Islamic Wealth Management: A Catalyst for Global Change and Innovation

Transcription

1 Islamic Wealth Management: A Catalyst for Global Change and Innovation

2 Foreword " Editor's notes and acknowledgements About the editor About the contributors xv xvii xxi xxii Part 1 - Introduction to Islamic wealth management 1 Untapped potential and expanding to new investment frontiers 3 Sohail Jaffer Introduction 3 Structuring equity funds for Islamic investors 4 Exploring investment opportunities beyond equities 6 The potential of Islamic REITs 7 Alternative investments for Islamic high net worth individuals 8 The potential of Islamic hedge funds 9 2 Islamic capital markets in the first decade: developments and issues for the future 12 Michael J.T. McMillen Introduction and background 12 Dow Jones fatwa and sequelae 14 Sukuk and the capital markets 20 The secondary markets enigma 31 Conclusion 35 3 Globalisation and its impact on Islamic finance: a focus on the changing landscape for Islamic finance 55 Hari Bhambra Introduction 55 Principles of Islamic finance 55 Islamic finance in practice 56 Islamic wealth management 57 Islamic finance in the global markets 57 Needs of the industry 59

3 Regulators in Islamic finance 60 Regulatory objectives for Islamic finance 61 Islamic finance and religious alignment and prohibition in the global market 61 Islamic finance in Islamic secular markets 62 Other market opportunities 64 The future of Islamic finance: non-denominational products 64 Conclusion 65 The global potential of Islamic financial services: towards a truly global market 67 Nesrine Jaffer Introduction 68 Progress towards a global Islamic capital market 71 Constraints to accelerated globalisation in Islamic capital markets 72 Islamic retail banking: undeveloped potential 74 The UK: the exception to the rule in Europe 76 The need for critical mass in Islamic banking in Muslim-majority countries 78 The proliferation in Islamic financial centres 80 Islamic finance hubs in Asia 81 Conclusion: towards a truly global marketplace for Islamic financial services 83 Emerging economies - offering the possibility for innovative product development 85 Majid Dawood Introduction 85 Emerging markets 85 Demand driven 86 Wealth management 87 Emerging financial centres and Islamic finance 88 Innovation and trends 89 Conclusion 91 Contemporary developments and growing options in Islamic wealth management within North America and beyond 92 Shahzad Siddiqui and Siddiq Mohamed A compromised state? 92 Incrementalism in Islamic finance 93 Regulatory roadblocks 98 Challenges and opportunities 99 Conclusion 100 VI

4 Islamic finance, a global alternative and socially responsible investment 102 Aly Khorshid Principles of Islamic finance 102 Islamic instruments for primary markets 106 Can Islamic investment and banking appeal to non-muslims? Conclusion 1 13 Islamic finance in Lebanon: a viable Near Eastern platform 1 14 Ghassan Chammds Introduction 1 14 Lebanon, an emerging Islamic financial hub and market place 114 Lebanon landmarks: securitisation and fiduciary laws Islamic funds: Lebanon as an investment platform 123 Conclusion ' 125 Part 2 - Wealth management: the buyside 9 Beyond the transaction: pairing Islamic wealth and asset management 129 Douglas Clark Johnson Missing requisites: segmentation and ideas 129 Expanding beyond borders 130 But how to design and manage a portfolio? 131 Strategy requires implementation 133 Paving the way 136. Call for action Real wealth - an Islamic perspective 140 Omar Clark Fisher Introduction 140 Islamic perspective of wealth 141 Modern dilemma 142 Concepts to create halal wealth 143 Methods to build real wealth 145 Avoidance of r/ba-based investments and guidance to live debt-free 146 Tips on gaining wealth through savings and investments Marketing and distribution of Islamic products within a wealth management platform 149 Naveed Imtiaz Ahmad The growth of Islamic finance 149 vn

