History of Islamic Asset Management

I have been involved in Islamic banking since around 1985, when I was asked to help edit some of the very first issues of what later became a prominent Islamic finance journal. Back then one big debate was on whether zero-coupon corporate and government bonds were sharia compliant. We were understandably naïve, as no one at that time had addressed some of the core issues surrounding the precise definition of Islamic banking.

Since then the industry has skyrocketed, in particular since 2002 and the modernization of much of the banking sector in the Middle East. Just as conventional banks in the Arab world were upgrading and updating systems and procedures, so did the Islamic banks. Moreover, some key figures emerged to help standardize the process of at least thinking about basic rules and principles of Islamic banking. Among them were Mohamed El Gari, Humayon Dar and Mohamed Daud Bakr, to name only a few of the most notable pioneers. These Islamic scholars placed the first level surface on which banking professionals could begin developing products and services that met both sharia and international banking standards.

As I’ve repeated often, however, very little of this innovative and ground-breaking work entered the Islamic asset management space. Rather, it was retail, corporate and investment banking that benefited from the professionalization of Islamic banking. Asset management seemed to have been the poor stepchild, less exciting and less rewarding to the professionals than high-volume retail banking or highly compensated investment banking.

Now, however, we have the tools and knowledge to make Islamic asset management a reality. Whether institutional investing for pension funds, takaful insurance companies, or corporate treasuries, or retail investing for households, the technology exists to professionally create, manage and distribute Islamic mutual funds and other assets on a wide scale.

All that’s missing are banking institutions willing to follow the path. Strangely enough, we witness enormous demand, yet almost no supply.