Dubai can be global hub of Islamic asset management
Greater innovation, diversification in sector to be key factors
Dubai's Islamic finance sector is well-positioned to seize a better opportunity with the size of the global Islamic asset management poised to grow from $60 billion to $185 billion, a report released by European Islamic Investment Bank said.
The report by the London-listed asset management and financing group EIIB-Rasmala said Dubai can become the global hub for Islamic asset management if it is able to drive greater innovation and diversification in the sector.
The report, entitled "Dubai: Global Hub for Islamic Finance", highlights how despite its huge international potential and appeal, the Islamic asset management sector remains greatly underdeveloped.
"The industry has failed to take root among its core demographic. Its total assets under management represent a tiny fraction of global funds and its investor product offering is narrow and parochial, lacking choice, diversification and quality. Investors in the GCC increasingly demand more sophisticated Shariah-compliant savings, pensions, insurance and mutual fund products. They wish to diversify into a range of alternative and fixed income products - such as sukuk, leasing, trade finance, securitisation and other asset-backed instruments - as well diversify geographically," said the report.
The study argued that the Islamic pension fund industry has a long way to catch up globally. There is now a critical need for the creation of a GCC-wide pension fund framework. Globally, pension funds have assets in excess of $27 trillion with Islamic pension funds making up just 0.001 per cent of this figure, despite Muslims representing almost a quarter of the world's population.
"By diverting 20 per cent of investments in existing regional pension funds into Shariah-compliant funds, $36 billion would be added to the global Islamic asset management industry, spurring rapid innovation and enabling Dubai to capture the market and transform its Islamic finance industry," said the report.
The study recommends a series of measures to accelerate the growth of the industry in Dubai, including an initial public consultation between fund managers and authorities to identify ways of incentivising the creation of multi-asset class, multi-geography funds. It also calls for the UAE's state-owned savings institutes and sovereign funds to establish working groups and transform the way they interact with and appoint private sector asset managers.
Islamic finance is widely recognised as an attractive growth sector for the international financial industry. Islamic funds under management are forecast to grow from $60 billion currently to at least $77 billion by 2019, while research suggests that latent demand could reach $185 billion in the same period.
The findings were discussed in detail at the Rasmala Breakfast Briefing, an event organised in collaboration with the Dubai International Financial Centre, Dubai Islamic Economy Development Centre and Thomson Reuters. The event marks the start of a joint initiative between EIIB-Rasmala and Thomson Reuters to research the transformation of Shariah-compliant asset management in the UAE, which will report its findings in early 2016.
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