This indicates the sizeable and growing pool of local consumers that will continue to provide
Overall individual deposits accounted for 68.77% of total deposits amounting to USD91.89 billion at end 2007. Islamic individual deposits make up for 83.8% of total Islamic deposits or approximately USD10 billion (10.9% of total individual deposits). (BNM)
Malaysia as a Hub for Islamic Wealth Management
THE INTERNATIONAL FINANCIAL PLANNING ADVISORS CONFERENCE 2008
Mohd Willieuddin Lim Director, Global Markets Sunway Pyramid Convention Center 22-24 February 2008
A comprehensive financial system that adheres to Islamic principles;
It was the financial system of the known world developed under the reign of the Muawiyad and the Abbasid Empires from the year 661 until the year 850;
It continued to be a vibrant and significant financial system of the known world spearheaded by great Islamic empires in Andalusia (Spain) until the year 1031, in Granada until the year 1492, in the Malaccan Sultanate (1511) and in the Ottoman (Turkey) until the year 1918;
It is a system which has existed for the last 1,426 years. We are only relearning what is available under the system in the last 40 years.
Broadly refers to financial market transactions, operations and services that comply with Islamic rules, principles and codes of practices. The laws and rules of the religion require certain types of activities, risks or rewards to be either prohibited or promoted.
The Islamic Financial Industry is…… Islamic Capital Market – A Tradition
The world Muslim population today is estimated at about 1.8 billion, representing a sizeable 28% of total world population of 6.6. billion.
Islamic banking and finance has become a force to be reckoned with in the global economic scenario. It often forms part of the equation in international finance, whether on a government to government basis or at the private sector levels.
The global Islamic banking sector is growing at an average of 15%-20% per annum.
Currently, there are 300 Islamic financial institutions operating in about 100 countries worldwide; with more than 300 Islamic equity funds managing assets in excess of USD5 billion.
Source: Bursa Malaysia/LFX Islamic Capital / Market Report
The Modern Islamic Financial Market Industry must be comprehensive with all critical components established Islamic Financial Market Wealth Management Banking Non-Financial Institutions Services Money Market Capital Market Debt and Equity Asset Management Takaful Structured Products and Derivatives
Global Development of the Islamic Capital Market in the Last 30 Years Area 1970s 1980s 1990s 2000s Evolution Institutions Products
Gulf / Middle East
Gulf / Middle East
Gulf / Middle East
Mutual funds/ unit
Islamic stock broking
Gulf / Middle East
Europe / Americas
Global Offshore Market
Commercial Islamic banks
Islamic investment companies
Asset management companies
Islamic investment banks
Commercial banking products
Mutual funds/ unit trust
Domestic Islamic bonds
Global Islamic bonds
Islamic asset backed securities
Shariah compliant stocks
Islamic stock broking
Private Equity & Islamic REITs
(Source: Report of the Islamic Capital Market Task Force of the International Organization of Securities Commission (“IOSCO”) and CIMB Islamic Analysis)
Geographical spread of countries that offer Islamic Banking and Takaful products and services
EUROPE LUXEMBOURG UK SWITZERLAND DENMARK ALBANIA GERMANY TURKEY RUSSIA AFRICA TUNISIA SENEGAL SUDAN EGYPT GHANA ALGERIA SOUTH AFRICA GAMBIA ASIA KUWAIT PHILIPPINES BRUNEI SINGAPORE MALAYSIA INDONESIA IRAN JORDAN QATAR PAKISTAN BANGLADESH SAUDI ARABIA UAE BAHRAIN INDIA THAILAND IRAQ NIGERIA AUSTRALIA US SRILANKA OMAN TAKAFUL ONLY ISLAMIC BANK ONLY ISLAMIC BANK & TAKAFUL LEBANON TRINIDAD & TOBAGO AMERICAS OCEANIA EUROPE LUXEMBOURG UK SWITZERLAND DENMARK ALBANIA GERMANY TURKEY RUSSIA AFRICA TUNISIA SENEGAL SUDAN EGYPT GHANA ALGERIA SOUTH AFRICA GAMBIA ASIA KUWAIT PHILIPPINES BRUNEI SINGAPORE MALAYSIA INDONESIA IRAN JORDAN QATAR PAKISTAN BANGLADESH SAUDI ARABIA UAE BAHRAIN INDIA THAILAND IRAQ NIGERIA AUSTRALIA US SRILANKA OMAN TAKAFUL ONLY ISLAMIC BANK ONLY ISLAMIC BANK & TAKAFUL LEBANON TRINIDAD & TOBAGO AMERICAS OCEANIA COMPREHEMSIVE ISLAMIC FINANCIAL MARKET - MONEY MARKET, DEBT & EQUITY CAPITAL MARKET, FUNDS, ETC
What is Islamic Wealth Management ? – The WM Cycle Source: CIMB PB
Islamic Wealth Management is concerned with providing end-to-end solutions using products and services throughout the wealth management cycle in compliance with Shariah. It’s a Shariah-based service.
