March of islamic finance 'crucial' to confidence
Islamic finance is broadening its appeal to non-Muslim investors and has a "key role" to play in restoring investor confidence in financial markets, according to State Street.
Last week the investment house estimated the market for Islamic finance had grown by as much as 20 per cent a year since 2003, bringing total assets under management by Islamic financial institutions to £395.5bn ($600bn) globally.
Rod Ringrow, senior vice-president of State Street, said: "Investors are looking for asset classes that provide some stability, so it is striking a chord with the non-Muslim community.
"It has a key role to play in restoring confidence in markets and has the potential to play a much bigger role once the industry has evaluated what has happened to it.
"Western markets may also get close to thoughts and policies that underline Islamic finance."
According to Mr Ringrow, returns on Islamic funds are superior to returns on conventional funds and he expected a string of more product launches to come once the market becomes more developed.
But as it stands, he said Islamic finance was thought to only account for 1 per cent of global assets under management and one reason growth in this market was being hindered was the worldwide shortage of Shariah scholars.
He said: "Islamic products need a board to rely on with at least three Islamic scholars.
"The understanding of complex instruments is holding back growth as they need to say is this a Shariah compliant product or not?"
Mr Ringrow also identified what he described as "huge potential" for the 'Sukuk' or the Islamic bond market and said players in the industry were also considering the establishment of Islamic hedge funds, which he said was a sign the industry was beginning to develop and move forward.
He said: "There is a need for world class players to develop the market and more products will come after."
Nigel Speirs, chief executive of North Wales-based IFA Buckles Investment Services, said it was an area with potential for growth if people were able to design the products in a way that appealed to Muslims.
He said it was an area larger providers had not really tapped into yet and a major player managing to attract significant assets under management could prompt others to join it.
Mr Speirs said: "It is still a niche market. There is a considerable amount of ignorance, we need more education about Islamic finance."