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Sunday, 19 October 2008

Islamic Fund and Wealth Management - the Malaysian experience

Islamic wealth and fund management is the professional management of Shariah-compliant securities and assets based on Islamic principles to achieve set financial goals.

The scope of activity involves financial analysis, asset and securities selection, investment planning and ongoing monitoring of investment funds. Both individuals and institutions may become Islamic wealth and fund managers through the provision of related services.

The Islamic wealth and fund management first emerged in the 1960s when Muslim investors sought an alternative to the conventional western form of investment, particularly due to interest-dealings in conventional banks (which is prohibited in Islam).

Today, the global Islamic wealth and fund management sector is on the rise, underpinned by strong demand from Muslim and non-muslim investors. The rising affluence of Muslim communities, who wish to invest surplus funds in a Shariah compliant manner has been a pivotal factor in the growth of the industry. The non-Muslim investors invest in the Shariah compliant funds for investment diversification.

Globally, the Islamic wealth and fund management industry is estimated to grow to USD1 trillion assets under management based on an aggressive growth rate of 15% annually.1 This is equivalent to 6% of total assets managed in a Shariah compliant manner.

Malaysia has achieved some notable milestones in the Islamic fund management industry, beginning with the establishment of two Islamic unit trust funds in 1993. Malaysia also paved the way for several industry “firsts” for the Islamic fund management industry. Notably in 2005, Malaysia launched the first Islamic Real Estate Trusts (REITs) in the world. Equally significant was the introduction of Asia’s first Islamic Exchange Traded Fund (ETF).

These achievements were further supported with a mutual recognition agreement between the Securities Commission Malaysia (SC) and the Dubai Financial Services Authority (DFSA) for the cross-border marketing and distribution of Islamic funds between the two Islamic financial markets.

As of end 2007, the number of Islamic unit trusts in Malaysia has grown to 134 funds with a net asset value of RM16.9 billion (USD 4.8 billion).2 The double digit compounded industry growth rate of 39.6% 3 annually has been equally compelling, evidencing the robust demand in the domestic sector.

The dynamic progress of Malaysia’s Islamic wealth and fund management industry is supported by Malaysia’s more than 30 years experience in Islamic finance and Malaysia’s overall comprehensiveness of the well established Islamic finance industry in Malaysia. This consists of continuous product innovation, a large and diverse pool of Islamic finance talent, a diversity of local and international financial institutions from across the world, a broad range of Islamic financial instruments, a comprehensive financial infrastructure and supportive regulatory, legal and Shariah frameworks. Malaysia offers many attractive value propositions for foreign fund managers to establish their Islamic fund management operation in Malaysia.

The domestic fund managers may also established the Islamic fund management company and will also be accorded various tax incentives and privileges that lead to reduction in the cost of doing business and expedient market entry. For more information on the establishment and application procedure for Islamic fund management company, please contact Securities Commission.

1Koziol G, Eurekahedge, Hedge Fund Monthly 'Islamic Fund Industry Overview' 2008
2Securities Commission, Malaysian Islamic Capital Market Quarterly Bulletin, January 2008


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Islamic Financial Planning & Wealth Management by Ahmad Sanusi Husain