Wealth Creation Wealth Enhancement Wealth Protection Wealth Distribution From business, savings in bank, investment in first property, etc. Enhancing total returns from capital gains and income, including via use of leverage Capital preservations, risk management, insurance, trusts Passing on assets through wills and trusts
What does it take to have a good Islamic Wealth Management Hub
To become the focal point for Islamic Wealth Management an Islamic Finance centre would
Have developed to a level where demand for management of assets in accordance to the rules of Shariah has grown beyond fulfilling basic safekeeping to generating productive returns
Have a track record of market leadership and product innovation
Have a supportive regulatory and legal framework
How does Malaysia measure up against these criteria?
Industry players of reasonable size and economies of scale undertaking multitude of Islamic financial activities.
Availability of products for multiple customer segments.
Development Financial Institutions
Fund Management companies
Widest Product Range
In terms of products and services, there are more than 100 Islamic financial products and services ranging from deposit, financing, treasury/money market investment, trade financing, card services and banking services offered by the financial institutions
“ Shariah defines five necessities as necessary and basic for human existence. It is the duty of every society to preserve and protect the five necessities; other wise human life would be harsh, brutal, poor and miserable here and in the hereafter”. (Islamic Divine Law (Shariah), The Objectives of The Islamic Divine Law – Mashhad Al Allaf)
The five necessities are
Hence the need to manage wealth in accordance to Shariah.
There are increasing numbers of discerning Muslims more concerned with how their monies are spent & kept. An indicator is the trend of zakat (tithe payment.
Zakat collections between 1996 and 2005 have been growing at a CAGR of 15% p.a.
By end 2006 it is estimated that zakat collections reached some RM600 million
Zakat on personal income and zakat on savings represents some 71% of zakat collected; approximately 50% of zakat collected is by way salary deduction.
Source PPZ and CIMB Islamic
The Market Trend – Growing Islamic Banking An Indicator of Growing Wealth
Islamic banking has been a key contributor to growth in the financial markets
It is estimated that at end 2007, USD34 billion assets are held in Islamic banking representing 13% of total financial assets. (BNM)
The bulk of deposits is predominantly in investment and savings type whereas financing is mainly disbursed for purposes of home and auto purchases a clear indicator that affluence of Islamic banking population is growing.
Islamic banking Approximately 70% of Islamic banking customers are non-Muslims.
Estate planning is becoming increasingly important to address generational wealth transfer.
In Malaysia as at July 2006 there is an estimated RM38 billion worth of inheritance assets that have failed to be distributed due to improper estate planning. A vast proportion of this has been classed as assets belonging to Muslims.
Thus, there is a need for proper planning to administer one’s assets.
In Islam, the virtues of planning are revealed in Verse 47 of Surah Yusuf
“ For seven consecutive years, you shall sow as usual and that (the harvest) which you reap you shall leave in ears, (all)-except a little of which you may eat.”
