Sie sind auf Seite 1von 40

Islamic Wealth

Management Report

Sustainable Swiss Private Banking since 1841.

Islamic Wealth Management Report 2011

Bank Sarasin
Islamic Wealth Management Report 2011

We are pleased to present our second Islamic Wealth The Islamic wealth management industry remains one
Management Report in conjunction with our new partner, of the fastest growing sectors in the Middle East and
Ernst & Young. Over the last few years, and in particu- during 2010 sparked high interest outside the region
lar throughout 2010, the investor world and financial with global fund assets reaching over USD 1 trillion
industry witnessed that prudent financial management by the end of the year (Ernst & Young IFIR 2011). In-
combined with a sustainable investment approach is creased awareness of both investors and the press
very effective in weathering crises. These tenets are also rose throughout the year due to the amplified fo-
at the heart of Bank Sarasin’s offering of minimising cus on transparency and risk management prompted by
risk and maximising opportunities for clients. We hope the BP disaster and other ongoing issues in the mar-
that through this report our collective knowledge and kets, such as the capitalisation of global banks, eu-
expertise in Islamic Finance will provide further insight rozone strength and global political stability. However,
into this important growth area of wealth management. despite a sustained annual growth of 20 %, it should be
acknowledged that the industry still remains a relatively
Similar to last year’s report, we are giving an overview niche area and has yet to break into the mainstream.
of the market during 2010 and our economic outlook Therefore, it is important that the industry continues
for the future, and we also tackle a feature that we feel to move forward and innovate in order to continue to
has been somehow neglected in the Islamic Banking achieve growth: development of the Sharia framework,
industry, that of Islamic Financial Planning. We focus the diversification of products, and how best to man-
on how proper Islamic Financial Planning is conducted age financial assets are just some potential areas for
and investigate with in-depth detail how it relates to the improvement.
various stages of wealth acquisition, preservation, and
distribution. This feature builds on topics discussed Given the inherent nature of its investment philosophy,
in our inaugural report and aims to encourage debate Islamic finance could be perceived as a general means
and even challenge currently accepted thinking on the of managing investments prudently in today’s volatile
subject in order to foster the industry’s progress. In markets. However, the Islamic finance approach tran-
this way, we hope to aid our clients and other investors scends that of a simply “sensible” investment strat-
to make decisions from as wellinformed a position as egy and has overall specific requirements that must
possible and we remain committed to developing dis- be taken into account in order to manage wealth prop-
tinctive products and seek to constantly improve our erly according to Islamic law. Islamic wealth should
offering. be invested carefully but also in a diversified manner
to reduce various risk factors adequately. This asset

Islamic Wealth Management Report 2011

allo cation should be defined through consultation with We aim to build on our reputation for expertise and ser-
experts and managed by way of a properly monitored vice and we take a pragmatic approach by exploring
decision process. all the options available under Sharia law. We believe
Bank Sarasin understands this all-encompassing holis- that by conducting an in-depth analysis of a client’s
tic approach as responsible wealth management has requirements and applying the appropriate financial in-
been a guiding principle for the bank since 1841. Taking struments, a Muslim can therefore achieve tax-efficient
a long term perspective to implement an environmen- global solutions, legally entrusting his assets to a po-
tally and socially responsible methodology to avoid litically stable environment, while keeping his worldly
risks and seize opportunities in order to generate de- affairs in good order as instructed by his faith. The
sirable returns for our clients has always been our ap- advisory process is crucial in this process and Bank
proach of choice. Sarasin can provide the recommended tools, products
and high standard of client service to ensure a Sharia-
Furthermore, with office locations in Switzerland, Eu- compliant approach. We then use our wealth of experi-
rope, the Middle East and Asia, our blend of industry ence, gained over 170 years, to provide tailored solu-
knowledge, cultures and traditions coupled with our his- tions to ensure the creation of an individual financial
tory of private banking through responsible investing of- planning strategy in line with the client’s objectives and
fers a unique opportunity to investors in current times. the Islamic requirements to achieve success.
In 2009 Bank Sarasin introduced a comprehensive Is-
lamic wealth management service offering the full spec- We hope that you enjoy reading our Islamic Wealth Man-
trum of Sharia-compliant private banking products and agement report for 2010 and thank you for your contin-
services to our clients in the GCC countries through our ued trust in Sarasin.
subsidiary Bank Sarasin-Alpen. To support this service,
a dedicated department with high level expertise and
a renowned Sharia Board have been put in place to
oversee investment compliance. This ensures the high
quality delivery expected from a Swiss private bank that
is focused on providing individually-tailored investment
strategies for its clients. Bank Sarasin is now the only
Swiss private bank with a complete in-house Islamic Fidelis Götz Rohit Walia Fares Mourad
Head of Private Executive Vice Head of Islamic
private banking offering.
Banking, Bank Chairman and CEO Finance, Bank
Sarasin & Co. Ltd Bank Sarasin-Alpen Sarasin & Co. Ltd

Islamic Wealth Management Report 2011

Foreword from Sharia Advisory Board

of Bank Sarasin, Switzerland

The Islamic Finance team at Bank Sarasin has, under preservation and estate and succession planning, the
our guidance and supervision, developed a full range of bank’s current report describes the necessity of finan-
Islamic Private Banking services. The Bank’s manage- cial planning and explores ways of implementing it in a
ment has shown enormous commitment and has not Shariah-compliant way. It also explains what this really
shied away from the costs involved in establishing and means and what is required from an Islamic perspec-
developing the business. tive.

As a further step that underscores Bank Sarasin’s com- We, as the Shariah Board, are satisfied with the ap-
mitment to Islamic Finance and enables Muslim inves- proach and the way the Islamic Finance division of Bank
tors to benefit from Bank Sarasin’s long experience in Sarasin is handling and pursuing its Islamic Finance
managing and preserving wealth, the second issue of offering. We would like to express our best wishes to
the Islamic Wealth report is now being published. Bank Sarasin and its dedicated Islamic Finance team
As in 2010, the bank has chosen a topic which is to and hope that they achieve sustainable success with
some extent neglected by many Muslims in the Mus- Allah’s blessing.
lim world. While the previous report focused on wealth
Wallahu Waliuu Al-Tawfiq

Sheikh Dr. Mohammed Ali Elgari Sheikh Dr. Mohammed Imran Usmani Sheikh Dr. Monzer Kahf
Member Member Member

