Abdulkader Thomas, after introducing the panelists, invited Roslan Abdul Razak to share updates on the growth of Islamic funds in Malaysia. Roslan noted that the Islamic funds in Malaysia started in 1990 and have grown to more than 100 Shariah-based funds ranging from equity, Sukuk, balanced and structured funds. Three factors, namely increased confidence, higher education and greater wealth among consumers, have propelled a huge demand for Shariah compliant funds, he said.

Mohd Ridzal Sheriff added that the demand for Islamic funds used to be driven by theological reasons but today, it is performance driven. Taher Badshah then disclosed how the Islamic fund industry emerged in India. “India has a strong economic growth (8% annual GDP growth), with almost 10% of the world’s Muslim population residing there. However, there are no Islamic banks yet in India. We therefore selected Islamic equity investment as a starting point because we have an active stock exchange with a large Shariah compliant corporation listed on the exchange.”

Dr Mohamad Akram Laldin then gave examples of benchmarks used as a measure of Shariah compliance — the Securities Commission, the Dow Jones Islamic Index and the FTSE Islamic Index.

Roslan, in responding to Abdulkader’s question, listed three main challenges that a fund management company faces when coming up with a product structure:

1. Customer education — Customers aim for high returns with low risk. They must understand that in order to enjoy high returns, they must be prepared to assume high risk as well.
2. Human capital requirement — First, the structuring and marketing team must have a basic knowledge of Shariah to come up with a good Shariah fund and be able to market it effectively. Second, the Shariah advisers must be engaged from the beginning of the structuring process, not merely at the end for approval. If not, the structure may prove to be non-compliant at the end and this would be time consuming and costly.
3. Risk mitigation — These tools must be developed to help a more efficient portfolio management.

Taher then explained how they overcame the challenges in establishing the Islamic fund in India. “We started with a simple basic principle (pure equity investment) and structured our product in Mauritius to enjoy the double tax arrangement that we had between India and Mauritius. We then marketed it to GCC investors because the investment appetite of Muslims in India was still low. We also appointed an independent Shariah board, whose members come from various countries including Bahrain, the US and other Middle East countries and a UK-based legal council (King & Spalding) that had experience in Islamic finance transactions,” he said.

Swee King from JP Morgan sought the panel’s view regarding the best practice to ensure basic Shariah education for industry players. Dr Akram suggested a structured education program as the best way for a practitioner to gain the basic Shariah knowledge required. “Conference and workshops help give some basic knowledge. However, this by itself would be insufficient. The best way, in my opinion, is to enrol in a structured education program to equip yourself with the minimum knowledge of Shariah,” he recommended.

Abdulkader then shared information regarding three certificates that are currently available — International Center for Education in Islamic Finance and Islamic Finance Qualification (Securities Institute based in London), which offer “study at your pace” certification, and Certified Islamic Finance Accounting and Certified Shariah Scholar programs from the Accounting and Auditing Organization for Islamic Financial Institutions.

Ridzal then said that Deutsche’s approach in this matter was to conduct in-house training for its staff. “We are of the opinion that being in a big market like Malaysia, staff members must have a general knowledge about Islamic finance. For example, as a CEO, I must be able to talk about it. I cannot refer my clients to my assistant all the time. Thus in-house training was the best alternative. This provided all staff with a general knowledge. Then of course we would have specialists to refer to for further details,” he said, wrapping up the session.