Malaysia: A Global Islamic Capital Market (Source: Bursa Malaysia, Securities Commission) * 2007 figures Number of Companies as at Nov 07, Market Cap as at end Dec 07 By Nov 2007, 86% of Bursa Malaysia comprises of shariah compliant stocks Market capitalisation of shariah compliant stocks accounted for RM705.05 billion or 63.74% of total domestic market capitalisation as at December 2007 Compared to the developing GCC & MENA stock markets, Bursa Malaysia provides more choice in terms of sectoral opportunities thereby providing better risk diversification (Source: Bursa Malaysia, E&Y Islamic Funds and Investment Report 2007) Size of Malaysia’s Equity Market Top 10 Companies % of Total Market Capitalization
As of December 2007, approximately 66% of new Islamic fixed income securities globally were issued in Malaysia. The remaining global issues are from the Middle East / GCC and offshore jurisdictions.
Recent experience has shown that products with more global features attract more investment from abroad vis USD denominated sukuks
(Source: The Islamic Capital Market Task Force (IOSCO) Report, ISI Emerging Markets, Bloomberg) As at December 2003 As at December 2007
Islamic Papers have always Outperformed Conventional Papers in Malaysia (Source: CIMB Fixed Income Research) Ringgit Bonds with maturities of 1-year and above Ringgit Bonds with maturities of 5-years and above 6.11 6.32 4.39% 7.57% 125.43 142.07 5-years and above 3.98 4.73 6.27% 7.64% 138.35 145.47 1-year and above Conventional Islamic Conventional Islamic Conventional Islamic Average Duration Av. Annualized Returns Index reading
Leading in Islamic Asset Management Malaysia has some 134 funds at the end of 2007 and is estimated to account for 22% of Islamic funds worldwide (Securities Commission, Eurekahedge) Fund assets have been growing at a CAGR of 38% per annum between 1997 and 2007. The total NAV of Islamic unit trusts in Malaysia by end 2007 stood at some USD5.12 billion or 9.97% of total outstanding unit trusts net asset value (Securities Commission)
Growing Potential of Takaful Takaful sector has been growing at an average of 17% p.a. since 2001 and by end 2007 total contributions were estimated at USD931 million. (BNM, Islamic Finance News) Growth of takaful is driven by demand for mortgage, motor, medical and education plans. In the same period total assets of Takaful are estimated to amount to USD1.7 billion. Total Takaful Contributions 2003-2006 Breakdown of Family Takaful Contributions 2001-2006
As at end 2006 Takaful penetration in Malaysia is estimated to be 6.3%.
Family takaful penetration relative to general takaful penetration is higher, indicating that future takaful growth will be driven by demand for more products from family takaful segment.
Malaysia’s has a relatively broader distribution infrastructure for Takaful compared to other regions (direct agents, direct mail, bancassurance). This is expected to be one of the key contributors to deepen the Takaful market.
