The Malta Financial Services Authority (MFSA) has rolled out a fully updated framework for Shariah-compliant investment funds, marking a significant step in Malta’s bid to strengthen its presence in the global Islamic finance market.

Shariah-compliant funds follow Islamic law by investing only in ethical and socially responsible businesses. They avoid industries like alcohol and gambling and have a Shariah board to make sure the rules are followed.

The revised Guidance Note simplifies how Islamic funds can be set up and operated in Malta, offering clearer rules, more transparency, and alignment with international standards in Islamic finance. The MFSA said the update is part of its broader strategy to modernise Malta’s financial sector and attract investment from markets where Shariah-compliant finance is the norm.

What’s new?

The framework explains how any type of Malta-based collective investment scheme – Undertakings for Collective Investment in Transferable Securities (UCITS), Alternative Investment Funds (AIFs), Professional Investor Funds (PIFs), Notified Alternative Investment Funds (NAIFs) – can operate as a Shariah-compliant fund.

These funds must follow the same regulatory rules as conventional funds, but with additional requirements to ensure compliance with Islamic principles. These include:

• Investing only in Shariah-approved assets, excluding interest-based instruments, gambling, speculation, and certain industries.
• Appointing a Shariah Advisory Board or qualified Shariah adviser to oversee the fund’s structure, screening methods, and ongoing compliance.
• Regular Shariah audits, plus clear processes for handling any income that is not Shariah-compliant, which must be “purified” (typically donated to charity).
• Transparent disclosures in the fund’s documentation, so investors can clearly understand risks, screening processes, governance, and how Shariah compliance is maintained.

The framework also outlines how various types of Islamic structures, such as equity funds, Ijarah (lease-based) funds, Murabaha (cost-plus financing) funds, commodity funds and private equity funds, can be authorised in Malta, with most specialised structures falling under the non-retail category.

Clare Farrugia, MFSA’s Head of Strategy, Policy and Innovation, said the overhaul is aimed at making Malta’s framework “transparent, accessible, and internationally aligned,” reducing uncertainty for market players while strengthening Malta’s position as a destination for Islamic investment products.

The update complements earlier MFSA work on sukuk and other Islamic capital-market instruments and forms part of the authority’s ongoing modernisation agenda.