Preface
Islamic finance has gained a firm foothold in the international financial landscape and is projected to move along a growth trajectory in the coming decades. But for Islamic finance to sustain its long-term growth, it is vital that it is able to offer a distinctive value proposition that encompasses all the needs of its customers for Shariah-compliant products. This will at the same time present an opportunity to attract socially responsible investors who seek opportunities to widen the scope of their ethical investments, given the similarities in terms of universal values.
In the same vein, the Islamic asset management industry can expect significant growth potential, especially with the need to intermediate excess savings particularly in the emerging countries in the Gulf and Asia. But various challenges remain to be addressed before this potential can be realized, not least of which is the need for industry to build credible investment track records and to expand the range of Shariah-compliant investment products. Immense benefits for both institutional and retail investors can be derived by industries devoting greater resources into more extensive research on product development.
While the structuring of Shariah-compliant products through the adaptation of their conventional equivalents has contributed much to the growth of Islamic finance, there is a pressing need to reach out to a larger customer base by expanding the industry’s offerings to encompass products that are inherently structured in accordance with the fundamental values and objectives of Shariah. In this regard, it is imperative that due consideration be given to the Maqasid Shariah or the Objective of Shariah, which Imam Al Ghazali described as the promotion of the wellbeing of all mankind. This is reflected in the five basic needs of human existence: faith (din), life (nafs), intellect (aql), procreation (nasb), and property (mal), which every society must strive to protect and preserve.
Thus the general legal principles in Islam reflect the requirement for the highest standards of moral conduct, the attainment of which will lead to improvements and the achievement of what is desired. For example, Shariah facilitates the lawful acquisition of property and defends rights of ownership. But these must be underlined by the pursuit of justice, fairness, and the alleviation of hardship as exemplified by the prohibition of riba, which is intended to ensure that all Islamic transactions promote real wealth creation and avoid unjustified gains and exploitation of someone who must borrow to meet their basic needs.
Shariah also prescribes equitable risk sharing, which facilitates the integration of risk management with value creation and promotes entrepreneurship. The subprime crisis demonstrated the fragility of a system that perpetuates inequitable risk sharing through reliance on debt-based structures that, in this case, effectively transferred the entire risks of the securitized bundled subprime mortgages to the investors.
In the aftermath of the global financial crisis there have been louder calls for an ethical dimension to be introduced to the financial services industry, but the fundamental requirements of Shariah mean that ethics and the protection of the public good are inherent elements of Islamic finance. Profits that are derived on the basis of ethical objectives will not only deliver economic benefits, but will comply with universal values and standards that assure long-term sustainability.
A challenge that continues to occupy regulators and industry alike is the Islamic asset management industry’s ability to attract international fund flows. Most Islamic funds are denominated in local currencies, while differing legal and regulatory requirements make cross-border distribution a challenge. But regulators have been hard at work both on a bilateral and multilateral level, working together with industry, to address these constraints to ensure a robust investor protection regime, strong compliance and governance systems, and forums for effective dispute resolution. One effective way of attracting international fund flows is to offer Shariah-compliant UCITS funds as explained in Chapter 10 of the book.
I congratulate Noripah for writing this highly pragmatic book. It offers invaluable hands-on knowledge of Islamic asset management and the fundamental principles of Shariah that underlie Islamic investing. She has argued most eloquently the need to shift from a free market to a fair market that is underscored by the fair distribution of wealth and promotion of built-in ethics in offering investment solutions. Interspersed by personal anecdotes derived from her years of international engagements, Noripah has injected a human touch that makes this book reader friendly.
TAN SRI ZARINAH ANWAR
Former Chairman,
Securities Commission Malaysia