Islamic endowments to accelerate growth of Islamic finance
- United Arab Emirates: Sunday, December 19 - 2010 at 12:20
- PRESS RELEASE
Shari'a compliant philanthropy, or planned giving, is on the rise with the Waqf sector (Islamic endowment) estimated at around $105bn globally, according to various research conducted recently by Ernst & Young on the sector.
Cash and Real Estate
A significant majority of the Waqf assets are in the form of real estate, and could be as high as 70 to 80% of the total sector assets.
"The remaining money is deployed in Shari'a compliant money markets mostly with regional financial institutions. Between Awqaf institutions (organizations that manage Waqf assets) and other entities, the Cash Waqf alone is estimated at $35bn," explainss Ashar.
Opportunity for Islamic asset managers
Investment management of Waqf pool, now a substantial amount globally, has not traditionally been the strength of Waqf administration entities. The institutions command good donor loyalty and are also strong in disbursing to the relevant social causes. However, the historical returns on managing these investments have been dismal, with the Cash Waqf mostly earning bank savings return.
"The opportunity cost in terms of foregone wealth is staggering. The Cash Waqf sector would potentially generate an incremental $2-3bn annually, simply by aligning with professional investment managers. The need is most critical given the high fiduciary responsibility of the trustees to manage the wealth in the best possible manner," Nazim says.
Islamic asset managers challenged to innovate
Islamic funds industry is still evolving, having been able to tap only 11% of the estimated $480bn wealth pool at its disposal. Most of the products relate to vanilla equity markets and there is an urgent need to innovate and diversify to new asset classes. Islamic endowments, both real estate and cash pool, is likely to be the next breakthrough opportunity for the Islamic fund managers.
Go to market strategies are key
Tapping into the multi-billion dollar Waqf pool first requires ensuring a credible governance and operational infrastructure to safeguard the sanctity of the Waqf charter. In addition, understanding the donor segment and their unique touch points is critically important to raise endowment funds. For Islamic financial institutions their existing investor base, comprising of high net-worth individuals and family offices, makes for a good starting point.
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