Investing In Islamic Funds: A Practitioner's Perspective

CHAPTER 2

Fund Management within Shariah-Compliant Investment Guidelines

Is There More Reward?

In contracts, intentions and meanings, not words and structures, shall be taken into consideration.

(Islamic legal maxim)8

INTRODUCTION

“Could the financial crisis have been prevented if the financial world had followed the rules of Islamic—or Shariah—law?” This was the question asked by BaFin President Dr. Elke König in her opening remarks at BaFin’s second Islamic Finance Conference in Frankfurt. Dr. König’s professional career had also led her into the world of insurance. There she had come into contact with a particular branch of Islamic finance—the form of Shariah-compliant insurance known as Takaful. “At that time I found myself faced with a world that at first seemed alien to me, but which on closer inspection wasn’t so very different at all from what I had known up until then,”1 Dr. König said. This demonstrates that when one lifts up the car hood to closely examine the engine of Shariah principles that drive Islamic finance products, one finds that it’s not so different from what we know in the conventional world.

There has been surge in demand for Shariah-compliant asset management from institutional and private clients in the last decade, especially in the Gulf Cooperation Council region. The increasing demand is partly driven by the rapid rise in the region’s wealth and also by the increasing number and breadth of asset classes now available for Islamic investors, spurred ...