Islamic Fund Management
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market awareness on the importance of investing and saving. Governments of developed and
non-developed countries have instituted government-linked bodies to manage retirement
funds. Furthermore, the level of financial inclusion differs from one country to another. As
such, the institutionalisation of public savings goes a long way towards facilitating the
development of a local fund management industry. An example in this regard is the making of
retirement allocations compulsory for both employers and employees. Institutions that have
been established to manage these funds provide funding to AMCs. Therefore, if Muslim
members or those with certain ethical preferences or institutional investors choose to invest in
Shariah-compliant funds, this will provide a catalyst for the development of the Islamic fund
management industry.
Pillar 3 - Liberalisation of Policies and Guidelines
The liberalisation of policies and guidelines promote investment in a broader spectrum of
assets and corporate bond markets while enabling fund managers and investors to diversify
their investment portfolios. The entry of foreign-based fund managers into the local market
also provides access to a global network of investors, hence opportunities for foreign
investment in local funds. A diverse investor base plays an important role in deepening the
liquidity of the domestic ICM. The liberalisation of capital controls is equally important to
facilitate the free flow of capital funds.
Pillar 4 - Tax Framework
The establishment of tax neutrality facilitates the costing of Islamic finance products, so as to
be competitive with conventional offerings. Additional tax incentives to encourage investors to
choose Shariah investments provide another venue for the growth of the Islamic finance
market. Some countries also provide tax rebates to individuals vis-à-vis investment in
retirement schemes and children’s education, all of which help strengthen demand for fund
management.
Pillar 5 - Market Infrastructure
The development of a strong stock exchange facilitates investment in the equity of listed
companies, and also for sukuk and funds to list on its platform. A fully integrated exchange that
offers a complete range of exchange-related services―including trading, clearing, settlement
and depository services―will help build robust equity and sukuk markets. The advent of a
comprehensive value chain of intermediation, advisory and back-office services is equally
important in supporting ICM activities. These include fund accounting as well as trustee, legal
and audit services, which all play a significant role in the overall development of Islamic fund
management.
The lessons gleaned from the case studies have been summarised in a Development-Stage
Matrix. Upon understanding the factors that had exerted the greatest impact, we have been
able to create an ecosystem for the Islamic fund management industry. Accordingly,
recommendations have been proposed to address the issues faced by the respective markets,
depending on their level of progress.