Islamic Wealth Management Report 2011

Table of contents

Islamic Financial Planning – a forgotten tradition? 7

The cash Waqf and endowments 14

Islamic governance for managing wealth –

experiences from family offices in Switzerland 18

Islamic mutual funds – breadth and depth –

an interview with Sameer Abdi, Ernst & Young 21

Sukuk – the spirit of Sharia:

interview with Khalid Howladar, Moody’s 24

Islamic equity indices mirror regional

and expansion trends 27

Economic Outlook
Catastrophes do not derail the global economy 30

Islamic Wealth Management Report 2011

Islamic Wealth Management Report 2011

Islamic Financial Planning –

a forgotten tradition?
The necessity for planning has been well documented in human history. A nice story which is documented in
the holy Qur’an and which we learned in school goes as follows: “He (Yusuf) said: You shall sow for seven years
continuously, then, what you reap leave it in its ear except a little of which you eat. Then, there shall come
after that seven years of hardship which shall eat away all that you have beforehand laid up in store for them,
except a little of what you shall have preserved. Then there will come after that a year in which people shall
have rain and in which they shall press (grapes).” (Qur’an 12:47 – 49)

The story goes that in ancient Egyptian society, the (Qur’an 51:56), and the Muslim knows that he has to
certainty of seven years of good harvest followed by account for his deeds and will have to answer Allah
seven years of draught was foretold by the Prophet Yu- directly as to how wealth under his care had been ad-
suf. Subsequently, the king of Egypt believed Yusuf’s ministrated in this world.
interpretation of his dream and put Yusuf in change of
the state treasury. An action plan was executed and Financial Planning is basically a discipline of wealth
the society survived the hard times that came to pass. management that applies to the unique needs and
This kind of planning is called in “Arabic tadbir” al amr, concerns of each individual. It is not only a process in
which, in abstract terms, means the “act of relating an which wealth is accumulated, but it has a broad defini-
affair to its end or result”. This clearly indicates that a tion which relates to the concept of vicegerent (khalifa)
person needs to work, plan and spend wisely, for “No and serving the creator.
Soul knows what it will earn tomorrow”. (Qur’an 31:34)
The Muslim is required to find a proper balance be-
Further; Allah said in his book: “Wealth and chil- tween the fulfilment of his spiritual and worldly obliga-
dren are [but] adornment of the worldly life. But the tions. Thus, we would like to focus below on the com-
enduring good deeds are better to your Lord for re- prehensive aspects of financial planning that enable a
ward and better for [one’s] hope.” (Qur’an 18:46) Muslim to reach the required balance. The issues we
And he said: “I will create a deputy on earth.” They consider are:
said: “Wilt Thou place therein one who will make mis- • Wealth acquisition
chief therein and shed blood? – Whilst we do celebrate • Wealth preservation
Thy praises and glorify Thy holy (name)?” He said: “I • Wealth distribution
know what ye know not.” (Qur’an 2:30)
Thus wealth is a Trust from Allah that must be adminis- Wealth Acquisition
tered properly. Man is born without a single thread on him. For all the
wealth he accumulates, it is either through inheritance,
Wealth belongs to Allah. Accordingly, a Muslim is not wages, trading or investment returns.
attracted to wealth because of the influence and power, Before we continue this path and elaborate on the vari-
but rather follows a different road – as a mean to an ous prohibitions we have in Islam on investments, it is
end. Every single deed and activity of man in Islam is essential to differentiate between saving and invest-
considered as worship and thus should reflect render- ment:
ing service to Allah. As He said in his book: “I have Saving is putting aside a portion of one’s income for
only created Jinns and men, that they may worship me.” future financial needs. The primary aim is to preserve

Islamic Wealth Management Report 2011

capital for a need that might arise or to realise a pro- Wealth Preservation
ject, such as saving to finance postgraduate studies. The investment restrictions in Islam may also be seen
as a protective measure for society and long-term
Investment involves taking a risk on a certain amount investment, as they screen out harmful activities and
of funds, with the aim of earning a profit or obtaining a unsound business practices.
return. These are usually derived from capital gains or Wealth preservation transcends prudent investment
dividends. Therefore, we create wealth through invest- strategies such as diversification through modern port-
ments. folio theory and proper risk analysis in the wider sense
– searching for right opportunities in the market in a
Wealth creation is subject to various rules, and a Mus- sustainable way.
lim is restricted from engaging in: This phase identifies the existing wealth and manages
• Riba: an Arabic word that means addition, growth various sources of current and future income accord-
or increase. Riba is very clearly forbidden in Islam. ing to the defined goals. It requires basic cash flow
“Those who eat Riba (usury) will not stand (on the management and planning, tax planning, family secu-
Day… say: “Trading is only like Riba (usury),” whereas rity planning, disability income planning, and last but
Allah has permitted… his Lord and stops eating Riba not least succession planning for the family business.
(usury) shall not be punished… judge); but whoever
returns [to Riba (usury)], such are the dwellers.” Further, the various risk elements of life should be
(Qur’an 2:275) and in fact it is considered the mother identified and strategies developed to cope with them.
of all sins, as the sinner is promised a war waged Wealth should be invested prudently, in a diversified
against him by God and his Messenger. Technically, it manner, which still allows ongoing requirements and
refers to a premium paid by the borrower to the lender cash needs to be met. Diversification is a basis for the
as a condition for the loan or an extension of its ma- investment strategy, including asset allocation. How-
turity. The predominant majority of Islamic scholars ever, it also serves to reduce political risk by investing
regards Riba as the equivalent to interest. in different jurisdictions. The asset allocation should
• M aisir: gambling or any similar activity in which one be defined with experts and based on a proper invest-
party will win at the expense of the other, technically ment decision-making process, including monitoring.
speaking a zero-sum game, while trade should benefit
both parties, which makes the related risk acceptable. In finance, risk is often defined as uncertainty of re-
• G harar: a word with many meanings such as deception, turns. However, this is only true when we talk about
risk or uncertainty. Gharar technically refers to being investment risk and wealth acquisition. This is a nar-
exposed to excessive, unnecessary risk or uncertainty row view, however, and we need to understand risk in a
in a business transaction, such as undefined quality broader sense for Financial Planning.
of purchased goods, not specifying the delivery date. Risk can be divided into two categories; absolute or
• Participating in business which contradicts or is pro- relative:
hibited by Sharia, such as pornography, brewery, etc. Absolute risk is a category of risk in which loss is the
only possible outcome and there is no other favourable
Whether wealth has been acquired by trade, labour or result. The examples of absolute risk are fire or flood,
transfer, the aim afterwards is to preserve it for future loss of the breadwinner of the family due to death,
needs and generations. ­either through illness or accident. In absolute risk, the
extent of the possible loss is unknown.

