Islamic Finance gif
Safdar Alam, CEO, Siyam Capital, London
product, and an Islamic investor is thus forced to buy a debt product to have access to low risk investments. We should be offering more than this, and finding real investments that deliver low risk and solid returns. We need to work harder to deliver such solutions. Then it seems investors have access to higher risk assets such as equi- ties and real estate (development).
What do you personally feel are the major chal- lenges faced by Islamic investors? Essentially the major challenge is a lack of suit- able options to build a diversified portfolio of as- sets, that spreads risk and return across suitable currencies, regional exposure, and asset classes. The issuers of investments have not really been very creative in delivering such solutions. We see many investments focusing on equities, or real estate.
Real estate in itself is a good asset class with many different risk profiles available, however many of the solutions in the Islamic space have focused on high yield investments, and linked to developmental risk. These have largely been se- verely impacted in the current climate.
We should be looking at defensive sub sectors of real estate, that deliver solid returns even in tough economic conditions, and focusing on ge- ographies that have mature markets and this are less volatile. However these are crowded out by issuers offering high double digit returns, without investors really understanding the subsequent increase in risk they are taking on.
A lot of this risk is delivered via leverage, which is utilised to deliver the higher returns. Islamic leverage is as dangerous as conventional lever- age, yet the feeling is that because it is Islamic it seems to be OK. This is not a helpful approach.
There are many asset classes that can suit Is- lamic investors, however many issuers are going for the safe options of equities and real estate, and notes offering returns linked to commodi- ties, FX rates etc. Of course the problem with these is that the note investors do not actually buy the underlying asset, they are just buying ex- posure to that risk.
These activities do nothing to support real invest- ment in the real economy. Investors should have these options, and they should demand to have them. We see too many options revolving around debt and leverage and speculation.
What are the key aspects that investors should focus on when devising an Islamic market in- vestment portfolio? A lot of it is common sense, a typical portfolio should take into account the personal circum- stances and wishes of the investor. In general terms, investors need to be clear in terms of what risk they are willing to take on, and seek investments that deliver them. Low risk can be obtained by investing in investment grade Sukuk (access to these investments however is another question; it is very difficult for retail investors to access Sukuk). However Sukuk remains a debt
There appears to be little in between, and that is a significant problem for investors. Also risk should be spread across major currencies, such as USD and GBP (EUR presents a different risk profile at the moment) and of course the inves- tor’s local currency.
Just buying an investment that delivers returns on the movements of these FX rates is not ben- eficial, as this easily leads to speculation rather than considered investment. it is much better for the industry to deliver real investments and as- sets in those currencies but of course that takes more work and more thought.
Tenor is also crucial - investors should have ac- cess to short term liquid investments (again in Is- lamic finance these are largely debt instruments such as money markets and Sukuk) as well as longer term investments, which may also provide some liquidity.
What is your perspective on the future poten- tial of the Islamic investment industry? The investment industry is actually at the core of development. All funds that are invested ulti- mately are linked to individuals and people who provide these funds. Even banks providing debt finance require liabilities in the form of customer deposits, or their own bond issuance (subscribed by bond investors and funds that ultimately raise their funds from individuals).
Corporates raising finance also rely on the public ultimately to buy their services and products and deliver the revenue stream to enable them to re- pay their debt. Everything is linked to spending and investing at an individual and public level. Of course this is clearly demonstrated when things go wrong, and tax payers are asked to bail out institutions, and governments are forced to cut public spending, and our pensions and jobs are impacted.
That is why the investment sphere is absolutely crucial to the positive development of an eco- nomical model. We cannot develop a sustain- able Islamic economy without a sustainable investment model. We cannot develop a sustain- able investment model while we focus on debt, leverage, speculation, and little focus on the real economy, and that is the case today.
The future has no limit, but only once we wake up and realise that solid and varied investment options are necessary to develop a strong and sustainable economic model. We need to focus less on high yield, debt, leverage, speculation, and focus more on value, and benefit, and the real economy.
industry include many agencies which have been developed and have flourished during
2011.There is a bright future for the scope of Islamic finance around the world. From Malaysia to the Middle East, many coun- tries are excelling. Various regions are work- ing to develop the Islamic finance and bank- ing sector, creating many diverse methods of implementing and facilitating Islamic banking and financial products in order to open up room for investments. In Part 1 of the Global Islamic Finance Investment Re- view, we have investigated the progress of the Islamic investment sector since 2011. In Part 2 we will take a look at these sec- tors in more detail, aiming to thoroughly dis- cuss the various investment opportunities around the world in the lucrative sector of Islamic finance and banking.
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References and Further Reading
• Tsanadis (2012) Islamic Index Launches on Australian stock market, article re- trieved from:
http://muslimvillage.com/ forums/topic/66264-new-australian-tool- for-islamic-investment/ • Islamic investment funds to see robust growth in 2012 (2012), article retrieved from:
http://www.indiansinkuwait.com/ ShowArticle.aspx?ID=15963&SECTION= 0#ixzz1pB874OYZ • Bursa Malaysia Islamic Markets (2011), website and source article retrieved from:
http://www.klse.com.my/website/bm/ products_and_services/islamic_capital_ market/ • AME Info (2007) NCB Capital launches world>s first Shariah-compliant <Alahli Global Real Estate Fund>, retrieved from:
http://www.ameinfo.com/140318.html • AME Info (2009) Khalijia invest com- mence activities as Shariah-compliant in- vestment company, retrieved from: http://
www.ameinfo.com/218533.html • AME Info (2008) Shariah-compliant invest- ments bode well for investors in the MENA region, say experts at HSBC Amanah sem- inar, retrieved from:
http://www.ameinfo. com/
146682.html • Investing in Bahrain Financial Services (2011), article retrieved from: http://www.
bahrain.com/financial-services.aspx • Green Sukuk: Islamic finance institutions are increasingly investing in green energy projects (2012), article retrieved from: • Middle-east-gets-green-sukuk (2012) on
Islam.Net, retrieved from: •
http://www.onislam.net/english/news/ middle-east/456109-middle-east-gets-
green-sukuk.html • Global Takaful Markets 2015 (2010), Ce- lent, retrieved from: •
http://reports.celent.com/ PressReleases/20061129/
Takaful.htm
2012 May Global Islamic Finance 23
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