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Wealth Management gif

We will now shift from focusing on the indi- vidual and their personal wealth to looking at the family as a unit, philanthropic issues for the 21st century, and Islamic wealth management from the banks’ point of view. How does the Islamic family plan their estate in the context of a changing world economy? How can the Islamic investor-philanthropist increase the impact of giving whilst continu- ing to manage their wealth efficiently? What are the best strategies for private banks to pursue regarding Islamic wealth manage- ment? What are the merits of each side on the onshore versus offshore debate? Whilst we mainly concentrated on traditional asset classes in part 1, in this part we will take a look at some of the more alternative asset classes emerging? Is it possible for them to be shariah-compliant?

Estate Planning for the Islamic

Family

Managing your wealth is of course impor- tant in terms of the here and now. You would like your wealth to be maintained and built upon while you are still alive in this world. It is, however, important for the Islamic inves- tor to make sure their family is taken care of, not only in the present time but also in the future, after you have passed away from Earth. Long-term Islamic wealth manage- ment is there- fore important for the contin- ued welfare of the family unit; Islamic plan- ning of family estates should be taken very seriously. That is the theory, but how seri- ously, in prac- tice, is Islamic family taken in 2010? It would appear that, in Islamic finance, there is still some lack of clarifica- tion over estate planning measures such as will-making. Many Muslims may not even be aware that making a will is a shariah- compliant activity (Ismail, 2010). Not only is will-making indeed a shariah-compliant activity, it is also an advisable one. Specifi- cally speaking, a will allows family members to be assigned roles in the ongoing manage- ment of your estate. Through a will, you can designate both fixed share inheritors and re- siduary inheritors, allowing you to prioritise relatives who require a fixed percentage of inheritance from the wealth you leave be- hind.

Wealth Generation

• Cashflow Management • Purtification (Tax & Zakat)

Family wealth planning is not just a matter of life and death, there are subtle shades in

between, such as retirement planning and ensuring your wealth is channelled as effec- tively as possible to ensure your children’s long-term high quality education. There are currently several ways to manage your wealth so that is preserved for your retire- ment and for your children’s educational future. One such way is through setting up shariah-compliant trusts for your offspring, that will allow them access to liquidity or oth- er types of assets on, say, their 18th or 21st birthday. Similarly, it is possible to turn the family business itself into a trust, or to use it to make an IPO offering, thereby creating further avenues of financing for the future of your family.

Philanthropy in the Context of Is-

lamic Wealth Management

In Islam, philanthropy is as important as the creation and management of your own wealth. Increasing the impact of your giving, therefore, is a crucial topic for anyone con- cerned with Islamic wealth management. Islamic endowment, or waqf, allows for both wealth management and the philanthropic act of wealth distribution to beneficiaries (Sait and Lim, 2005). The diagram below, taken from Cashflow4Muslims, contextua- lises Waqf’s position within the sphere of Islamic wealth management:

Islamic Wealth Management Wealth Accumulation

• Investment

• Asset’s Manage- ment

• Debt Management

Wealth Protection

Takauful of: • Income • Assets • Debt

• Encouragement of the cross-border practice of waqf-“Given the number of Muslim and non-Muslim countries where the endowment (waqf) is used, there is ample scope for sharing of good practice and their experiences. In- ternational Islamic institutions such as the OIC, civil society in general and in- ternational agencies have a key role in providing for the sharing of experiences and the development of norms relating to efficient management”.

• Revival of unproductive state endow- ments (awqaf) - “In most cases, the nationalisation of endowments merely transferred the responsibility from private endowment managers to the State. Contrary to promises of better use of endowments, it is a widely held view that ‘reforms’ of endowments that took them within the public sphere of government have squandered valuable material and human resources. Howev- er, more research is needed as to how those lands are being currently man- aged. There are at least two perceived problems in relation to reviving endow- ments, the first being the means of financing that revival; and the second the creation of appropriate information systems to enhance transparency.” Before any of these strategies can be pursued, however, several challenges will have to be over- come. These in- clude:

Wealth Distribution

• Zakat • Waris • Waqaf • Wasiyat • Hibah

Waqf is a shariah-compliant legal mecha- nism that allows the owner to “permanently settle property, its usufruct or income to the use of beneficiaries for specific purposes”. However, although the idea of waqf is still influential, it is a practice that has been eclipsed by contemporary wealth manage- ment approaches. Nonetheless, Sait and Lim have several proposals for integrating waqf back into the Islamic wealth manage- ment landscape:

• Modernisation of waqf-“Modernisation of the endowment (waqf) into a trans- parent and responsive institution that can rival the Western charitable institu- tion and improve access to land can be, and is envisaged”.

• of funds for the regeneration of the endowed lands’ produc- tivity

L a c k

• of integrated

L a c k

contemporary information relating to state endowment lands • Lack of mechanisms through which to reprivatise awaqf

Alternative Asset Classes

In part 1, we looked at familiar asset classes such as real estate and funds, but what of the more alternative asset classes? Such as- set classes include the securitisation of gold and Islamic exchange-traded funds (ETFs).

As asset classes become more sophisticat- ed with the evolution of the Islamic finance industry, investors are increasingly look- ing to diversify their portfolios. As early as 2008, industry experts were citing this trend as evidence of the emergence of alternative

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