Islamic finance
New investment platforms and technological advances are changing the work of investment professionals and transforming investment paradigms.
From faith-based investing to social activism, some wealth managers serve clients with a different kind of mission statement.
Since 1975, when the first Islamic commercial bank was established in Dubai, Islamic finance has come a long way. Its global assets are now estimated to be around US $1.5 trillion across the banking sector, capital markets, and takaful, or Islamic insurance. Given the available track record, how do informed observers characterize the development of this most prominent form of faith-based finance?
There is much potential for Islamic finance to promote sustainable economic development through such approaches as widening access to finance (including microfinance), financing infrastructure projects, and expanding the reach of takaful (Islamic insurance).
Volker Nienhaus sees Islamic law's restrictions on interest-bearing instruments and speculative practices as an opportunity to establish a competitive advantage.
Though the market is still dominated by conventional financial instruments, recent years have seen increasing interest in SRI and Islamic finance. More than 10% of the total assets under management in the United States are now invested following SRI practices, and this year British Prime Minister David Cameron announced that the United Kingdom will become the first non-Muslim country to issue an Islamic bond.
Yesterday British Prime Minister David Cameron unveiled plans to issue £200m in Islamic bonds, also known as sukuk. Although Britain will become the first non-Muslim country to offer sukuk, cash-strapped Western companies have increasingly turned to Islamic bonds to tap Middle Eastern investors. Richard T. de Belder explains how sukuk are structured.
Islamic finance and the forms of finance generally referred to as sustainable and responsible investing (SRI) are yet to actively collaborate with each other. One would think that to strengthen their position in a market dominated by conventional finance, Islamic finance and SRI would be sharing their successes and failures, coming together for joint ventures, and supporting each other on issues for which they have similar views. But such collaboration has not occurred. Building bridges between the two remains an opportunity that is waiting to be seized upon by the industry leaders from the two sides.
Shariah-compliant investment vehicles dominate the investment scene in Saudi Arabia, especially on the retail side. Shariah-compliant public equities have consistently outperformed the broader market in recent periods.
Ibrahim Warde, a noted author on Islamic finance, argues that Islamic finance has gained much more international acceptability but that it continues to grapple with the fundamental form-versus-substance debate.