Globally, the Islamic banking industry continues to experience robust growth with reports indicating a growth rate that is 50% faster than that of the overall banking sector. According to Ernst & Young’s World Islamic Banking Competitiveness Report 2013, the industry’s assets under management (AUM) are forecast to pass the US$1.8 trillion mark in 2013, up from US$1.3 trillion in 2011. Overall, Islamic assets have grown by an average of 19% per year over the past four years.
How did Islamic private banking and wealth management fare over this period? Despite the growth of Shariah compliant products over the past decades, Islamic private banking and wealth management remain the only sectors lagging behind. The offering of Islamic products by retail banks, such as checking accounts, mortgages, car financing, etc., has more than doubled in recent years whereas the offering of private banking products has only increased by 10-20%.
Muslim high net worth individuals are increasingly expecting their wealth to be managed in a Shariah compliant manner. Yet, in many cases, their existing private banks can only offer limited products or structures that comply. There is increasing demand for tailor-made Shariah compliant products such as succession planning, financing, discretionary and non-discretionary portfolio management, equities and structured products.
Furthermore, even when Shariah compliant products are available, the quantity offered is limited as investors tend to hold positions until maturity, thereby making it difficult for new investors to find them on the market.
Islamic wealth management, or the process of wealth acquisition, preservation and distribution, has a long way to go as private banks have been focused on product offering rather than taking a holistic view of the needs of their clients.
Conclusion
Islamic private banking needs to do more to cater to the needs of affluent Muslims. Given the current market conditions and the increasing demand for Islamic wealth management globally as well as in the traditional markets of the Middle East and Southeast Asia, it is time for the industry to further leverage its inherent strengths of being linked to real economic activities and play a key role in putting in place a holistic Islamic economic system.
Khadra Abdullahi is an associate, investment banking at Faisal Private Bank. She can be contacted at
[email protected]
.