5 Retail banking and wealth management 149 The challenges of distribution 151 The future 153 Effective wealth management - some issues to consider 155 Clive Mackinstosh and Mark P. Hurst Part 3 - Wealth management: asset management - emerging trends and opportunities 13 Key trends in Islamic funds 161 Bernardo Vizcaino Introduction ' 161 Industry size and composition 161 Industry growth and new launches 162 Fund location and geographical mandates 163 Asset allocation 165 Due diligence components 166 The asset class mix 167 Structural evolution 168 Fund performance 169 Market behaviour 171 Correlation analysis 173 Conclusion Shariah compliant mutual funds 175- Sonia Borg Introduction 175 The Islamic financial services industry 175 Structured products 181 ETFs 182 Multimanager funds and hedge funds 1 82 Role of regional financial centres 1 82 Future growth 1 82 Challenges 183 Conclusion Analysis of the benefits of Shariah screening tools 1 86 Andrew Pell Introduction 186 History 186 The Shariah consultants 192 viu

6 Drawbacks of Shariah screening tools in relation to historical research 193 The study of Shariah screening tools 193 Conclusion Shariah compliant funds in Luxembourg 206 Wim Piot and Mukta Attri Luxembourg fund centre for Islamic funds 206 Regulation regarding funds and other vehicles 207 Taxation of funds 209 Management of funds 209 Islamic equity fund 209 Sukuk ' 210 Sukuk fund 212 Specific Islamic product fund 213 Conclusion Building an Islamic portfolio: perspectives on asset allocation and manager selection 216 Eric Swats and Jawad Mian Introduction 216 Asset allocation 216 Efficient frontier: risk and return 217 Asset classes 21 8 Manager selection 219 Case study: the Rasmala experience 221 Challenges ' Case study: implementing Shariah compliant investing in a multi-manager environment - the Russell Jadwa funds 224 Alexandra Haggard, Brian Ingram and Shamindra S. Perera Introduction 224 Why multiple managers? 225 Multi-manager versus manager of managers versus fund of funds 225 Wealth managers and multi-manager funds 226 The importance of manager selection for Shariah mandates 227 Portfolio construction and manager changes in a multi-manager fund 228 Who is responsible for Shariah compliance? 229 How to ensure a single standard of compliance? 230 Which Shariah standards? 230 Adapting day to day policies to meet Shariah requirements 231 Russell Jadwa products so far 231 The future 231 IX

7 19 Socially responsible investing 233 Zaha Rina Zahari and Bala Shanmugam Introduction 233 Defining socially responsible investing 233 History of SRI 233 Categories of SRI participation 234 Value based SRI approaches 238 Trend of SRI 239 Contributing factors of SRI growth 239 Factors limiting growth of SRI 240 Adverse effects of SRI 241 SRI index monitor 241 Major providers of SRI investments ' 243 Case study: Islamic finance 244 Conclusion 245 Appendix Can Islamic asset management aim a little higher? Achieving maturity and the impact of socially responsible investment 250 Mark Stanley and Salmaan Jaffery Introduction 250 Demand - the future looks bright 250 Supply - the nascent Islamic fund universe 251 Widening the investor base - socially responsible investment 254 Conclusions 257 Part 4 - Wealth management: takaful 21 The application of takaful to Islamic wealth management 261 Peter Vayanos and Philipp Wackerbeck Introduction 261 Fundamentals of takaful 261 Background and development of takaful 263 The role of insurance in wealth management 265 Opportunities for takaful in Shariah compliant wealth management 267 Business models to deliver takaful products 267 Challenges to be addressed 268 Conclusion Bancatakaful 269 Ajmal Bhatty Introduction 269 The prospects 270

8 23 24 Key drivers The stakeholders Bancatakaful models Cost benefits The financial motivation Conclusions Takaful as a dedicated wealth management tool Azeem Iqbal Pirani and Farhan Noor Introduction " ~" Takaful (Islamic insurance) Takaful as a wealth management firm Takaful as a wealth preservation/protection tool Takaful as a wealth multiplication tool Takaful as a wealth transfer tool Takaful as a wealth purification tool Conclusion Takaful and re-takaful: using the UK as a platform to Europe Susan Dingwall and Ffion Flockhart The potential for takaful in Europe The regulation of takaful in Europe The regulation of re-takaful in Europe The importance of choosing a suitable home state regulator Conclusion Part 5 - Wealth management: alternative investment strategies 25 Islamic banks and sukuk: growing fast, but still fragmented 319 Anouar Hassoune Introduction 319 Sukuk are always structured products 322 Islamic banks perform specific financial intermediation 327 The future is full of challenges and constraints for the Islamic financial industry A promising future for the sukuk market 342 Moyn Uddin and Andre Portelli Introduction 342 ' Global sukuk market 342 Structuring sukuk 343 xi

