By Arno Maierbrugger/Gulf Times Correspondent/Bangkok
Islamic wealth management has been under the radar in the Islamic finance industry for quite some time, even though the number of wealthy people, especially in East Asia with two dominant Muslim countries, Malaysia and Indonesia, keeps growing, and the oil-rich states in the Middle East are recovering from low oil prices and with it the wealth of individuals and families.
That said, private wealth creation by Muslims throughout many countries in Asia, the Gulf nations and also Europe, is significant, and thus there is a large and growing market for wealth management in various types and forms. However, it seems that most high-net worth individuals and families are still having their assets managed by conventional finance institutions, which arguably offer a much greater range of products and services that the Islamic finance industry is yet unable to meet.
For example, Swiss bank UBS Group, the largest wealth manager in the world, just recently announced that its division, UBS Global Wealth Management, in the first quarter of 2019 for the first time hit a volume of assets under management in Asia-Pacific of $405bn, the highest amount ever, owing to record net new money inflows of $16.3bn in the period, rising from $6.3bn a year earlier.
To put that in perspective, assets under management of the wealth management division of Malaysia’s Maybank, one of the largest banks in Southeast Asia, was $8.14bn in 2018 for both conventional and Islamic wealth management. There seems to be much to catch up here.
“Islamic banks remain very focused on trying to compete with the conventional financial institutions [in the wealth management space], but they do not have the scale and resources to expand the product range. In short, the Islamic finance market must do much more,” says Richard Nunn, head of business development for the GCC at Jersey Finance, service provider for international finance with offices in Jersey and Hong Kong.
The main difference between conventional and Islamic wealth management is, of course, the fact that Islamic wealth management must be conducted in accordance with Shariah. While conventional wealth managers do not have to spend much thought on whether their offerings are ethical or otherwise in compliance with the faith, believes or morals of a client – unless instructed to incorporate these aspects – Islamic wealth management has more complex approach.
The historical roots of Islamic wealth management can be traced back to the basic Islamic concepts of wealth, and they apply to the various structures of Islamic financial products. As Shariah defines five necessities as basic for human existence, Islamic wealth management has to consider those aspects of religion, life, intellect, progeny and property. Thus, Islamic wealth management not only focuses on the enhancement of wealth by generating returns, but also the protection of wealth through risk management, takaful and Islamic trusts, as well as the distribution of wealth through gifts, alms and endowments, or hibah, zakat and waqf, as well as wills.
While in the past, Islamic wealth management has been primarily focused on investment in Islamic bonds, or sukuk, Shariah-compliant funds and property – or gold-backed investments, offerings have become at least partly more sophisticated as of recently.
Maybank, for example, enhanced its Islamic wealth management portfolio towards a wider Shariah-compliant suite of financial products and services, including Islamic deposits, takaful, treasury, Shariah-compliant shares, private equity, structured wealth management products, Islamic estate planning, as well as social impact investments which, by the way, have become also attractive for non-Muslim customers.
Still, there is a long way to go. According to the Malaysia International Islamic Financial Center, cumulated Muslim wealth is close to $12tn globally, but more than $9tn still remain outside the global Islamic financial services industry. This is where the opportunity lies.
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