Preface
Islamic finance and in particular, one of its key components, Islamic asset management has been largely misunderstood. There is a paucity of written materials on how Islamic funds operate, what distinguishes them from conventional funds, and what the opportunities are in this area. This book, written by a market practitioner, is an important addition to the knowledge base on Islamic finance and its practical application.
I have had the privilege of knowing the writer over the last two decades as a client, fellow council member, and an advocate for Islamic finance. We have participated on many initiatives and shared platforms together and, despite her diminutive size, she is clearly one of the giants in our industry. Her passion and drive to make Islamic asset management a viable commercial business has been very evident to all and it is very fitting that she has now chosen to devote her time to sharing her knowledge and experiences with others.
Her book begins by dealing with some misconceptions about the industry. She makes a strong case for the industry’s growth prospects, given the rise of the wealthy throughout the world and the increasing demands by affluent Muslims for investments that are Shariah compatible, and she supports it with recent data. She also traces recent developments to show where the demand and supply of such products are growing.
To elaborate further, she examines some of the criteria that Shariah-compatible investments must have, the basis for such criteria, and compares and contrast how Shariah-compatible and ethically based funds are not too dissimilar. In examining the existing products, she makes the case that such products already meet domestic investor needs, and with the adoption of international benchmarks and standards, has the ability to expand its reach to international investors. It is interesting to note that the writer was instrumental in encouraging the CIMB Islamic Asset Management business to venture out of Asia to Europe and can therefore speak with some authority on the matter.
In Chapter 6, “Mitigating the Myths,” the author provides a perspective on why some of these myths are just that: myths. The key one being the myth that returns are not as good as from conventional investments when compared to Shariah-compliant ones. The data would suggest otherwise, which might be for the reasons elaborated on in earlier chapters, where she explains how Shariah investments have stricter criteria applied to them that, arguably, make riskier investments less likely and returns more certain.
One of the more involved concepts in Islamic asset management is the Shariah screening process. The main difference of this process from conventional asset management being that beyond prohibited and ethical criteria, it also looks at financial and other more qualitative factors. One result is that overall, for the five years to December 31, 2012, in two out of three Islamic global indices, Islamic funds have outperformed conventional indexed funds by up to 10 percent. She makes the point further that one other outcome of the Shariah-based approach has been the avoidance of investments in the financial sector and a higher weightage in real world industries that, post-2008, has made the Shariah-compatible investment portfolio more resilient.
In summary, the book makes a compelling case that not only has Islamic asset management done well despite the recent turmoil, it has the potential to provide a more stable and more ethically based investment portfolio for the growing population of affluent investors globally. This book has certainly helped in outlining the case.
MOHAMMAD FAIZ AZMI
Executive Chairman, PwC Malaysia and
PwC Global Islamic Finance Leader 2007 to 2012