Islamic Wealth Management Report 2011

Islamic Wealth Management Report 2011

Relative risk has three outcomes – the possibility of Zakat is a way to protect your wealth. The prophet
loss, gain or breakeven. said: “Protect your wealth though Zakat. Treat your sick
In Islam, risk management and careful planning deal patients through sadaqah and face the turmoil of dif-
with pure risk. To manage risks properly, these basic ficulties through supplications and heartful pleas to
steps are recommended in the risk management pro- Allah” (Reported by Abu Dawud). The protection comes
cess: from following the rules and requirements when giving
• E stablish context and define parameters to charity.
• A ssess the risks by identification To start with, a Muslim is asked to seek lawful income
• Treat the risks, by either transferring, sharing, reduc- and wealth; only then will his wealth be blessed. Sec-
tion or avoidance ondly, what is given to charity must be from income and
• M onitor and review wealth that has been gained lawfully. “O you who have
In this process, it is in the third step that an insurance believed, spend from the good things which you have
or takaful becomes relevant, to preserve wealth and earned and from that which We have produced for you
protect against pure risks, which could endanger the from the earth. And do not aim toward the defective
position of wealth reached, or, more simply, which are there from, spending [from that] while you would not
not affordable for the single person, when they occur. take it [yourself] except with closed eyes. And know
that Allah is Free of need and Praiseworthy.” (Qur’an
But is risk management required and what is the 2:267)
Islamic view? Perhaps the best answer to this question
is provided by the following Hadith narrated by al-Tirmi- “Take [O, Muhammad] from their wealth a charity by
dhi: “One day Prophet Muhammad noticed a Bedouin which you purify them and cause them increase, and
leaving his camel without tying the animal. He asked invoke [Allah’s blessings] upon them. Indeed, your invo-
the Bedouin: “Why don’t you tie down your camel?” The cations are reassurance for them. And Allah is Hearing
Bedouin ­answered: “I put my trust in Allah.” The proph- and Knowing.” (Qur’an 9:103)
et then said: “Tie your camel first, and then trust Allah.” “Whatever thing you spend [in His cause] – He will com-
Losing the Camel is a pure risk, as it may or may not be pensate it; and He is the best of providers.” (Qur’an
there when the Bedouin returns. While a tied camel can 34:39)
still be lost, this is a different peril altogether. Thus, seeking lawful income is the starting point: Sub-
The story clearly demonstrates that a Muslim is encour- sequently, one must give to charity to cleanse the
aged to manage risk. wealth. We take similar measures with our health by
detoxifying it or cleansing it with supplements aimed at
Wealth distribution – Charity cleansing the body and improving health: The effects
Zakat, an obligatory charity, is one of the five pillars have been clinically proven. In a similar fashion, wealth
of Islam. “And perform As-Salat (Iqamat-as-Salat), and has to be cleansed, despite the fact that it has been
give Zakat, and Irka’ (i. e. bow down or submit your- obtained lawfully, as it may have been earned from
selves with obedience to Allah) along with Ar-Raki’un.” doubtful sources unintentionally.
(Qur’an 2:43) In addition to Zakat, further charity is strongly encour-
Zakat is not an arbitrary charity but has its own rules aged in Islam. According to Sahih Muslim, Abu Huraira
and mathematics. It is based on a specific type of reported Allah’s Messenger as saying: “When a child of
wealth, specific rates of payments, specific terms and Adam dies, his deeds come to an end, except for three:
is for the benefit of specific groups of recipients. Thus
a Muslim cannot pay Zakat randomly.

Islamic Wealth Management Report 2011

  1. Recurring charity, or, • M any ignore the fact that it takes a long time for
  2. Knowledge (by which mankind) benefits from, or, administrative matters to be settled before any estate
  3. A pious descendant, who prays for him.” of the deceased can be distributed. This is particu-
larly important if we have dependants who are sud-
Contemporary themes that address charity range from denly cut off from the means of support and for a long
poverty alleviation, education and social services to period of time.
support for the arts and literature as well as scientific
research and improvement. These themes are not inde- The prophet, peace be upon him, said: “It is better to
pendent as poverty alleviation is impacted by education leave your heirs rich than poor and begging.” Aside
which fosters sustainable self-help. Among Muslims, it from wealth preservation, this needs careful considera-
is often preferable to give discreetly to a needy person. tion of various issues, which are only briefly touched
Equally important, such generosity should not make the on here:
donor feel proud. Islamic estate planning has two major instruments:
  1. A n irrevocable gift during a lifetime. This can be
Under Islam, giving is not only a theoretical religious personal or in the form of Waqf (endowment of a
duty but a standard practice. To make such charity public or private cause).
recurring and receive permanent reward in the hereaf-   2. A will, allowing for a maximum of one-third of the
ter, Islamic foundations (Waqf, pl. Awqaf) were devel- estate to be passed on to any designated charita-
oped. Historically three quarters of all the land in the ble entity or person.
Ottoman Empire in the 1850s was Waqf. Nowadays,
USAID, in its report ‘The Idea and Practice of Philan- During his lifetime, a Muslim may plan to give away his
thropy in the Muslim World, 2005’, estimated the mag- wealth to a charity or to others, including family mem-
nitude of philanthropic giving in Muslim communities bers, without violating the principles of Sharia, since
at between USD 250 billion and USD 1 trillion annually, he is still the guardian of his own wealth. However as
which shows the generosity in Muslim culture. death approaches, the distribution of assets is or-
Effective philanthropy must also be subjected to a proper dained by Allah, its Ultimate Owner, in accordance with
planning process if the desired end is to be achieved. the Qu’ranic inheritance rules. These rules are manda-
tory as the Qur’an says: “Those are limits set by Allah.
Wealth Distribution – Estate Planning Those who obey Allah and His Messenger will be admit-
This topic has been dealt with in detail in our previous ted to Gardens with rivers flowing beneath, to abide
Wealth Report, as it is indeed unfamiliar to many. therein (forever), and that will be the supreme achieve-
There are many reasons why estate planning becomes ment.” (The Qu’ran Sura al Nisa’ 4:13) Furthermore, the
necessary: Prophet allows one to assign, by virtue of a last will, up
• It is a religious requirement: “It is not permissible to one-third of the net estate to charitable causes. In
for any Muslim who has something to will to rest for this regard, Ibn Abbas, the Prophet’s companion and
two nights without having his last will and testament cousin says: “I recommend that people reduce the
written and kept with him.” (Narrated by Abdullah ibn proportion of what they bequeath by will to one-fourth
Umar: Sahih Bukhari, Volume 4, Book 51, Number 1) (of the legacy), for Allah’s Apostle said: “One-third, yet
• H aving a plan in the case of dependants such as in- even one-third is very much.” (Sahih Bukhari, Volume 4,
fants or elderly parents. A plan is required to secure Book 51, Number 6)
a benefit for the dependant and leave this world in

