Sovereign wealth funds are becoming increasingly significant, especially those of oil and gas exporting countries such as Kuwait, Qatar and Abu Dhabi, but at present they do not use Shariah screens to determine their investment allocation. Fund policy is very conservatively determined and it is unlikely that any of these funds will convert to being exclusively Shariah compliant in the coming years. However, some experimentation with the use of Shariah screens is possible to “test the waters”. The Kuwait Investment Authority has expressed an interest in Islamic finance, for example, and has included a component of this in its graduate training program for recruits. I would expect to see other funds follow similar policies, and it will be interesting to see how the new Saudi fund operates, although admittedly its initial capital is rather limited.
PROFESSOR RODNEY WILSON
Director of postgraduate studies, Durham University, School of Government and International Affairs, UK
The SWF will look for appropriate and diversified portfolio allocation with competitive return on investment. Though lucrative opportunities in the conventional sphere will be abundant and enticing, there should be agreement to have a reasonable spread of the investments within the Islamic world to sustain and boost economic growth further. As far as Islamic finance is concerned, this could be a portion for micro finance, investment of human resources (schooling and study) and joint participation at solid mega- and investment banks. PAUL WOUTERS Partner, Bener Law Office
The amount of money accumulating in the sovereign wealth funds of oil producing countries is growing significantly as a result of the increasing oil prices. At the moment, these funds appear to invest heavily in conventional financial instruments. However, given that the vast majority, if not all, of the population of these countries is Muslim, it would be logical that a significant amount of these funds is invested in Islamic financial assets. As a result, this will increase the amount available globally for Islamic investments which will help the industry grow. However, given the nature and purpose of sovereign wealth funds which are often related to social security, the funds will have to ensure that their investment policy is prudent. At this point in time, the amount of Islamic assets available for investment is still relatively limited, which will leave a lot of these funds untapped for the Islamic financial markets until such a time that more viable alternatives become available. DR NATALIE SCHOON Head of product management, Bank of London and The Middle East
In GCC, sovereign wealth funds have sponsored mega Islamic banks with capitals in billions of US dollars. ADIA, DIC, etc have helped set up Islamic banks. Khazanah has just invested in a large reTakaful company. Unfortunately, Islamic institutions cannot absorb big amounts of capital fast due to lack of scale today. KHALID MAHMOOD BHAIMIA Managing director, Hong Leong Islamic Bank, Malaysia
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