Modern Islamic Banking

CHAPTER 10Asset Management

Within Islam, investing in enterprises and assets is encouraged not only because of the wealth increase for the individual investor, but also because it advances the economy and at the same time allows others to increase their wealth. This in turn results in better wealth distribution.

Conventional and Islamic investors have common objectives such as capital preservation, yield maximisation and ensuring a balance between liquidity and profitability, in addition to which Islamic investors also look for Sharia'a compliance. Not all investors have the time to manage their investments actively, and, like conventional investors, Islamic investors often turn to fund or asset management solutions.

Like conventional investment managers, Islamic investment managers can invest in a wide range of Islamic and conventional products and asset classes, including shares and other securities. The main difference between conventional and Islamic investment managers is that the latter will have to ensure that his individual investments, as well as his fund, remain compliant with Sharia'a. In addition, Islamic fund managers cannot use derivatives, pay or receive interest, or apply stock lending techniques.

Fund structures are typically similar to conventional structures, although again ­Sharia'a compliance is a key factor. A Sharia'a supervisory board (SAB), which is typically made up of three to five members, is involved from the start of the fund. The SAB is not responsible ...