Islamic Wealth Management Report 2011

The portion to be transferred by means of a will should This is like a sailor who needs to determine his destina-
therefore not exceed one-third. The remaining assets tion, assess his current position, study the way to his
are already “assigned” to heirs within the family. This destination and assess what is needed for the journey
Qur’anic assignment cannot be changed by a last Will. to arrive at the destination. In Islamic Financial Plan-
Even though the inheritance proportions are fixed, it ning you need to:
remains necessary for each Muslim to write a Will, leav- • S tart by defining your goals, and prioritize your objec-
ing his worldly affairs in good order. The Prophet said: tives for each phase, be it acquisition, preservation or
“It is not permissible for any Muslim who has something disposal of wealth. Define an appropriate time frame
to will to rest for two nights without having his last will and your risk tolerance. Your objectives, must be
and testament written and kept with him.” (Narrated by quantified so that their attainment can be measured.
Abdullah ibn Umar: Sahih Bukhari, Volume 4, Book 51, • G ather relevant data; this must be accurate, up-to-
Number 1) date and relevant. The more complex your situation
is and the more goals you have, the more challenging
The elements of such a will and testament (wasiyah, this task is. Be prudent and allow sufficient time for
regarding the transferable third), include distribution this step and seek qualified advisors, as the data and
to charities and to persons who are not ordained to information are the basis for further actions.
inherit, such as the grandchildren of surviving children • A nalyse the data. In this step, you establish a chart
(parents are first in line to receive, rather than grand- that is similar to a SWOT analysis. You determine your
children, unless the parent is deceased) and friends. strengths and weaknesses and the requirements to
Further, in countries that do not have Sharia-based in- achieve your goals.
heritance laws, it becomes necessary to include distri- • D evelop a plan which is based on the knowledge
butions to heirs according to Sharia-assigned propor- gained above. The plan should be specific and respect
tions because of their mandatory religious nature. the Islamic teachings.
• Implement the plan. Your level of commitment to the
Wealth Acquisition, Preservation and Disposal needs plan determines to a great extent its success.
­I slamic Financial Planning • Keep monitoring developments with a critical eye. Is-
Financial planning in general is a methodology to man- lamic Financial Planning is a dynamic process, and
age wealth holistically. The six-point process has been should be kept alive until you, reach your goals.
introduced by the International Standards Organisation
(ISO) in its norm No. 22222:5 and can be applied to
Islamic financial planning as the planning procedure,
while all the aspects explained above are also taken
into consideration.

Islamic Wealth Management Report 2011

Islamic Wealth Management Report 2011

The cash Waqf

and endowments
Planned giving and philanthropy by wealthy investors are on the rise, both globally and in the GCC/MENA region.
Examples include the recent establishment of the King Abdullah University of Science and Technology (KAUST) with
an endowment of USD 10 billion, considered to be the 6th largest endowment in the world. Furthermore, according
to an August 2010 Guardian report, 40 American billionaires, led by Bill Gates and Warren Buffet, have pledged to
give at least half of their wealth for philanthropic purposes, estimated at over hundreds of billions of dollars.

by Ernst & Young

Within the GCC, strong fundamentals for philanthropic Based on these fundamentals, the annual giving in the
giving exist, including: GCC is estimated to be in the range of USD 35 billion
• a significant GDP level of close to USD 1 trillion; to USD 50 billion.
• a sizable population of approximately 40 million; On the funding side, there is a wide Waqf (donor) base
• a large number of millionaires estimated at 400 000 in the GCC. The figure below identifies the various Waqf
with aggregate assets in the range of USD 1.5 trillion; segments and highlights the nature of philanthropic giv-
• a large government and corporate asset pool esti- ing unique to each segment:
mated at over USD 2 trillion.

Waqf segments and donation characteristics, low/middle income

Small donations and on a frequent basis

Mass affluent & HNWIs

Reasonably sized donations. HNWIs provide large cash lump sums and other contributions, including property,
jewellery, securities, etc.

Corporations e. g. in finance, industrial, oil, health sectors provide large frequent donations for publicity,
corporate social responsibility and diversification

Government institutions
Sovereign wealth funds (SWFs), Government institutions and independent
Waqf foundations (KAPF, AMAF, QEF, others)

Nongovernment institutions
Government financed and non-Awqaf focused charities
Source: Ernst & Young analysis

Islamic Wealth Management Report 2011

In addition to a wide Waqf base, a number of other fa- Performance inefficiencies constitute low historical
vourable drivers highlighted below are leading the re- returns and low asset class diversification by Awqaf
vival of Awqaf (Islamic endowments) in the GCC: institutions and wealth managers
Awqaf institutions currently have primarily two return-
Key growth drivers of the Awqaf sector generating investment classes for wealthy investors.
Increased wealth in the GCC The primary asset class consists of real estate. The
• Wealth in the GCC increased from USD 0.8 trillion in secondary asset, which is lower in proportion in terms
2003 to USD 1.5 trillion in 2009 of value, consists of cash Waqf. Due to poor manage-
• In 2009, Middle East HNWIs made a higher asset al- ment of the real estate properties and the failure to con-
location to philanthropy vert the properties into viable and high income yielding
assets, a large portion of the Awqaf institutions’ asset
Public, private and government support base is yielding a very low return. Moreover, the Awqaf
• C orporate social responsibility is leading to greater institutions are finding it hard to identify appropriate
amounts of donations to charitable causes investment avenues for cash Waqf. As a result, we ob-
• Success of endowments model internationally has serve that many of the Awqaf institutions are carrying a
highlighted their greater potential low return yielding asset portfolio.

Waqf models Awqaf institutions also suffer from low diversification.

• Innovation in cash Waqf model This is evident at two levels. At the primary level, the
• Islamic banking growth real estate asset class constitutes a substantial part
of the asset base of all Awqaf institutions. At the sec-
In spite of strong fundamentals, a wide Waqf base ondary level, for the cash Waqf, which is a smaller pro-
and favourable drivers in the GCC, the growth of this portion of the asset base, the institutions are utilising
segment so far has been adversely impacted by the very limited investment alternatives, which, in turn, are
quality of management of Awqaf assets. Ernst & Young dampening their return potential and thus attractive-
conducted a primary research survey to identify and ness as an investment instrument to wealthy investors.
characterise the key issues and challenges that Awqaf
institutions and their wealth managers are currently
facing. The research revealed two primary inefficiency
areas which can be characterised as performance inef-
ficiencies and governance inefficiencies:

Islamic Wealth Management Report 2011

Governance inefficiencies – a high level of bureaucracy

and low operational and performance transparency of
Awqaf institutions and wealth managers
Interviewees from the Awqaf sector, including wealth
managers and private bankers, have commented that
there is a high level of bureaucracy in their institutions,
especially in the management of Awqaf assets and
in some cases with the disbursement of proceeds to
charitable causes. As a result of this phenomenon the
wealth managers are being adversely impacted in two
ways, namely, in terms of decision-making agility and
operational efficiency. There is a substantial timelag in
the identification of an opportunity, the decision to take
advantage of the opportunity and the mobilisation of
resources. This means that the wealth manager is un-
able to take advantage of investment avenues for cash
Waqf, which require timely origination and exit. Further-
more, the internal operational procedures of the Awqaf
institutions are also time-consuming and inefficient.

