their characteristics, shari ’ ah compliant financial products can enhance the stability of the financial system. shortcomings in standardization and liquidity management must be tackled, however. cooperation between investors, issuers and regulatory and supervisory authorities is a prerequisite for a successful integration beneficial to all stake holders. luxembourg with its tradition as a specialized financial center will continue its endeavors to establish an international hub for islamic finance.

hit the real economy. overall, islamic banks performed better within the last three years than their conventional counterparts. thanks to higher solvency and lower leverage islamic banks succeeded in matching relatively higher demand for credit at a time when europe and the us dealt with the threat of a credit crunch. moreover, according to various credit rating agencies, the change in islamic banks ’ risk assessment has been better than that of conventional banks ( with the exception of banks in the united arab emirates ( uae ) ). ensuring a level playing field as long as financial stability and the functioning of the transmission mechanism of monetary policy are not at risk, central banks should not interfere with the structure of finance. ensuring a level playing field can be seen as a prerequisite for functioning financial markets. if the demand for islamic compliant financial products is rising, obstacles for its further development should be abolished without contradicting the principles of appropriate supervision and regulation nor the prevalent operational framework of central banks. therefore, the infrastructure and supervisory environment should be provided to allow efficient clearing of a sufficient number of investment - grade islamic finance papers across the whole maturity spectrum. while banking authorities are committed to adapt and to be accommodating for islamic finance within the european regulatory framework, it is crucial to require the same licensing and supervision standards from islamic financial institutions as expected from conventional banks. 7 real challenges however remain on the legal side for example asset transferability. but these complications are to a large extent shared with the conventional banking system. keeping that balance will be beneficial to both islamic investors and the european financial system. hasan, maher ; dridi, jemma : the effects of the global crisis on islamic and conventional banks : a compartive study, imf working paper wp / 10 / 201, washington, 2010. mersch, yves : speech at the 5th economic forum belgium - luxembourg - arab counties, in brussels, 17th november 2009. luxembourg ’ s pro active approach in luxembourg, private and public decision makers of the financial industry are motivated to establish a regional hub for islamic finance, making use of luxembourg ’ s expertise in cross border finance. major steps have been taken already. the central bank of luxembourg is a member of the islamic financial services board ( ifsb ), a standard setter for financial stability. addressing shortcomings in the sukuk market such as lack of liquidity and international recognition, small size of issuances, insufficient number of high quality issuers and focus on domestic markets, the ifsb coordinated the