Capacity Issues in Islamic Wealth Management

The Muslim demographic is one of the largest identifiable market segments in the word. And this is set to continue. The Pew Research Centre projects that the Muslim population – which is comparatively youthful – — will grow from its current size of 1.6 billion to 2.76 billion by 2050. Boston Consulting’s Global Wealth Report 2015 observes that private wealth in the Middle East and Africa — regions which are predominantly Muslim — is approximately US$9 trillion.

Yet despite such a large potential market, the Islamic asset management industry is estimated to be only slightly above around US$157 billion, of which only US$60 billion worth of funds have some meaningful size. The conclusion is that only a very small proportion of Muslim assets are being invested in an Islamic manner.

The million dollar question which has therefore beset the Islamic wealth management industry for the past decade is why more assets held in countries where Islamic finance is widely practised are not being invested into Islamic funds. There are two common responses. First, that Islamic funds do not offer any real diversification from
conventional funds in terms of investment strategies. Second, that Islamic funds perform poorly compared to their conventional counterparts. Added to this is a problem of the lack of regional diversification.

This is an abstract of a chapter on “Islamic Wealth Management and Investment Strategies of Funds” written by Haliza Abd Rahim of Arabesque Asset Management Limited. The full chapter can be accessed in the Islamic Wealth Management Report 2016. Please contact to purchase the report.

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