9 Structures being used 345 Key differences 347 Musharaka, mudaraba, wakala sukuk? Or ijara sukuk? 348 Recent innovations in sukuk structures 349 What happens in the event of a default or bankruptcy? 350 Issuers looking to sukuk as a viable alternative 350 Access to European, Far East and US assets 350 Market status 351 Conclusion v The practitioners' working guide to sukuk 354 John H.C. Yip Background 354 Introduction 358 What exactly is a sukuk? 359 How to originate a sukuk issuance? 361 Sukuk origination and structuring issues 362 Conclusion Innovation and new opportunities: sukuk in the West 371 Tricia Boutros Introduction to sukuk: becoming familiar with Islamic finance in the West 371 Applicability and accessibility of Islamic finance to western enterprise 372 Practical considerations for western sukuk issuances: forum selection, taxation and regulation 374 Nature of the assets: specific requirements under Shariah 375 Recent examples and future considerations 376 Conclusion Real estate for the investor portfolio 380 Abdulkader Thomas Introduction 380 Real estate risk and opportunity 381 Direct real estate investment 381 Real estate funds 383 REITs and REOCs 384 Leveraging real estate investments 386 Frontiers of real estate investment 389 Screening 393 Purification of incidental impermissible income 396 Tax and nationalisation risks 396 Conclusions 396 xn

10 30 Shariah compliant private equity finance 399 Rodney Wilson The role of private equity finance in the Islamic world 399 The emergence of private equity finance in the MENA region 400 Screening criteria for private equity investment 402 Shariah compliant venture capital in Malaysia 403 Potential and limitations of diminishing musharakah 404 Principles of musharakah 405 An adaptive musharakah structure 406 Overcoming moral hazard 408 Musharakah as an equity or debt instrument? 408 Future prospects Islamic private equity: an examination of opportunities and issues for an evolving industry 413 Dilip N. Massand and Paul C. Homsy Introduction 413 Shariah requirements and private equity 414 Sample Shariah structures for private equity transactions 415 Investment opportunities for Islamic private equity 417 Issues concerning different share classes, rewards, protection 41 8 Conclusion 419 Part 6 - Regulatory, legal and risk management 32 Regulatory, supervisory and legal implications relating to Islamic wealth management 423 Simon Archer Introduction Investment accounts with Islamic banks Investment products offered by takaful undertakings Islamic mutual funds Islamic investment certificates [sukuk) Conclusion Corporate governance in Islamic finance Nasser Saidi Introduction Corporate governance Islamic banking Corporate governance framework of Islamic banks and financial institutions IFSB principles and AAOIFI governance standards Xlll

11 Internal and external Shariah compliance for IFIs 440 Corporate governance in takaful and re-takaful industry 441 Common corporate governance practices in banks and other institutions 447 Conclusions Risk management issues of Shariah compliant wealth management 453 Zamir Iqbal Introduction v 453 Risk exposures 454 Risk management strategy 457 Conclusion When finance converges with faith 463 Christopher O'Brien and Alka Banerjee Introduction 463 Where a growing offer is answering to latent demand 464 Creating Shariah compliant equity indices 465 Construction of Shariah compliant indices 466 Generally accepted principles of Shariah compliance 467 Returns from the Shariah indices 469 Commercial applications of Shariah equity indices 470 Comparison to the Dow Jones Islamic market indexes 472 Conclusion Taxation of investment funds 474 Mohammed Amin and Elizabeth Stone Tax treatment of UK funds 474 Offshore funds distributing into the UK 479 Tax implications of an offshore fund with a UK investment manager or UK director 482 xiv