Source Malaysian S&P, Islamic Finance News, Swiss RE Sigma Report, BNM 2005 Premiums (USD) 273% 3.5 9.7 13.2 Malaysia Takaful 5,216 197% 95.3 188 283.3 Malaysia overall 6,893 137% 219.0 299.5 518.5 World GDP per capita USD Relative Penetration Non Life Life Total Country
Shariah compliant REITS have been listed on Bursa since 2005. REITS offer more diversification opportunities in addition to regular income streams. Despite higher relative withholding tax, there is growing interest from GCC investors in infrastructure projects slated (eg IDR) and their potential for providing long term stable income as REITS
Regulated Short Selling reintroduced in Jan 2007 brings Bursa closer to developed market standards by giving investors opportunities to make profit despite bearish market conditions
FTSE Bursa Indices enhance the attractiveness of Malaysia as key destination for global Islamic fund flows by providing investors internationally accepted performance benchmarks
Exchange Traded Funds – Asia’s First Shariah compliant ETF was launched Jan 2008 with a public spread oversubscribed by 22.5 times. This development adds to the growing list of liquid investment options available to investors
Islamic derivatives – Futures Crude Palm Oil (FCPO) and Single Stock Futures
Increasing Professional Capabilities in Malaysia
Financial Planning/ investment advisory services continue to experience healthy growth driven by increasingly complex products and growing client sophistication
As at end 2006 there are some 11,500 memberships registered with major financial planning bodies representing a growth of some 14% in the last 2 years*
Financial institutions are increasingly placing strong emphasis on WM divisions as a client retention strategy as well as a means to grow revenues
In line with general move to increase professionalism of advisory services training programs that are Islamic finance focused have emerged
2006 - INCEIF established to support the need to develop Islamic finance talent
2007- Islamic Financial Planner developed jointly by FPAM & IBFIM
*Source FPAM, MFPC, MChFC
Opportunities and Issues of Islamic Wealth Management
The sustained rise in price of petrol is expected to continue to drive growth for development of Islamic finance products as investors, for example from the the Middle East, seek appropriate avenues for diversifying economic, business and financial holdings
Whilst major investments are likely to be driven by sovereign wealth funds and government investment corporations another key segment looking for investment opportunities are high net worth individuals
With its diversity of Islamic finance products and experienced players Islamic capital markets such as Malaysia, are expected to be at the forefront of capturing the anticipated net capital outflows of oil producing nations
Supported by a facilitative and comprehensive regulatory framework Islamic finance has come to the stage where development in wealth management services will drive future growth
The numbers of HNWI expected to increase supported by economic expansion of Asia Pacific and MENA (Middle-East-North-Africa) regions
Some USD1.5 trillion of Gulf Corporative Countries (GCC) funds are held in assets worldwide vested in treasuries, corporate bonds, equities and funds. The GCC region accounts for 3.2% of the global high net worth population. (S&P, Islamic Finance News, Cap Gemini)
Source: World Wealth Report 2007, Cap Gemini 95,000 1% of HNWI population 1/3 of HNWI wealth # of Ultra HNWI’s (Financial Assets >$30 million) $51.6 trillion $37.2 trillion $16.6 trillion Estimate of HNWI Wealth 9.5 million 4.5 million # of HNWI’s (Financial Assets > $1 million) 2011 2006 1996
Malaysia is known for coming out with innovative products.
Shariah harmonisation has helped to improve marketability of products in markets beyond Malaysia
Alternative Sukuk structures using globally accepted Islamic principles have consistently been oversubscribed
Shariah compliant structured products structured in Malaysia have been successfully offered regionally viz Brunei, Singapore & Indonesia
Domestic Shariah compliant unit trusts that choose to list cross border on DIFC need only provide Shariah disclosure
Harmonisation is not Standardisation. Differences of opinions are well celebrated in Islam and could contribute towards developing creative and innovative products.
Issues: Experienced Islamic Finance Professionals Must Grow Faster
The provision of sound advice requires experience. Analysis must take into account both personal and business needs looking at financial and non financial products. To be a trusted advisor, he or she should be well rounded.
Recognizing that a wide skill-set is required for a robust industry. Other jurisdiction has established key learning framework that is backed by global industry players for fast tracking the development of wealth management services.
Similar or better approach must be undertaken in Malaysia specifically for developing Wealth Management skills.
Issues: Limited Product Developments in Islamic Estate Planning
Islamic products for wealth distribution are largely undeveloped. The limited offerings available are based on basic fiqh concepts that are accepted under existing civil laws
Conventional products are comparatively more developed and have greater variety. For instance the concept of trust can be applied to various purposes such as living trusts, family trusts, education trusts, unit trusts etc.