Lack of transparency remains a feature common to

almost all Awqaf institutions. There is no clear visibility
and tracking of the utilisation of Waqf funds for opera-
tional expenses or disbursement to charitable/social
causes. Moreover, performance also suffers from low
transparency; it is difficult to find data on the returns
being generated by the Awqaf institutions on their vari-
ous investments. It is safe to conclude, based on our
primary research, that most of these institutions are
earning no more than money market returns.

Addressing these inefficiencies requires a professional

wealth management model, which should encompass
expertise in asset management, exploiting enabling
infrastructure such as established trust laws and a
model designed to fulfil the core requirements of gen-
erating higher returns from the existing Waqf assets.

Islamic Wealth Management Report 2011

Islamic Wealth Management Report 2011

Islamic governance for managing wealth –

experiences from family offices in Switzerland
Wealth managers and wealthy families need to establish Islamic governance for managing wealth. A significant
number of family offices provide tailored financial services globally. These are designed for families with very large
and complex portfolios of assets and protect investors’ interests on the basis of absolute independence through
optimal wealth management and comprehensive coordination of individual wealth assets.

by Ernst & Young

The size and key characteristics of family offices in Switzerland are summarised below:
Market value
The overall size of the Swiss market is estimated at around CHF 100 billion.

Market structure and size

Between 300 and 400 family offices operate in Switzerland and this includes both single family office (SFO)
and multi family office (MFO). Family office portfolios are in the range of CHF 10 million to CHF 50 million.

Key market characteristics

Family offices are generally a discreet business and work in close circles; service providers are introduced and
recommended via references and existing network contacts.
Family offices have a significant presence in Switzerland and are served out of the Swiss market as well as
from abroad, mainly servicing foreign clientele, including wealthy Islamic investors and families.
The number of family offices is distributed equally between Geneva and Zurich.

High-priority Products Services

Tailor-made wealth management products (e. g. tailored advisory and investment portfolios),
product diversification and administrative ease with regard to products and solutions.
Long-term investment strategy horizon, increasing exposure to hedge funds and private equity
(overall 20 % to 25 %, with around 15 % in private equity).

Local presence in the market and geographic location, registered and/or regulated entity.
Family office services are typically ‘all you can eat’ for expenditures fee or flat retainer fees;
wealthy investors therefore expect competitive pricing.
Source: Ernst & Young Switzerland analysis

Islamic Wealth Management Report 2011

Following our discussions with executives and bankers As single family offices and multi-family offices grow
from several family offices serving wealthy Islamic in- increasingly influential in the practice of Islamic wealth
vestors in Switzerland, family office experts agree that management in Switzerland and other financial centres
effective Islamic governance is a crucial element in the where Islamic wealth is concentrated, it is appropriate
business model and wealth management investment to conclude that a sound family office Islamic govern-
process. Done properly, Islamic governance provides ance structure is a key element of the family office’s
everyone in the wealthy investor’s family with a clear business success. The more investment is made in a
roadmap for the future and reduces the chance of con- governance structure for the family office, the more
flict. Many elements of family office Islamic governance interaction there is with the wealthy investor’s family
are derived from traditional family business governance members, the more investment in the education of the
practices as well as Sharia governance, however family next family generation as well as upholding of Islamic
offices have started to make their own special require- values and traditions takes place, overall resulting in
ments and effective governance to include the following: better financial planning as well as improved (financial)
• A sound base of shared values between the family performance for the Islamic investor.
office and the wealthy investor, reinforced through
trusting relationships, as this is the foundation on
which successful financial and family strategies are
• F ormal governance mechanisms, including for exam-
ple wealth manager and trustee succession provi-
• O perational procedures and operational manuals for
the family office and its private fiduciary structures
reflecting the needs of individual Islamic investors.
• E stablishing of a Sharia supervisory board and con-
sideration of broad issues of Sharia governance. How
can Sharia conflicts of interest be avoided? What
levels of disclosure must be made regarding the ba-
sis on which a fatwa has been issued supporting a
particular Islamic financial product? What risks and
consequences arise if an Islamic financial product is
deemed to be non-compliant in the future?
• Implementing a private trust company to serve as
fiduciary for an investor’s family’s multi-generational
trusts, and delineating roles of family members and
staff, succession procedures, etc.
• A rranging independent Islamic foundations and
endowments (Waqf or Awqaf) to serve as a tool of
wealth distribution for the wealthy investor’s family.

Islamic Wealth Management Report 2011

Islamic Wealth Management Report 2011

Islamic mutual funds – breadth and depth – an

interview with Sameer Abdi, Ernst & Young
While Islamic mutual funds have faced a recent period of flat growth, these vehicles remain a fundamental compo-
nent of the Islamic investment universe. As the economy improves, opportunities for growth should increase, but
the Islamic funds industry also needs to improve its products to make them more attractive to investors and fulfil
their great potential. Sameer Abdi, lead partner of the Islamic Financial Services Group at Ernst & Young in Bahrain,
shares some insight on the latest trends in this important Islamic investment class.

