Islamic Fund Management
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Logically, the regulation of Islamic financial institutions will work best when there are already
regulations in place for conventional financial institutions. There are usually enough
regulations in many areas, although a few may require new guidelines due to the lack of an
existing regulatory framework. All said, there is a need to strike a delicate balance between
over- and under-regulation. Over-regulation could have counterproductive results, including
reducing the number of financial products, raising transaction costs and hampering efficiency.
Therefore, the main challenge is to adopt the existing regulations in a way that will protect
clients or investors. The regulatory framework should not be copied blindly, but should
instead be adopted judiciously (Siddiqi & Hrubi, 2008).
2. Additional Disclosure Requirements
Disclosure is imperative in Islamic funds. Nevertheless, the degree of the disclosure may vary,
depending on the sophistications of investors and their willingness to absorb losses related to
their investments. As such, investors have the right to understand the risk-return parameters
of their investments so that they can make informed decisions that best suit them. Given the
nature of investment funds, investors should be provided additional disclosure pertaining to
different areas (McMillen, 2018, p. 94), including the following:
 Investment objectives, criteria and parameters.
 Fee structures (which are often difficult to understand, even by the most sophisticated
investors).
 Valuation of assets, pricing and net asset valuations.
 Redemption rights and restrictions.
 Credit enhancements.
 Yield and payment provisions, including the basis and priority of payments.
Given the robust growth of global Islamic funds, this aspect should be accorded greater
scrutiny and emphasis.
3. Lack of Talented Human Capital
According to the Islamic Fund and Investment Report (2008), the demand for human
resources is strong throughout the entire Islamic finance industry. With the growth and
development of the Islamic fund management industry, this demand will strengthen. This
contrasts against the conventional fund management industry, where access to global
resources prevents staffing from becoming a major risk. Due to the lack of qualified human
resources, an institution’s ability to attract and retain quality staff is a competitive advantage.
Financial incentives and an attractive working environment as well as opportunities are key
contributing factors in the retention of qualified staff, who may be inclined to change jobs
when better opportunities arise. The expertise of human resources is essential if Islamic
products are to match their conventional counterparts.
4. Inconsistent Financial Statements
Screening is an important aspect of Islamic investment and fund management. For accurate
screening, the accuracy of information is vital. Nonetheless, the availability (or lack) of
accurate information is a challenge. Many organisations report incomplete and/or erroneous
financial disclosures on a quarterly or annual basis. Similarly, many companies do not report