The top 10 Islamic fund houses by assets

Islamic assets have been on the rise, driven by greater issuance of sukuk, or Islamic bonds. Last year saw a new record for Islamic debt issuance globally, 77% of which emanated from Malaysia.

But while the global bond market stands at $100 trillion, the sukuk market is still tiny by comparison, at just $100 billion. It is this room for growth that industry participants are eager to capitalise on.

In our March edition,AsianInvestor launches its first ever ranking of sharia-compliant investment managers. According to our findings, the top 50 by AUM have combined assets of $72.9 billion, split fairly evenly between equities and fixed income/money market/sukuk, with the remaining 10% or less in Islamic private equity and other alternatives.

Malaysia has become the global hub for Islamic debt issuance and unsurprisingly there are four Malaysian fund houses in our top 10 by assets, followed by Saudi Arabia with three. Perhaps more surprisingly, a South African firm figures in the list (in fact, there are three in the top 50).

Zainan Izlan, executive director for Islamic capital markets at Malaysia's Securities Commission, notes that beyond Malaysia, Gulf Cooperation Council (GCC) nations are important centres.

But he adds that corporates from France to Japan can participate in this market. "Even if your domestic market does not have a big Muslim population, you can issue sukuk and offer it globally and it will be taken up," Izlan says.

As a snapshot, here we list the top 10 Islamic fund houses by assets. For a more in-depth look at the industry and for the full list of the top 50, please see AsianInvestor magazine's March edition.

(Asian Investor / 13 March 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia-based Islamic Financial Services Board and ECB conducting study on Islamic finance

DUBAI: The European Central Bank and the Malaysia-based Islamic Financial Services Board (IFSB) are conducting a joint study on policies affecting Islamic finance in Europe, the IFSB's top official told Reuters.

"We are doing a joint study with Europe's central bank which brings together European scholars and regulators to examine a broad set of policy and regulatory issues in relation to Islamic finance in Europe," said IFSB secretary-general Jaseem Ahmed.

The IFSB is one of the main bodies setting standards globally for Islamic finance.

"What we are seeing is a strong public policy stance emerging, which I think is essential for Islamic finance to flourish on the continent. This is happening both within and outside the euro zone," Ahmed said.

An ECB spokesman confirmed to Reuters that the study was underway at the level of a research paper. He did not give an expected release date.

The study will be complemented on April 9 by the IFSB's annual forum, which will be hosted by the Bank of Italy in Rome. The forum attracts regulators and market players from the Islamic finance industry, which grew to $1.55 trillion in assets globally in 2012, according to consultants Ernst & Young.

The last time the 184-member IFSB held a forum in Europe was in Paris in 2009; since then the euro zone crisis has increased interest in Islamic finance, which follows religious principles such as a ban on interest and pure monetary speculation.

"There is broad recognition that relying only on an excessively leveraged and debt-fuelled financial system has great risks. There is a corresponding stress on equity financing in the post-crisis environment," Ahmed added.

"I think the global crisis has really brought Islamic finance to the front, if not yet the centre, of the stage."

In November 2009 Mario Draghi, then governor of Italy's central bank and now president of the ECB, called the growth of Islamic finance a "welcome development", adding that it raised some "intriguing questions" for financial markets.

Draghi's successor at the Bank of Italy, Ignazio Visco, will be joined at next month's IFSB forum by officials from the ECB, Italy's finance ministry and other central bankers to discuss the "European challenge", according to the forum's schedule.

REGULATORY SUPPORT

Partly because it has the support of cash-rich Islamic funds from the Gulf, Islamic finance fared relatively well during the global financial crisis, and it is expected to keep growing; 150 new Islamic financial institutions will be needed globally by 2020 to satisfy demand, according to consultancy Oliver Wyman.

The IFSB has taken steps elsewhere to win regulatory support for Islamic finance. In October, it signed an agreement with the Asian Development Bank, which would see the ADB encourage member countries to adopt IFSB standards.

The Italian central bank doesn't have a specific standing group studying Islamic finance, but it follows industry trends and developments on a regular basis, according to a Bank of Italy spokesman.

The Bank of Italy's research department noted in a paper in 2010 that the industry could be hampered by problems including governance structure, regulation, a lack of monetary policy instruments and liquidity management.

The experience of Mediofactoring, a fully owned subsidiary of Intesa Sanpaolo, Italy's biggest retail bank, which explored Islamic financing options but did not go ahead with a deal, shows that companies in Europe can find Islamic transactions uneconomic without regulatory support.

"We have tried but it was very difficult to put in place a structure that was fiscally efficient," Mediofactoring's chief executive Rony Hamaui, who will be a speaker at the forum, told Reuters.

"Unfortunately in Italy very little is being done in Islamic finance...We talked to the Treasury regarding sukuk (Islamic bonds), but for the government it is not a major focus."

Sukuk will be one of the major themes in the IFSB forum; Islamic bonds have gradually moved into the mainstream as a viable funding option for both governments and corporates. Over $121 billion worth of sukuk were issued around the world in 2012, according to Thomson Reuters data, up from around $85 billion in 2011.

So far, the closest which Europe has come to issuing a sovereign sukuk was in 2009, when Britain prepared its first-ever issuance, which would have been a rare AAA-rated issue in the industry.