The growth of Islamic fund assets has remained flat Sameer Abdi is lead partner of the
over the past couple of years even though the poten- Islamic Financial Services Group
tial wealth pool has grown. What measures are fund at Ernst & Young in Bahrain. He is
managers taking to create more attractive value for a chartered accountant with sever-
investors? al years of experience in the finan-
The growth of Islamic fund assets has remained flat cial services industry and a fre-
since the end of 2008. The main reasons for this are quent speaker at Islamic finance
that a) Islamic funds have mainly been real estate funds, conferences and regular contributor to industry pub-
which became an unattractive asset class for investors lications. He has co-authored Euromoney books on
during the financial crisis; (b) there has been a general Islamic Asset Management (2004) and Islamic Retail
shift in investor risk appetite towards bank deposits; Banking (2005) as well the Islamic Finance Review
and (c) transparency and disclosure from a number of 2005 – 2006.
Islamic fund managers has not at par with leading in-
dustry practice. Fund managers need to address diver-
sification, transparency and product breadth and depth What advantages do Islamic mutual funds offer in the
if they wish to make Islamic funds more attractive. present investment climate?
Mainly a well-diversified exposure to equity markets.
As you mentioned, many Islamic investors tend to From the perspective of retail investors who are suffer-
place their funds with banks rather than in mutual ing from low rates on their bank deposits, mutual funds
funds. What is preventing investors from embracing provide an excellent way to improve return on invest-
mutual funds more fully? ment in a fairly well-regulated manner.
It’s mainly variety and risk appetite. Mutual funds are
popular with institutional investors and pension funds What kind of funds do Islamic investors seem most
that can provide access to retail investors. Unfortu- interested in at the moment?
nately, the Islamic industry has neither sufficient prod- This depends on the type of investor we are talking
uct variety nor active financial intermediaries to sell about. Retail investors continue to look for access to
these funds to retail investors. the mutual fund market. HNWI and institutional inves-
tors have not changed their asset allocation signifi-
cantly in the last 12 months, but are actively looking
at equity funds and private equity with interest. There
has been a recent upsurge in income-based real estate
funds in the Middle East market as well.

Islamic Wealth Management Report 2011

What is the current role of alternative Islamic funds? What is happening right now with real estate funds?
Over the last 10 years, a significant proportion of Real estate will remain an important asset class for
Sha­ria-compliant wealth has been invested in alterna- investors, except that the focus now is on income-yield-
tive asset classes such as private equity and opportun- ing funds rather than high-IRR opportunistic real estate
istic real estate development vehicles. However, most funds. I believe that within the next 24 months, Islamic
of this investment has been through direct vehicles investors will be allocating wealth to real estate in the
set up by Islamic investment banks, not through fund same proportions we saw prior to the financial crisis.
structures. While the opportunistic real estate side is
quiet, there is renewed interest in PE, but interestingly, What are the latest developments in Islamic hedge
investors are now asking for fund structures to improve funds?
diversification and get better disclosure of the fund’s This part of the market has not moved in the last five
performance. years. It has been difficult to convince conservative
scholars of the Sharia compliance of hedge funds. Sec-
What are the advantages of Islamic funds right now ondly, the proportion of the Islamic investor market that
vs. direct investment in Islamic ventures? is actively seeking hedge fund investments today is too
There are three main advantages: small for fund managers to invest in product develop-
  1. B etter diversification of investor risk. ment. However, I hope I am proven wrong soon!
  2. B etter disclosure and transparency, especially if
funds are in regulated jurisdictions such as Lux- How did the asset allocation of HNW Islamic investors
embourg. shift in 2010 and what can we expect for 2011?
  3. G reater ability to compare performance of compet- The asset allocation for HNW Islamic investors has
ing fund managers. changed slightly since 2010. Of course, my comments
are based on empirical research and not on fact-based
What are some current trends in pricing structures detailed studies of the market. We are seeing a shift
and fees for Islamic funds? away from bank deposits and money market funds
Fees have decreased by 25 % (40 basis points) on aver- towards income funds (real estate and equities). Alloca-
age since 2006 in the Islamic industry. Greater compe- tion to PE is improving, while allocation to fixed income
tition has been and still is the key reason. bond and leasing investments remains low.

What are some new geographical hotspots that might

be of interest to Islamic fund investors?
The financial crisis has led to investors seeking safe
haven countries, mainly the United States. We are also
seeing renewed interest in regional private equity funds
in specific sectors, such as health care, transportation,
agriculture and the like. Asia-Pacific is also becoming a
hotspot for investors looking to tap into the economic
boom there.

Islamic Wealth Management Report 2011

Islamic Wealth Management Report 2011

Sukuk – the spirit of Sharia:

interview with Khalid Howladar, Moody’s
After suffering some setbacks in recent years, sukuk have once again started seeing growth, with total issuance
even higher than that in 2007. The industry still faces challenges, including issues of standardization and liquidity,
but it seems to be back on track in terms of development. Sukuk Khalid Howladar, Vice President – Senior Credit
Officer, Asset Backed and Sukuk Finance with Moody’s Middle East in Dubai, discusses the latest developments in
the field.

What new regions are emerging in sukuk and Khalid Howladar is Vice Presi-
which ones will be of particular interest to Islamic dent – Senior Credit Officer, Asset
investors? Backed and Sukuk Finance with
Saudi has recently made efforts to promote sukuk, with Moody’s Middle East in Dubai. He
Muhammad Al-Jasser, governor of SAMA, the central has lectured at the University of
bank, saying recently that sukuk have great potential Dubai, taught local workshops and
there and that he would like to see the local credit mar- written articles for numerous inter-
ket diversified from bank finance to corporate bonds national finance journals on credit risk, securitisa-
and sukuk. Two or three sukuk are expected to be tion and ratings of sukuk structures. Prior to joining
issued in Saudi every quarter this year. I think this Moody’s in 2001, Howladar spent four years at Cred-
could be the sleeping giant of the market. it Suisse in the emerging market fixed income group
Malaysia continues to dominate, with some UAE com- as a senior analyst on the risk management team.
panies also returning. The National Bank of Abu Dhabi,
for example, recently launched more than USD 164 mil-
lion in 10-year sukuk. What efforts are Accounting and Auditing Organiza-
tion for Islamic Financial Institutions (AAOIFI) and
What are the currencies of choice for sukuk investors other associations making with regard to sukuk?
today? Publishing standards and having discussion forums for
USD for international and MYR for Malaysia. key market participants are crucial in helping the mar-
ket move forward. AAOIFI now has now 86 standards
Where are we heading in terms of supply of investable in accounting, auditing, ethics, governance and Sharia.
sukuk? In the past year, AAOIFI has issued a number of new
Unfortunately, it is still not growing fast enough – wit- accounting standards and revised existing ones. Re-
ness the UK Treasury’s decision not to issue a sover- cently, it also approved France’s model to issue local
eign sukuk. The supply of sukuk is limited to South- sukuk, for example.
east Asia and the Middle East and the liquidity pool
will remain comparatively small while the investor base
remains small.

