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Islamic Wealth Management — A Paradigm Shift in Islamic Finance By Muath Mubarak Islamic finance is growing fast across nations including nonMuslim countries, irrespective of the recent drawbacks in the global economy. Today, Islamic wealth management is attracting more attention from Islamic banks and Islamic financial institutions (IFI) while demanding and influencing the global financial market. It was initially thought that this is a very niche market but this growth can be fueled by harmonizing the accounting, auditing, Shariah and legal processes and procedures with a global perspective. Islamic wealth management is therefore a vast area in the context of Islamic principles. The focus of the wealth management agent is to capture the market segment of ultra high net worth individuals (UHNWI) and high net worth individuals/investors (HNWI) mainly from oil-rich countries and other wealthy countries. However, Islamic finance has a totally different view unlike the conventional treatment for it. Asset and wealth management is a vital tool for both conventional and Islamic financial institutions today. Most of the wealthy’s liquid cash are parked in Swiss banks as they have more than 100 years of private banking expertise. But the guidance for wealth management was laid down over 1400 years ago, and Islam strongly emphasizes that Islamic wealth management is not a subject to discuss only when the liquidity cycle is in peak. Rather, it is encouraging in all climates with its unique demarcations in terms of Shariah. Shariah does not have a narrow view of wealth management, contrary to what conventional bankers might think. It covers a rather wide area that includes inheritance, management of savings/investments, real estate planning and Zakat-related matters. Islam prohibits possession of wealth which is involved with interest, gambling, speculation, unethical and other prohibited activities. Islamic wealth management differs from the conventional equivalent. One of the main differences is ownership. The world view is if anyone owns a property or an asset of wealth, the item belongs to him. But Islam says that the almighty Allah is the real possessor and ultimate owner, and that wealth has been given to humankind only on trust. In other words, wealthy people are just custodians or trustees of wealth in this temporal world. Islamic banks play a vital role in creating, protecting and managing the wealth of the public sector as well as for individuals. The market demand is increasing significantly from Muslim and non-Muslim HNWI. In order to meet market demand, wealth management institutes and advisors must have a clear stand on Shariah rulings to offer unparalelled quality in customer service without compromising Islamic values and principles. The demand from non-Muslims shows there is thirst for different asset classes and developing interest in ethical products, while spreading the risk among different market segments to earn better returns. Unlike the current practice of providing yet another service that mimics the same features of the conventional equivalent, Islamic asset and wealth management should serve humankind in a broader perspective
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within the boundaries of Shariah. This is not an easy product to sell; rather it requires lots of expertise with in-depth Shariah knowledge. Without expertise on Islamic wealth management, it would not be welcomed by Muslims, especially those who are more cash-liquid and have more wealth in the GCC. The hard work of forefathers pays rich dividends to the current generation of UHNWI and HNWI. Wealth management requires valuable time, professional skills and expertise that many individuals and families do not possess. So, Islamic wealth management advisors should be competent enough and have the required skills to multiply this wealth. IFIs must develop a long-term and close relationship with UHNWI and HNWI in order to support them and facilitate the growth of their wealth, in order to pass it on to their offspring in a Shariah compliant and professional way, without conflict. Wealth creation can be executed through modern dynamic tools such as capitalizing on funds, trusts, shares and so on. These dynamic Islamic finance tools are mostly welcomed and it should not distract from the main core of Islamic wealth management — the creation and fair distribution of wealth among humankind. Apart from its professional advisory role, IFI’s role of wealth creation can be made available through profit and loss via trade models. Islamic finance facilitates not only the creation, possession and management of wealth, but also methods to purify that wealth by way of distribution. This can be purified by giving Zakat annually, which requires a separate discussion. The growth of Islamic finance proves its clear cut benefits to society unlike the burden and harm that can come from interest-based transactions. Furthermore, in today’s context Islamic finance is giving birth to new IFIs, along with various governments’ positive moves to nurture and attract Islamic finance to become an integral part of the world’s complex economic system. From a distance, there is a concern that Muslims and Muslim countries are not properly managing their wealth. This includes high profile family-owned businesses which are affected due to various reasons, this leads to the downfall of its associates. The main culprit is the lack of knowledge in the actual subject. This can perhaps be mitigated through learning and delving into the real Islamic wealth management arena. Finally, the growing number of asset and wealth management players shows how the field is developing a strong footing, and is poised to enjoy a vibrant future. However, great effort is yet to be made in setting up and providing professional services to this community with competent skills, excellent branding, advanced IT tools and technical expertise including Shariah. Muath Mubarak Coordinator, financial control & strategic planning Barwa Bank, Qatar Email: muath.2009@gmail.com Muath began his career at First Global Group, a corporate conglomerate based in Sri Lanka.
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23rd June 2010