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Thursday August 6, 2009

Islamic finance can be more attractive to institutional investors

KUALA LUMPUR: Islamic financial products should be positioned as safer assets with more stringent risk management standards to attract more institutional investors, a leading Islamic fund management firm said.

“Islamic products are not similar to conventional products as they include social ethical standards based on the syariah concept,” said Datuk Noripah Kamso, chief executive officer of CIMB-Principal Islamic Asset Management Sdn Bhd.

“(So) we have to embrace the risk management (standards inherent in Islamic products) in order to convince potential investors,” she said yesterday at the Global Islamic Equity Markets & Products Conference.

Noripah said there was also a need to educate potential investors on Islamic financial products, such as on syariah-compliance, and convince them that such products could give them the desired returns.

From Left: Thomson Reuters global head of Islamic finance Rushdi Siddiqui, Lembaga Tabung Haji CIO Md Noor A Rahman, Datuk Noripah Kamso and Datuk Steve Ong at the conference on Wednesday.

“European and British institutional investors, for example, are worried whether their investment will give back the returns if invested in just certain industries.

“If we are able to prove that the performance of Islamic products is equal to that of conventional products, this will help us (gain greater access to) the global international market,” she said.

Another panelist, ING Funds Bhd chief executive officer Datuk Steve Ong, noted that there were limitations to what Islamic finance could invest in, so investors should know what they were getting into.

“Islamic finance clearly states what (can) be invested in and what cannot, so for investors, you must know what you are investing in,” he said.

Ong said there were opportunities for Islamic products to go big globally, especially in the retail sector in markets such as China and Indonesia where the population was huge.

“Islamic products need to be structured so that they will appeal to the needs of people in these countries,” he said. “If we can structure the products based on social responsibility rather than religious (obligations), then we are doing it the right way in making the products an asset class for all.”

Meanwhile, AmInvestment Bank head of Islamic markets Mohd Effendi Abdullah, interviewed by Reuters on the sidelines of the conference, said that global Islamic bond issuance in 2009 was likely to be around last year’s US$14.25bil level, with sales in Malaysia expected to account for more than half.

Issuance from Malaysia was expected to total at least US$8.3bil, compared with US$6.3bil in 2008, he said. Effendi said government issuance and funding for infrastructure projects would drive sales this year.

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