Before I commence the explanation on Islamic asset management, I would like to mention that the new concept of connecting the UN SDGs with Islamic teachings in Muslim countries did raise a few eyebrows. A reader wants to know why it should still be called Sukuk if the nature is donation and not investment.
To refresh, I suggested connecting each SDG with noble Islamic commands. For illustrative purposes, the first SDG ‘No Poverty’ can be linked to Zakat (obligatory charity) and Sadaqah (voluntary charity). An SDG social Sukuk may be issued by the government, which is bought by individuals and entities (donors) in fulfilling their religious or corporate social responsibilities.
The question is why should it be classified as Sukuk, which is a listed instrument, purchased by investors to make money? Let me draw your attention to the literal meaning of Sukuk. But first there is a need to break down the word Sukuk itself. It is the plural of ‘Suk’ or one certificate, so Sukuk means certificates.
Now, the certificates could be of any nature or background, hence specifically connecting Sukuk with the concept of Islamic investment bonds may not be correct. Therefore, it is quite possible that a social SDG Sukuk issued by the government (or any authorized charity organization) may be distributed (I am not deliberately using the term ‘sold’) to individuals or organizations against donations.
To explain the point further, in the UAE, various approved charity organizations have been authorized to collect donations against the issuance of preprinted receipts for various denominations and categories. For example, in the ‘feed the hungry’ category, an organization has coupons starting from AED10 (US$2.72) for a one-time meal for one person to AED300 (US$81.66) for the entire month.
Similarly, a social SDG Sukuk on ‘No Poverty’ may have slabs available online for a wide array of donors, starting from a range of lower slabs for individuals and going all the way up for entities, business groups and high-net-worth individuals.
It is possible to have it as close-ended Sukuk where a certain amount is sought for a particular social project. In this connection, the attainment of the SDGs for clean water and sanitation and life below water and land could be captured through social Sukuk.
Alternatively, the Sukuk could also be open-ended, given its ongoing nature, such as ‘Zero Hunger’ or ‘Good Health and Well Being’ since these are ongoing missions and cannot be capped to a certain amount.
I personally believe the tie-up of the UN SDGs with Islamic teachings in OIC member countries shall brighten the chances of realizing substantial success before the deadline of 2030 which otherwise seems likely to be pushed by a decade or so by the UN.
I hope the point of social Sukuk based on donations and connected to the UN SDGs is now clear to readers.
Islamic asset management
You see, describing the Islamic economy (which includes Islamic finance and investment) simply as “interest-free” and “spiritually-based” does not provide a true picture of this system as a whole.
While prohibiting the receipt and payment of interest is the nucleus of the system, it is equally supported by the other core ethical values viz. protecting defined rights and fulfilling obligations, ownership rights in property and goods, equal economic opportunities to all and sundry, profit- and loss-sharing and partaking of risk, maintaining the sanctity of contracts, obligatory charity (Zakat) for the poor of society and encouragement for paying voluntary charity.
Similarly, the Islamic financial system is not limited to banking but also covers financial institutions dealing with insurance, capital market, asset management, wealth management and Waqf (trust).
In addition and discussed earlier, the moral and ethical aspects in the regulatory framework also play an important role toward the completion of the Islamic economy and finance picture.
Islamic asset management refers to the handling of Shariah compliant securities (equities, Sukuk, real estate, commodities) by professionals to get the best possible return for investors under market circumstances.
So, what are the benefits to Islamic investors by working with an Islamic asset manager? Well, the expectations from an Islamic asset manager are that he would act ethically, fairly, truthfully and responsibly to generate competitive investment returns through professional risk management techniques while promoting real economic growth at the same time.
Islamic investors benefit from economies of scale through lower investment costs by working with professional asset managers when compared with investors doing it on their own.
The purpose of this educative series and the article is not to hurt any religious or commercial sentiments either consciously or even unwittingly.
Next week: Islamic asset management — Part 2