During his career, Shams has witnessed growing demand for Shariah-compliant products in the Middle East.
The region constitutes the bulk of capital under management for Shariah-compliant funds, he said. “Saudi Arabia in particular, but other growth areas are in southeast Asia, Malaysia and Indonesia, specifically.”
When Shams first started out in asset management, around 16 years ago, few of the funds listed in Saudi Arabia were Shariah compliant.
“Today, the opposite is true.”
Market share
Going to market with a Shariah-compliant product means that asset managers can capture a wider market share, including both Islamic investors and conventional investors, Shams told International Adviser.
“Agnostic investors, who have no particular investment philosophy, and those who base their investments on philosophies such as environmental, social and governance (ESG) factors generally, have no problems investing in Shariah compliant products.
“The opposite would not be true. Someone who bases their investments on ESG or Shariah compliance would not consider investing in a product that does not meet those strict requirements.”
Agnostics believe that nothing is known or can be known about the existence or nature of God and therefore do not base their investment or other decisions on religous requirements or doctrine.
Shariah requirements
Shariah compliance and ESG have many similarities, he explained. “Shariah is another form of ethical investment, with a few additional quantitative screens added on top. It starts on a qualitative basis by eliminating alcohol, tobacco, pork and pork-related products, certain financial services, gambling, adult entertainment, and some music, and cinema, and the defence industry.
“In that sense, the process is quite similar to ESG standards. But on top of that there are certain quantitative screens as well, all of which are based on Islamic economic philosophy, which are against the hoarding of assets, the payment or receipt of interest and such.
“Islamic finance encourages people to create wealth, there is no prohibition against that, provided it is done ethically, for the benefit of society and as long as investors pay the Zakat (religious tax).”
Islamic question
Despite anti-Muslim sentiments and the recent travel ban imposed by US president Donald Trump on predominately Muslim countries, Shams believes that “qualified investors, with capital and experience, are educated enough not to get caught up in latter day headlines, stereotypes, and stigma.”
The real challenge for Islamic products is performance, as Shariah compliant products have higher total expenses, he said.
Additional requirements include, “the retention of a Shariah board, subscription to an Islamic benchmark as is the case with equity mutual funds, and possible use of a Shariah stock screening service”.
“These services add to product cost, meaning investment performance must meet or beat these costs, which is less of an issue with conventional products.”
