Although operating on a lower risk profile due to restrictions on hedge funds, short-selling and high yield products, Islamic banks still faced challenges last year in manufacturing, distribution and IT governance. However, recent developments have helped boost optimism that the Islamic finance boom in the last decade was not a one-off.
Although the Islamic finance industry amounted to $1tr globally in 2010, it has too often been measured in relation to volumes of Islamic bonds outstanding, the number of standalone banks worldwide, or the size of the Islamic funds industry. Indeed, one of the many fallouts of the global financial crisis is that investors have grown more cautious when analyzing the performance of this fast-growing industry.
Like the aviation sector, Islamic finance has always been complex and costly. Islamic financial solutions have to abide to the guidelines of Sharia law and must be monitored for life by auditors and the boards of Sharia scholars.
SEI launches four funds
In May 2007, US-based SEI Investments used its expertise from conventional funds in order to launch four in-house Islamic funds: SEI Islamic US Equity, SEI Islamic Pacific Basin Equity, SEI Islamic European Equity, and SEI Islamic Emerging Markets Equity Funds.
With $165bn in assets under management, SEI is the largest multi-fund manager in the world. SEI also runs an administration business for mutual funds, hedge funds and SPVs, overseeing around $400bn.
In order to upgrade distribution for SEI’s four Islamic funds, SEI partnered up with Italian-Spanish Allfunds Bank to offer a greater choice of investment solutions for Sharia investors in the Gulf.
“The agreement brings together SEI’s Sharia asset management capabilities and Allfunds’ platform and intermediary services to give banks, wealth managers, and insurance providers the opportunity to access world-class Sharia-compliant funds and deliver more efficient and diversified investment choices to their clients,” says Jihangar Aka, Senior Executive at SEI in the DIFC.
These clients are institutional investors such as sovereign wealth funds, family offices or pension funds. “We are pleased to offer the SEI Islamic Investment Funds through the Allfunds platform to enable wealth management providers to present a broader range of investment choices to their Shariah clients”, says Aka.
New forms of cooperation have also come up in the Islamic insurance or Takaful segment. Since November 2007, Noor Takfaul products from Dubai’s Noor Islamic Group’s insurance division are available at Islamic bank Ajmanbank.
“Noor’s Islamic insurance business achieved 100% growth rates in 2010”, says Noor Takaful Managing Director Dr. Ahmed Al Janahi. With its platform Noortakaful.com, the first online takaful channel for the retail segment, the group served Muslim and non-Muslim investors alike.
NIB denies merger rumours
Noor Islamic Bank’s Group CEO Hussain Al-Qemzi, however, denied rumors which came up last autumn that there were plans to merge with rival Dubai Bank. Al-Qemzi also told AMEinfo.com that plans to expand to Asia and Europe were put on hold as consolidation is key to prepare for Islamic 2.0, when customers become more critical, cost aware and demanding.
Technical advancement is not only important for B2C-channels but also for internal processes. Path Solutions from Lebanon, one of the leading banking software providers focusing on the Islamic banking segment, recently announced it had won four new projects in West Africa: Banque Islamique du Senegal, Banque Islamique de Mauritanie, Banque Islamique de Guinee and Banque Islamique du Niger pour le Commerce et l’Investissement.
Many Islamic banks started to build their core banking software on their own at first, until they realized that this is a time-consuming and somewhat inefficient alternative. Core banking solution providers do not only have the ability to implement but can connect different banks with cloud computing in a community sense, without sharing the participants’ confidential data.
Defending Islamic banks against hacker attacks and IT fraud will be on the agenda of the ISACA Asia-Pacific Computer Audit, Control and Security (CACS) Conference which will be held on in Dubai on February 21st/22nd. ISACA is a global association of 95,000 IT audit, security and governance professionals in 160 countries.
In the long run, it seems clear that Islamic Finance 2.0 will not focus on excessive growth rates without a security hedge, nor will the industry expand into all directions to fill regional gaps just for the sake of it. But it will provide banks and clients with sophisticated solutions through joint ventures in the industry, state-of-the-art technology and careful expansion into untapped markets.