Islamic Wealth Management Report 2011

What efforts are being made to standardise sukuk Some sukuk suffered during the financial crisis, with
offerings across markets and what more needs to be defaults and restructurings. What is the progress
done? on this and how has it affected sukuk investment?
Apart from AAOIFI standards, it doesn’t seem as if It revealed some of the weaknesses that Islamic prod-
much is happening at all. Again, the drop in volume ucts are exposed to relative to conventional ones.
since the crisis started has diminished the pressing These weaknesses stem from Islamic products trying
need for standardisation. This, for me, is one of the to replicate conventional ones and often masking their
biggest issues in the market: the complexity of most debt/interest-based nature, which enables defaulters
sukuk products for what is essentially a bond is a inef- to “try” to use a possible legal escape route exploiting
ficient. Clear and standardised distinctions need to be Sharia.
made between unsecured (asset-based) and secured Islamic products that follow the substance of Sharia
(asset-backed) sukuk. In my mind, it’s only the latter rather than just complying with the form would not have
that actually come close to complying with the spirit of this issue. This would, however, most likely mean an
Sharia. even smaller sukuk market.

How well are different investor classes served by

current sukuk offerings?
Currently, the majority of sukuk are targeted at the reg-
ular fixed income investor base. Some (asset-backed)
attract a more specialised pool of investors who are
keen on asset-backed vs. unsecured corporate risk.

What could be done to better serve diverse investor

Transparency, education and communication. We need
to segregate those investors that actually care about
Sharia compliance and educate them separately so
that they can ask the right questions when investing.

How is the sukuk market developing in terms of

Slowly – it’s still small and illiquid. Most sukuk are still
held to maturity and an interbank market is still needed.
While the International Islamic Liquidity Management
Corporation (IILM) – whose equity subscribers are cen-
tral banks, monetary authorities and multilateral agen-
cies – was set up last year to facilitate liquidity man-
agement for Islamic finance, it has only just begun to

Islamic Wealth Management Report 2011

Islamic Wealth Management Report 2011

Islamic equity indices mirror

regional and expansion trends
Equity investing in 2010 mirrored the decoupling of certain emerging markets from the financial crisis fallout. It
also mirrored the growing demand for commodities. In the meantime, the Islamic family of equity indices is expand-
ing into new regions, demonstrating that, despite the industry’s boom during the last decade, there is still room for
diversification. For the wealthy Muslim investor, putting faith in finance will provide more options to benefit from
trends and to manage risks.

Investing in Sharia-compliant equities remains a corner- Stanley Capital International (MSCI) and Russell Invest-
stone of Islamic finance. While the outstanding volume ments. Indices have various functions: they are used
of Islamic bonds or sukuk is fragmented and regionally in asset management as benchmarks; they form the
spread, Islamic equity indices cover nearly all countries, basis for calculating market risk or beta; and they allow
regions and industry segments which do not contradict professional and retail investors to track the economic
Islamic values. performance of a region, country or industry.

These benchmarks give investors an indication of how a Muslim investors are not permitted to invest in firms
region or country performs over time and which sectors producing alcohol, tobacco, pornography. Nor may they
are driving index trends. They also offer a measure of invest in conventional banks or insurance operations.
comparison. Sharia-compliant indices are offered by a These kinds of business are regarded as impermissible
number of index providers, including Dow Jones Index- or haram for Muslims. Firms with a debt to market capi-
es, Standard and Poor’s (S & P), FTSE Group, Morgan talisation ratio of over one-third are also taboo as well
as companies that hoard money. The idea behind this
Emerging Markets compared is the concept of Tauhid or unity. Entities can only serve
1500 the Muslim community, the Umma, if they manage their
1400 finances in a responsible way and do not put jobs at
1300 risk by overleveraging or divesting. As a rule of thumb,
1200 a firm which generates not more than 5 % of the afore-
1100 mentioned haram goods or services can be included
1000 in an Islamic index, while companies with primary or
900 secondary business activity in an impermissible area
800 will be excluded.
The Sharia filters lead to increased allocations towards












high tech-, health- and basic materials-heavy compos-

Dow Jones Islamic Market Thailand Index (USD) Rebased ites, as these industry sectors are basically Islamically
Dow Jones Islamic Market Sri Lanka Index (USD) Rebased pure or halal. Since most Muslim capital markets are
Dow Jones Islamic Market Pakistan Index (USD) Rebased part of the emerging markets, investing only in the
Dow Jones DFM Titans 10 Index (USD) Rebased BRIC or in East Asia would inevitably lead to a volatile
Source: Dow Jones Indexes, Sarasin equity portfolio. 99 % of all Sharia-compliant stocks are
located in non-Muslim countries. Having said that, in

Islamic Wealth Management Report 2011

Islamic wealth management a well-diversified portfolio Emerging Markets versus developed Markets
should not focus exclusively on the emerging markets 1300
in the Middle East and North Africa and should not put 1200
all its eggs in the South-East Asian basket. 1100
Dow Jones Islamic Market: Sector Indices 900
1300 800
1200 700











900 Dow Jones Islamic Market U.S. Titans 50 Index (USD) Rebased
800 Dow Jones Islamic Market Europe Titans 25 Index (USD) Rebased
700 Dow Jones Islamic Market Pakistan Index (USD) Rebased
Dow Jones DFM Titans 10 Index (USD) Rebased












Source: Dow Jones Indexes, Sarasin

Dow Jones Islamic Market Basic Materials Index (USD) Rebased
The political crisis currently facing some MENA states
Dow Jones Islamic Market Industrials Index (USD) Rebased
Source: Dow Jones Indexes, Sarasin demonstrates once again the importance of regional
diversification. The political deadlock in Egypt might
2010 was clearly another year in which emerging mar- be remembered as an opportunity to buy. Some ten
kets outperformed. The Dow Jones Islamic Market (DJIM) years ago, the largest Muslim state Indonesia also went
Sri Lanka Index (up 37.58 %) posted the highest advance through a sudden political change, but – as in Egypt – it
in the Sharia-compliant Dow Jones Indexes universe. It saw no destruction of its infrastructure.
was followed by DJIM Thailand Index (34.00 %) and – de-
spite the tragic flood catastrophe – the DJIM Pakistan But the industry also faced setbacks. As a result of the
Index (up 29.04 %). The fallout from the financial crisis financial crisis, a number of Islamic funds from other
weighed on Dubai, where the Dow Jones DFM Titans providers had to be closed after failing to generate suf-
10 Index declined 9.71 % over the last few years. As a ficient volume. The solution to this problem is a cus-
direct comparison, the DJIM U. S. Titans Index gained tomised, needs-based approach, which certainly uses
5.74 % in 2010, while the Dow Jones Islamic Market Eu- the aforementioned index benchmarks, but avoids put-
rope Titans 25 Index edged up 0.65 % during the same ting standard funds into the portfolio. In addition, since
period. In the sector index universe, the DJIM Basic the Quaran does not forbid investing in commodities,
Materials Index topped the charts by gaining 27.30 % the probable ongoing desire for raw materials, indus-
in 2010, followed by the DJIM Industrials Index, which trial metals oil and gas will continue to fuel the un-
surged 24.47 %. derlying firms and indices, offering wealthy clients an
opportunity to participate in rising commodity prices,
Meanwhile, the spectrum of Islamic equity investing is without compromising on Islamic principles – as long as
becoming broader. At the end of 2010, the oldest stock the sensitive issue of basic food supplies is not com-
exchange of Asia, the Bombay Stock Exchange (BSE) promised.
launched its first Islamic benchmark, the BSE TASIS
Sharia 50 Index. India is home to some 200 million
Muslims who aim to invest in line with their faith.

