Executive Summary
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There is US$2.5 trillion or more in managed Muslim wealth worldwide, almost none managed according to the simple rules of shariah. Like everyone else, Muslim savers want professional investment management, but with shariah-compliant investments.
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About US$30 billion total assets are managed in fewer than 100 shariah-compliant funds that meet professional standards and are primarily composed of money market and equity funds. This is a less than optimal universe but sufficient for Islamic wealth and asset management.
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The overall goal is to produce a business model that follows the prudent-man rules of full liquidity from a transparent asset base through defined risk and reward profiles across income, balanced, and growth strategies that are feasible using the existing universe of Islamic funds.
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Modern portfolio theory can be applied to Islamic investing to achieve the same levels of sophistication and returns as conventional allocations. There is no need to introduce exotic or illiquid securities to achieve the standard investment objectives shariah-compliant investors.
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Banks and asset managers everywhere can offer shariah-compliant investment management now. The total potential size of the Islamic wealth management market is at least US$1 trillion, and growing.
Introduction
It is still puzzling to understand why something as straightforward as Islamic wealth and asset management has eluded the professional classes to date. At the time of writing, only one single major global money center bank, and paltry few independent asset managers, had constructed credible service offerings for Muslim clients who wish to enjoy shariah-compliant investing along with professional investment management.1
This seems counterintuitive in a time when all banks are seeking to bolster their off-balance-sheet revenue with business lines that involve small capital inputs and manageable regulatory environments. It also does not match what is obviously an important new area of business development in the asset management industry, matching new supply with an apparently large demand.
Shariah-Compliant Toothpaste
Recently reported in the New York Times2 was an illustration of the lengths to which marketing specialists will go to reach the market of Muslims conscious of their spiritual identity. Colgate Palmolive and Unilever, for example, have launched new lines of shampoo and toothpaste that have been approved as halal and acceptable to Muslims (in these cases shampoo without pork fat derivatives and toothpaste without alcohol). Nokia has lines of mobile phones that specifically cater to the interests of Muslims. There are many other examples. One marketing specialist has remarked that ignoring this vast potential market is akin to ignoring the potential of China in the early 1990s. Another said that focusing on the individual needs of Muslims is the next big thing in marketing.
Anyone who spends any time in a predominantly Muslim country can witness the proximity of spirituality to daily life among the majority of adherents of the faith. Whether in Almaty or Riyadh, Kuala Lumpur or Karachi, there are hundreds of millions of Muslims who profess a faith that fills all aspects of their personal lives. And they have a very high savings rate.
Not wanting to sound crass, it is therefore very puzzling that global consumer product companies try to achieve market penetration with halal toothpaste, but that global—and even most regional—banks don’t offer shariah-compliant investing. There is a gap, a very big divide, between the consumer products now offered to Muslims and what they evidently desire for allocation of their long-term savings. Islam matters to hundreds of millions of people, and it is not a trivial matter to them, whether in consuming food or in making investment decisions.
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