and disclosure.
The IFSB forum hosted in Rome
In April 2013 the Governor of the Bank of Italy opened an IFSB forum in Rome devoted to the European challenge of Islamic finance. The event confirmed the central bank's interest in the subject without leading to any concrete reform.
What Consob noted in 2014
A legal study by Consob concluded that standardised sukuk could qualify as securities under Italian law. It also pointed to the low presence of Italian companies in Sharia indices and to the tax burden created by double asset transfers.
Why deposit guarantees raise a problem
Investment accounts based on profit-and-loss sharing assume the depositor bears risk. A public guarantee of capital contradicts that principle, which means separating guaranteed current accounts from participatory accounts, as several other countries have already done.
Double taxation of ownership transfers
A property Murabaha or an asset-backed sukuk involves two successive transfers of the asset. Without a specific rule, each transfer can attract registration, mortgage and cadastral taxes, making the Islamic product more expensive than conventional credit.
The bill tabled in 2017
In May 2017 a bill tabled in the Chamber of Deputies sought tax neutrality for Murabaha, Ijara, Istisna and sukuk, with VAT exemption for margins and a substitute tax replacing registration duties. It was never adopted.
Islamic windows considered, then shelved
Banking analyses have discussed opening Islamic windows within existing Italian banks. None has led to a lasting offer, given the lack of tax neutrality, of a suitable prudential framework and of certainty about the profitability of the target clientele.
The export credit agency and Islamic financing
The most active area is foreign trade: SACE, Italy's export credit agency, has guaranteed financing structured on Islamic principles to support Italian sales to Gulf countries, notably in the agri-food sector, as in a facility arranged for a Gulf food group.
Trade ties with the Gulf and North Africa
Italy's economic relations with the Gulf states and the Maghreb are often cited as an argument: Sharia-compliant tools would help attract sovereign capital and finance exports without relying on the London or Luxembourg markets for every transaction.
Which reforms would unlock the market?
Lawyers usually cite three workstreams: tax neutrality for asset transfers, a clear treatment of participatory accounts under deposit guarantee rules, and Sharia governance requirements recognised by the supervisor, modelled on the existing AAOIFI and IFSB standards.
Specialist external source
The Bank of Italy publishes its research, seminar proceedings and speeches on Islamic finance, including a 2010 report on its links with conventional financial systems.