Faizal Bhana, Director for the Middle East and Africa at Jersey Financeby Nabilah Annuar
Shari’ah-compliant wealth management is experiencing a period of growth with high penetration levels in the GCC.
Given our longstanding presence in the market and discussions with partners and Jersey firms, alongside our research in the market, it has been highlighted that there is a shortage in supply of Islamic finance wealth management solutions and products, albeit the exact size remains unknown.
What is clear, is that the demand for Islamic finance wealth management in the UAE, while still in its infancy, has enormous potential for rapid expansion from wealthy individuals and families in the predominantly Muslim countries within the Middle East, Asia, Africa and indeed worldwide.
Our recent report The Evolution of Wealth Management in the World of Islamic Finance—Views from the Islamic Finance Wealth Management Community, commissioned by Jersey Finance and Hubbis, revealed that almost 59 per cent of people aged between 50 and 70 currently use Islamic wealth management products and solutions.
Nonetheless, 60 per cent of the increase in demand in the next five years will come from those aged between 25 and 50. These younger and largely Western-educated generation have more of a natural disposition for Islamic wealth management, as it tends to represent a more socially-conscious model.
These individuals are expected to account for more than 55 per cent of this increase, compared to 33 per cent from family offices and 12 per cent from institutions.
This is set to positively affect the already existing imbalance between supply and demand, presenting an excellent opportunity for reputable and experienced international financial centres (IFCs) to work with such individuals and offer their expertise.
The research shows that there is an increasing appetite for Shari’ah compliant wealth management solutions amongst wealthy and ultra-wealthy Muslims, especially in younger generations.
However, most industry experts would agree that Shari'ah compliant financial products and Islamic finance solutions of any type are not simple to devise. Once such products and solutions are created, they are often subject to different interpretations amongst scholars, industry protagonists and clients about their religious compliance.
While there might one day be an industry standardisation, the likelihood of this happening in the foreseeable future remains slim. Other important challenges that must be addressed include the shortage of expertise available in the region, complex legal and Shari'ah interpretation issues, documentation concerns and the lack of scale—production costs of investment solutions have become significantly higher.
In addition, returns on Islamic wealth management solutions are generally lower than conventional offerings, due to, amongst other factors, costs associated with documenting complex Shari'ah compliant structures. However, industry players and regulators recognise many of these challenges and are working to improve diversity, costs and returns.
The first step in meeting this growing demand is to attract and nurture the right expertise in Islamic finance wealth management. The offerings that IFCs provide are vital in supporting this demand. The opportunity ahead for IFCs is enormous, especially considering the region’s requirements for generational wealth planning.
IFCs with special purpose vehicles (SPVs) who have firsthand experience with Shari'ah-compliant Islamic capital market transactions will have an advantage in terms of bridging the gap in supply.
Furthermore, product knowledge coupled with international expertise in Islamic finance wealth management solutions, alongside a healthy regulatory environment, equips IFCs with the necessary tools to answer the region’s high demand.
Perhaps most importantly, a deep understanding of the local market requirements is necessary to ensure the smooth implementation of international Islamic finance wealth management solutions.
Jersey Finance has long recognised this and its physical presence in the region allows for a better understanding of local market nuances such as the key themes driving client trends.