New York, NY, USA
February 14, 2007Socially
Responsible Investments: Shari'ah Governed
Investing
Report Published by Celent
Shari’ah-compliant
investing is flourishing and will become a significant and profitable
component of the financial services industry globally due to formalized
infrastructure and growing assets.
The market for financial
products that comply with Islamic principles is taking root in the global
economy as a result of an increasing number of Islamic organizations and
international investment banks working to formalize the market. The
Financial Times recently reported that London has established the
world's first secondary market for trading bonds that comply with Shari’ah
principles. Similar plans and product developments are underway across the
globe. Celent predicts equity fund assets alone will jump from US$15.5
billion to US$53.8 billion by 2010, as a result of new investment
programs, growing awareness of shari’ah governed products and cash rich
investors according to a new report from Celent, Socially Responsible
Investing: Shari’ah Governed Investing.
Shari’ah-governed products include everything from
banking products to residential mortgage-backed securities, commodity
based financing, currency swaps, and Malaysian securitization, as well as
investment and equity linked products. The list keeps growing as demand
becomes more apparent. According to the report, one of the main areas of
innovation is derivatives. Creative financial institutions are seeking to
replicate derivative securities within Shari’ah governed principles.
There will be announcements regarding collateralized debt obligations,
swaps, FX options, and structured products.
Shari’ah principles are applied to the spectrum of
living an Islamic life. In general, Shari’ah principles are concerned
with the distribution of wealth in society, how income is generated, and
how profit and loss is shared. Some rules pose a particular challenge to
financial institutions because a very large percentage of the modern
securities market is not investable by those wishing to abide by Islamic
law.
Islamic Finance Centers are slowly opening up to
global financial institutions, which will further efforts in support of
strong secondary market in Islamic debt. Similarly, large, well-resourced,
and creative institutions are and will continue to rapidly develop the
capital markets across asset classes. As a secondary market for Islamic
securities grows, the asset management community will increasingly develop
and distribute portfolio management products. However currently, all
financial institutions still face several hurdles in reaching full market
capacity and these items are discussed in the report:
Table 1: Some Challenges to Product Development and
Distribution
| |
| Islamic cleric
shortage |
| Which comes
first? Secular law versus Shari'ah law |
| Lack of
regulation, oversight, and consumer protection in developing markets |
| No standard
Shari'ah |
| No standard
documentation |
| Lack of
investment education |
| Low savings
rates in the retail sector |
| Foreign firms:
present, needed but welcome? |
| Source:
Celent |
According to a study by Merrill Lynch and Cap
Gemini, the Middle East has the world’s highest concentration of high
net worth individuals, whose collective wealth is estimated at over US$1.2
trillion. General consensus is that there is a growing desire for many
individual investors to invest assets on a more local basis. This vast
wealth and the 1.5 billion Muslims worldwide point to huge growth
potential for Islamic asset management.
"Celent believes a break out
opportunity for the Islamic asset management business is possible,
particularly after 2007, which is a ‘stage setting’ year for many
financial institutions in both the capital markets and asset management
businesses," says Denise
Valentine, senior analyst and author of the report. "Market
studies have repeatedly shown that, if given the option to invest in Shari’ah
products with competitive performance, Muslims prefer to do so."
The report provides an orientation to Shari’ah
along with developments in the region, active firms in Shari’ah
investing, and challenges financial institutions face in building out this
category.
The 28-page report contains three figures
and eight tables. A table
of contents is available online.
|
