Despite growing in recent years and heightened interest from managers and regulators in Southeast Asia, the Shariah fund space remains highly challenging.
Shariah-compliant funds and strategies have been the key growth drivers in Malaysia's asset management space, and will continue to drive the industry's growth going forward.
From a relatively small base, Shariah wholesale funds' assets under management (AUM) grew by 35 percent year-on-year to S$7.8 billion in 2015, largely driven by institutions and corporations.
Limited Success
Malaysia has always worked hard at innovating in the Islamic banking space, a recent example being Maybank who has just written the first shariah-compliant construction financing in New York City, creating Islamic banking solutions for global clients.
However, according to a report from global analytics firm Cerulli Associates, for Southeast Asian managers, penetrating the Shariah distribution landscape requires significant amounts of patience and resources, and promoting Shariah-compliant funds as socially responsible funds has had limited success so far.
Growth Challenges
Globally, a lack of standardisation in Islamic investment principles and a limited understanding and awareness among investors and distributors have also hindered growth in the broader Shariah product space.
With global sukuk largely dominated by a few countries, there is also limited geographical diversification for global fixed-income strategies.
A bumpy road lies ahead despite conducive regulatory frameworks, there are major challenges to growth for the Shariah fund sector.
