gif Islamic Finance
Ahmed Muhammed Almanasreh, Ph.D., MBA, PMP, CPES, Managing Partner, Sanad Capital, Jordan
Despite the current challenges faced within the global economy, Islamic funds
continue to grow, with the prospects for 2012 somewhat brighter than 2011. Wealth in Muslim countries continues to chart strong growth on the back of decent economic growth and higher oil prices, with a knock-on effect on demand for Shariah-compliant investments
What do you personally feel are the major challenges faced by Islamic investors? Although Islamic finance is being growing steadily over the past decade or so, it is not unleashing its potential. There are a set of challenges faced by this industry. Regional instability is not being the most critical. Although this factor is not global in nature, it underlines the core Islamic finance region, i.e. GCC and MENA region at large. Instability is not bound to recent outcomes of Arab spring movement. This has been the destiny of the region for the past century due to reasons known for all.
The global economic crisis adds another critical challenge. We have seen fund raising activities of Shariah compliant asset classes stagnat- ing over the past few years. However, this was not as bad as that oc- curred with traditional investment domain.
There is another set of encounters directly related to HR; the poor man- agement qualities, lack of track record, and not competent Shariah pan- els. I had a chat recently with an UHNWI regarding hindering faced by one major VC firm in the GCC region and these HR factors were all highlighted as serious hindrance. He was linking continuity of his involvement in the firm upon board responding to his requests regarding these issues.
I do find the following two issues of great impact as well. Having inves- tor not acquainted with investment vehicles or asset class is annoying. The culture at the investment level is very interesting. One of the factors making investors shying away from certain strategic asset classes is long lock up period of investment.
What are the key aspects that investors should focus on when devis- ing an Islamic market investment portfolio? One basic aspect that should be considered in providing guidance/ consultation or making investment decision is Shariah compliance. Al- though initial screening is simple and straightforward, other detailed issues might be of complex nature. One issue in this regard is the no existence of standards. I would like here to praise Malaysian practice of paying serious attention to the standardization process.
Strategy, if any, of investor is important. Decision should clearly pursue to meet requirement of client. The market size and growth potential are so critical that determine probability of success of investment. Most pro- fessionals now give more weight to these factors than given to quality of management.
It is also important to highlight need for detailed due diligenceon sug- gested investment. Any disregard to a tiny issue might be catastrophic. We fall into this trap in one of our portfolio companies. We spent couple of years dealing with the consequences.
What is your perspective on the future potential of the Islamic invest- ment industry? It is obvious that Islamic finance\investment industry is of huge poten-
tial.Statistics found on leading reports like annualErnst & Young IFIR supports and verifies that.One very interesting outcome presented in the report is the size ofavailable pool of Shariah sensitive cash. Another im- portant aspect of reports is different investor categories spanning mass affluent, HNWI, UHNWI, Takaful, Awqaf, SWF and pension funds.
In simple terms, with most of oil reserve being in Muslim countries, and changes coming up through Arab spring, and having world economic crisis underlining ideological challenges in western financial/economic system, the Islamic finance will continue to boom.
Which form will prevail, is yet to be seen. 20 Global Islamic Finance May 2012
including Citigroup, HSBC and Deutsche Bank, are proactively mov- ing into the Islamic banking business, sealing multiple investment opportunities. There are nearly 300 Islamic banks and financial in- stitutions worldwide, and their assets are predicted to grow to USD1 trillion by 2013. These figures show enormous scope for investments within the sector. Takaful is another investment sector with a good chance of prospering in 2012, as outlined in Figure 3.
The state of global Takaful markets varies enormously. Malaysia has the largest market for Takaful, with 1,220 premiums taken out, and the size of various regional markets fluctuate all the way down to Syria, which has the smallest market. Figure 3 shows the potential for greater Takaful take-up during 2015 in selected countries around the world, and should give a good illustration of the emerging Islamic insurance market.
Reviewing the scope for Islamic Investments in 2012 The scope for Islamic investments in 2012 looks promising, consid- ering the inception of a new Bursa Malaysia index on the horizon, and many other options for global investments arising across the world. The Islamic financial industry is set to propel forwards, reach- ing staggering profits. In addition, there are many avenues available for investors to trust with their funds, including many exciting new choices, as the many countries around the world tap into this lu- crative sector and offer new areas to the industry. Useful locations for successful investments include Islamic financial hubs such as Malaysia and Saudi Arabia, which both have a prominent hold over the industry. Investors in countries such as Australia and Europe are also seeing more choices for investments, whether on the new Aus- tralian index, or via opportunities within specialised Islamic financial sectors such as Sukuk and Takaful.
The industry has certainly grown over the last year, and there are many landmark developments on the way, with a wide variety of new products and services expected to emerge by 2013. The Islamic fi- nancial sector has seen both successes and challenges following the global economic crisis, which catapulted Islamic finance into the spotlight. However, the industry has remained strong. Areas of particular excellence include many areas of Sukuk (Islamic bonds), private equities, and real estate, amongst other lucrative sectors which have seen massive growth in recent years. The Islamic bank- ing industry continues to provide unprecedented unique services for both Muslims and non-Muslims around the world.
The future looks bright for small and medium enterprises which choose an Islamic financial institution for borrowing or investment. Many major leading Islamic financial hubs are emerging across the world, aiming to cater for the demand for Shariah-compliant products and services, and the industry looks set to sweep across the world to grow into a major financial sector by 2015. As we move through 2012, the need for standardisation is still a prevalent challenge. Malaysia has already recognised the need for a unified regulatory body and is aiming for harmonisation of Islamic financial standards in the country. Efforts towards standardising the Islamic financial
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