Awaiting innovation in the Islamic retail asset management space

A report published by Thompson Reuters found that in 2014, 84% of total Islamic assets under management (AuM) were held in eight countries, with Saudi Arabia and Malaysia accounting for 69% of total AUM. Outside of Saudi Arabia and Malaysia, the industry continues to work within a largely unsupportive regulatory framework, suffering from a lack of government support and the absence of clear Shariah compliant investment avenues. Recent years have seen slight improvements in this area, with regulators and governments around the world realizing the potential of retail Islamic asset management and therefore becoming more flexible toward its requirements.

The demand for retail Islamic asset management continues to grow as the global Muslim population increase their persistence in seeking compliant and performing investment options. One such market which has identified this and is adjusting itself to appeal to retail Islamic investors is the Malaysian retail Sukuk market.

In Malaysia, Sukuk has long been disregarded by retail investors due to their complexity and difficulty of acquisition. That is all about to change, with the government currently working to minimize Sukuk sizes to improve liquidity, as well as reviewing issuance processes and disclosure requirements to expand the range of Sukuk bonds off ered to retail investors. This approach may well attract more issuers to the market.

Malaysia’s RM1.3 trillion (US$332.23 billion) bond and Sukuk market are the third-largest in Asia, relative to GDP. It is the largest Sukuk market in the world. Despite this, it continues to innovate and restructure its offerings to retail investors who remain unwavering in their search for secure, compliant and performing investment opportunities.

It is expected that many governments around the world will follow Malaysia’s example in order to attract retail Islamic investors to increase diversity in terms of Sukuk and security issuers, assets and investment structures and credit varieties.