A conventional trust deed does not confine the assets settled to be shariah compliant. There is a need for a specific document that functions as a trust but is Shariah compliant
Islamic Trust Deed or Amanah Deed may provide a solution. Such an Amanah deed would ensure that the assets are settled and managed in accordance Shariah
Current practice requires an individual to hibah their assets prior to establishing a trust. Without doing so trusts created may fail as any assets not willed or given in hibah would form part of the estate to be distributed according to fara’id.
Issues: Developing concepts into Viable Products
More research must be made to develop fiqh concepts into credible products that are endorsed by the industry.
An example is the concept of Waqf i.e. properties (fixed or moveable) settled for the benefit of Waqf beneficiaries.
Currently waqf falls under the purview of state religious authorities, waqf is one of the largely untapped potential in wealth distribution
Opportunities exist to
Develop idle Waqf lands to maximise revenues to beneficiaries
Enhance the attractiveness of Waqf assets as Islamic financial instruments
Utilise Waqf as potential product concept for wide arrays of applications
Local financial institutions may only offer products developed in Malaysia or approved by regulators therefore limiting the creation of an attractive portfolio that takes advantage of market timing in global markets.
HNWI’s are generally highly seasoned investors and domestic service providers should be able to offer a product suite comparable to that of an offshore bank.
Locally registered financial institutions have attained the competency level of offering global products and are better placed to advise domestic HNWI on their portfolio.
However under the MIFC agenda Islamic banks have the opportunity to conduct international currency business in Malaysia and offshore product offering is possible.
Moving Forward : “Malaysia As An International Islamic Financial Hub”
MIFC - n ationwide initiative to promote Malaysia as an International Islamic Financial Centre.
MIFC aims at fortifying Malaysia’s position as a vibrant, innovative and competitive International Islamic financial hub .
Vision in conjunction with MIFC - to strategise to promote Malaysia as a global reference centre for Shariah views on Islamic banking and finance, banking on our unique culture and long history of Shariah tolerance.
By promoting genuine Shariah tolerance, Malaysia can aspire to become the cosmopolitan Shariah reference centre where varied Fiqh views can be discoursed and put into practice.
Global players would assemble here for latitude in creation and innovation, in search of new ideas for their financial products.
The results of regulatory liberalization since 2005 and progressive Shariah research are beginning to take effect with more sophisticated products and services such as shariah compliant structured products, real estate investment funds have been available to retail clients.
Whilst wealth managers are able to address the issues of wealth enhancement, protection and distribution, existing services need to be further developed to allow for more customization and opportunity for returns enhancement in all economic and investment cycle
Leveraging on the strengths of its comprehensive domestic infrastructure, active market making and products innovation Malaysia’s Islamic capital market is poised to develop into a key centre for international Islamic funds to reside. However regional competition is expected.
Islamic banks such as Faisal Bank and CIMB have establishment of Islamic Private Banking services in view of the potential growth of Islamic wealth management.
Contact Details Please direct all queries to: Mohd Willieuddin Lim Director, Global Markets CIMB Islamic Bank Berhad 1st Floor, Menara Promet, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia. Tel: +603 2116 1270, Fax: +603 2144 8509 Email: email@example.com.
Emphasis on knowledge products for private clients and institutions;
Leveraging regional product expertise;
Understanding of local requirements;
Capable banking infrastructure to execute transaction;
Comprehensive banking franchise;
A top provider of tailor-made financial solutions to clients across the region;
Kuala Lumpur is the leading Islamic financial centre.
New York London Brunei Darussalam Hong Kong Jakarta Kuala Lumpur Singapore Bangkok Bahrain Tokyo Yangon
This document and its contents are proprietary information and products of CIMB and may not be reproduced or otherwise disseminated in whole or in part without its written consent.
The information in this presentation reflects prevailing conditions and our views as of this date. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us or which was otherwise reviewed by us. Although the information contained herein is believed to be reliable, CIMB makes no representation as to the accuracy or completeness of any information contained herein or otherwise provided. Nothing contained in this presentation is, or shall be, relied upon as a promise or representation as to the future.