The race to tap the wealth held by Muslim individuals, institutions and government worth $11.5 trillion is intensifying.

Expanding an industry that’s lured global money managers from BNP Paribas SA to Schroder Investment Management Ltd in the past year, the asset management units of Malaysia’s RHB Bank Bhd. and Indonesia’s PT Bank Mandiri are planning new Islamic funds.

Malaysia International Islamic Financial Centre estimated in February that about $9.5 trillion of Islamic wealth still remains outside the Shariah finance industry even as demand for investments that comply with the Koran’s tenets is rising.

“There will be positive growth as investors continue to look for steady and sustainable returns, but we do not anticipate a spike. Bearing in mind that Asia houses two-thirds of the Muslim population, Asian countries are most well-positioned to leverage from this demographic. Bearing in mind that Asia houses two-thirds of the Muslim population, Asian countries are most well-positioned to leverage from this demographic,” said Raj Mohamad, managing director at Singapore-based consultancy Five Pillars Pte.

Managing Director Eliza Ong of RHB Group Asset Management said that it will offer at least four Shariah-compliant vehicles in 2017 and will invest in private equity, property, sukuk and shares.

Mungki Ariwibowo Adil, head of product development and management at Jakarta-based PT Mandiri Manajemen Investasi said that after establishing its first U.S. dollar Shariah-compliant investment in August, it will set up as many as four Islamic funds within the next year. While Mandiri’s new funds will target investors in Indonesia, the most-populous Muslim nation, RHB said it’s ambitions extend beyond Malaysia.

Investments in companies involved in activities considered unethical such as gambling, prostitution, and alcohol or pork-related businesses or those with excessive debt are forbidden by Shariah law. Islam will remain the world’s fastest growing major religion over the next few decades, estimates Washington-based Pew Research Center.

According to Ong, RHB Group Asset may make some of them available in Brunei, Indonesia, Singapore and the Middle East in addition to offering the new Islamic funds in Malaysia. The group oversees 54 billion ringgit ($13.5 billion). She said that the aim is to increase the portion of Islamic assets from 8 percent now to a quarter of the company’s assets under management by 2020.

“The intention is to build the Shariah capabilities out of Malaysia, but the ambition that we have for the Islamic business is that of a global one. If we’re able to come up with innovative products in this space, from the traditional right up to alternative, there would be very interesting take-ups,” Ong said.

As the amount of sukuk issuance remains dwarfed by assets, Shariah-compliant money managers are seeking more Islamic investments. According to data compiled by Bloomberg, after reaching $35.6 billion for the whole of 2015, this year the worldwide sales of debt complying with the religion’s tenets climbed 18 percent to $27.2 billion. There was an increase of 56 percent in 2016 for the issuance of ringgit-denominated corporate Islamic bonds to reach 42.1 billion ringgit.

Official data shows that while Islamic banking assets in Indonesia reached 211.4 trillion rupiah ($16 billion) in May, in Malaysia it totaled 685.4 billion ringgit as of end-December.

(Adapted from Bloomberg.com)

Categories: Economy & Finance