retail wealth management
Other than the Shariah-compliant capital
market or sukuk for companies looking to tap Islamic funds for capital, demand
for Islamic wealth management has been largely concentrated in the retail
segment with limited demand among institutional investors.
Wealth managers also tend to see clients
allocate a portion of their assets in Shariah-compliant vehicles while the
larger percentage remains in conventional instruments. The main driver lies in
the more attractive yield offered by conventional wealth managers. Given the
broader range of investment instruments available and the existing economies of
scale, conventional investments will undeniably generate a higher yield.
Prof Shamsher prefers to be realistic and
believes that yield inevitably drives the flow of investments. “Institutional
investments are not faith-based but are rather profit oriented. How many
big investors do we know are investing money based on faith?” he said.
wealth management mere window-dressing?
Thus, he sees the opportunity for Islamic
private bankers to look at other aspects of wealth management. In reality,
there are existing instruments for wealth distribution such as endowment
through waqf, wealth purification
through zakat and wealth protection through takaful but little attention has been
paid on the product development front.
“(One) aspect of wealth distribution is
waqf. There is so much wealth in the market but do we have a suitable mechanism
to utilize this wealth to benefit the society at large? How do we develop
small- and medium-sized businesses that are predominantly deprived of
conventional financing opportunities?” said Prof Shamsher.
One of the reasons for the uneven
development of Islamic wealth management is its relatively nascent stage. Even
though the religious tenets supporting Islamic finance dates back to the
seventh century, the industry really started taking shape in the 1970s.
Prof Shamsher underlined Islamic finance’s
short history: “The difference between Islamic and conventional wealth
management is that Islamic finance has been around for 50 years while
conventional banking has been around for many generations.”
As reported recently, there continue to be
concerns that growth of the $1.5 trillion Shariah financial services sector is
hampered by a lack of global standards. (To view that story, click here.)