"Four years ago we worked on structuring the UK's sukuk issuance, but the UK postponed the issue due to a view that the transaction would not provide value for money," said Farmida Bi, European head of Islamic finance at Norton Rose in London.

"The UK Treasury has made it clear they are not going to revisit this issue for now."

But British regulators have introduced legislation facilitating Islamic finance, which could serve as a reference for other European countries.

"Where the UK's approach to Islamic finance is helpful is in creating a level playing field, where there are no tax or regulatory incentives or penalties for Islamic transactions, thus creating a pragmatic way of dealing with it," Bi said.

( The Star Online / 12 March 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia: Islamic banking shines

MALAYSIA has succeeded in developing a vibrant and modern Islamic banking and financial industry over the last three decades.

The Islamic Banking Act, which came into force in 1983, had paved the way for the nation to develop a vibrant and modern Islamic banking and financial industry.

Initially, the industry served as an alternative channel for Muslims to perform banking and financial transactions in accordance with Islamic practices, and thus, avoid practices that have elements of oppression that are prohibited by Islam.

As the industry has proven its viability, it is now accepted widely and used by all Malaysians.

Apparently, Malaysia has received much recognition in recent years from the global banking and finance fraternity in its effort to develop a viable Islamic banking and finance industry.

The country’s Islamic banking and financial industry has always been regarded as a global model for a modern and dynamic industry.

Notably, among the achievements the country has achieved in the last three decades are in terms of growth in Islamic banks and financial institution assets, the increased market share of products and services to the total banking and financial system, formulation of legal frameworks and various standards, development of infrastructure and institutional capacity, education and training facilities, and many others.

On the international Islamic banking and financial front, Malaysia also dominates the global market for sukuk, and in fact, the country was the first in the world that issued first sovereign sukuk in 2002.

Currently, Malaysia’s sukuk issuance accounted for almost three-quarters of total global sukuk issuance.

Malaysia is also home to the Islamic Financial Services Board (IFSB), an international standard-setting body. In addition, Malaysia is a renowned destination for the inter­national community in learning and gaining the knowledge and expertise on Islamic banking and finance.

This success story reflects the relentless and concerted efforts of the Government and monetary and financial authorities in Malaysia, in particular Bank Negara Malaysia and the Securities Commission.

This success list is by no means exhaustive and will continue to grow in line with the expanding global and domestic banking and financial environment.

Notwithstanding, one of the many contributions from the growing success of Islamic banking and financial industry in Malaysia that warrants to be highlighted is the recognition given to the graduates of Islamic-based tertiary qualifications.

Before the establishment of the first Islamic Bank in Malaysia some 30 years ago, graduates with Islamic-based qualifications, such as studies in Islamic jurisprudence or syariah, fiqh, fiqh Muamalat or other branches of studies that are related to Islam, may find difficulty getting a job in the mainstream economy.

Their contribution was restricted to fundamental religious matters, and their job opportunities were very limited.

There were perceptions that these graduates could only contribute by being ustaz (religious teacher), and work in a religious school or teach Islamic subjects in national schools.

Some may work in religious depar­tments or become an imam in the mosque. Undoubtedly, these are noble professions; and they earn decent salaries for sustainable living.

Due to this, if one chooses to study about religion, one may be considered as having no prospects, if we talk in terms of professionalism and monetary rewards coming with it.

In this regard, it was obvious that 30 years ago, we could hardly find a person with syariah or fiqh background working in a bank.

This perception has been transformed in recent years amidst the rapid growth of Islamic banking and financial industry in Malaysia and also globally.

The growth of the industry has created an increasing demand for graduates with Islamic-based qualification to work in the mainstream industry of the economy.

Syariah-qualified persons are greatly needed because Islamic banks and financial institutions must adhere strictly to comply with syariah rulings, which are guided by the establishment of various syariah compliance frameworks to guide the institutions’ activities.

The Employment Outlook and Salary Guide 2012/2013 published by Kelly Services had reported that the current salary of syariah professionals in Islamic banking and financial institution is very competitive and on par with other professionals.

Based on the report, the head of syariah in banking and financial industry currently earns a minimum salary of RM8,000 and a maximum of RM20,000 per month.

At this salary scale, the syariah professional’s salary is on par with other professionals, for example, in the area of information and communication technology (ICT), accounting and finance, administration, marketing, investment and other professionals in other industries with the same number of years in experience (five to 10 years) and qualification levels (basic degree or Masters).

Compared within the banking and financial industry itself, the salary scale is on the higher bracket of middle management.

The report asserted that as Malaysia has become a key Islamic banking and financial hub of Asia, the need for specialised talent in this sector has intensified, with strong emphasis placed on four core sectors in Islamic finance, i.e. Islamic banking, Takaful, Islamic capital market and Islamic money market.

The Islamic banking and financial industry in Malaysia has not only grown in size and infrastructure, it has also enabled the industry to recognise the value of Islamic-based qualifications, and elevate the status of Islamic-based qualifications in the mainstream economy.

Based on employment and salary trends, it seems that the syariah profession may one day become a profession of choice that will attract many young and talented Muslims, similar to what previous Muslim generations used to aspire, in becoming doctors, engineers, accountants, or lawyers.

(The Star Online / 12 March 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com