Shariah Funds Gain Traction in Asia

Islamic Finance

Islamic Finance

Despite growing in recent years and heightened interest from managers and regulators in Southeast Asia, the Shariah fund space remains highly challenging.

Shariah-compliant funds and strategies have been the key growth drivers in Malaysia's asset management space, and will continue to drive the industry's growth going forward.

From a relatively small base, Shariah wholesale funds' assets under management (AUM) grew by 35 percent year-on-year to S$7.8 billion in 2015, largely driven by institutions and corporations. 

Limited Success

Malaysia has always worked hard at innovating in the Islamic banking space, a recent example being Maybank who has just written the first shariah-compliant construction financing in New York City, creating Islamic banking solutions for global clients.

However, according to a report from global analytics firm Cerulli Associates, for Southeast Asian managers, penetrating the Shariah distribution landscape requires significant amounts of patience and resources, and promoting Shariah-compliant funds as socially responsible funds has had limited success so far.

Growth Challenges

Globally, a lack of standardisation in Islamic investment principles and a limited understanding and awareness among investors and distributors have also hindered growth in the broader Shariah product space.

With global sukuk largely dominated by a few countries, there is also limited geographical diversification for global fixed-income strategies.

A bumpy road lies ahead despite conducive regulatory frameworks, there are major challenges to growth for the Shariah fund sector.

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