Islamic Wealth Management Report 2011

Islamic Wealth Management Report 2011

Catastrophes do not
derail the global economy
The triple catastrophe in Japan does not pose a threat to the global economy. And provided there is no escalation
of the unrest in the Middle East, higher oil prices will be offset by the recovery of employment. Only the emerging
market economies, where inflation is rising and currencies are appreciating, face a stronger deceleration. In the
industrialised economies, growth momentum is at record levels because policies are increasingly overstimulating
the economy. After powerful growth in 2011, a hangover threatens to mar the economic outlook in 2012.

Triple catastrophe in Japan Japan after Kobe: V-shaped rise in investments

The first quarter of 2011 was overshadowed by a series 6 25
of natural catastrophes that caused such widespread 4 20
destruction they had a powerful impact on the global 2 10
economic development. After the floods in Australia, 0 5
the earthquake in Christchurch, New Zealand, and −2 0
snowstorms in the USA, which pushed up food prices −4 –10
across the globe, the spate of natural disasters culmi- −6 –15
nated in a massive earthquake in Japan that measured 1994 1995 1996
9 on the open-ended Richter Scale. The tsunami that JP consumption yoy
struck shortly afterward wiped out whole swathes of JP investments yoy
northeast Japan. The combination of these two events JP public investments yoy (R. H. SCALE)
caused an accident at the Fukushima nuclear power Source: Datastream, Sarasin
plant, which released radioactive emissions into the
atmosphere. The impact on Japan’s economy and the Japan and the consequences for the global economy
global economy can only be quantified in the second Although Japan is the world’s third-largest economy, its
quarter. But we know from the earthquake that hit Kobe share in the global economy is just 6 %. This means that
in January 1995 that even after the destruction of the in an extreme scenario, the direct impact of a tempo-
country’s capital stock equalling 2 % of gross domes- rary 10 % decline in the Japanese economy on global
tic product (GDP), a powerful recovery is possible. The growth, which we estimate at 4.8 % in 2011, would re-
release of pent-up consumption, replacement invest- duce global growth by no more than 0.6 percentage
ments and reconstruction work should lead to an up- points. Furthermore, Japan is a relatively closed econ-
swing in the second half of 2011 following a recession omy. The share of imports is just 10 % of the GDP. If
in the first half of the year. Japanese demand declined by 10 percentage points,
global exports to Japan would drop by only one percent-
age point of the Japanese GDP, i. e. 0.06 percentage
points of global GDP. If we include multiplier effects,
we would have to revise global GDP ’11 downwards by
no more than 0.8 percentage points to 4 %, even in the
worst-case scenario.

Islamic Wealth Management Report 2011

Headline inflation driven by oil prices Sustained downturn in unemployment rates

6 80 14
5 60 12
4 40 10
3 8
2 6
1 4
0 2
–1 –40 0
−2 –60 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
−3 –80 US unemployment rate in %
2004 2005 2006 2007 2008 2009 2010 DE unemployment rate in %
EMU CPI yoy CH unemployment rate in %
US CPI yoy Source: Datastream, Sarasin
Crude oil (Brent) in USD (R. H. SCALE)
Source: Datastream, Sarasin 0.55 percentage points off growth in the USA and the
Euroland respectively.
Oil price increases dampen purchasing power
In terms of the global economic implications, the so- Employment recovery and fiscal policy boost
called “Arab Spring” is of greater significance. The consumption
“jasmine revolution” has led to the downfall of several This type of statistical analysis does not take the dy-
authoritarian political regimes in North Africa, and the namic effects of the economic recovery into account.
situation on the Arabian Peninsula also threatens to be- Consumption around the world is becoming more and
come precarious. Provided the situation in the region’s more robust, thanks to the labour market recovery,
major oil-producing countries, i. e. Saudi Arabia, Iran, which is becoming increasingly apparent in all the re-
the United Arab Emirates, Iraq and Kuwait, remains gions of the world. The unemployment rate is falling
calm, supply interruptions can be offset by oil produc- sharply, especially in countries that are not subject to
tion in other countries. So far, the recent oil price rise structural adjustments in the construction industry and
is not due a real supply shortage, but to a risk premi- retail trade, such as Germany and Switzerland. In fact,
um. Nonetheless, an elevated risk premium could also the unemployment rate has even dropped significantly
damage the economy. It creates a gap between head- in the USA, after languishing for two years at around
line inflation and core inflation. The current oil price 10 %. As the unemployed return to the workforce, total
increase is consistent with an increase in this gap of payrolls increase, helping to further underpin income. If
one percentage point. This means that consumers have we include income-boosting fiscal policy measures, like
lost 1 % of their purchasing power. If the risk premium those introduced in the USA, consumers should be able
were to permanently stay at this level, it would cause a to bear this dramatic increase in oil prices.
one-off decline in growth equivalent to the rate of con-
sumption – shaving 0.7 percentage points and about

Islamic Wealth Management Report 2011

Growth spurt at a new record level China targets growth of 7 %

The labour market recovery is also fuelled by the power- Attention in the coming quarters will increasingly focus
ful new surge in global growth that started at the end on China’s economy. In 2010, China recorded an exu-
of 2010. When the US Federal Reserve opened the berant growth rate in excess of 10 % and the economy
monetary flood gates and new fiscal policy stimuli were even accelerated in the fourth quarter. The central
set in motion, the confidence in the industrial sector bank received the bill for its overly timid efforts to slow
has improved dramatically. Several US sentiment indi- the economy at the beginning of the year. Inflation at
cators have reached their highest level since 1984. In the turn of the year 2010/11 exceeded 5 %. Fearing it
Euroland, the upswing in core countries that began in might face social unrest like the governments of North
mid-2009 has continued without interruption, despite Africa, China’s political leadership abruptly reversed its
the debt crisis. Even Japan had managed to reverse policy. Chinese Premier Wen Jiabao told the National
the indicators away from recessionary levels before the People’s Congress that the government would lower its
earthquake struck. Only sentiment indicators in emerg- economic growth target to a level of just 7 %. This level
ing markets like China fall short of their former strength. was associated with a decline in prices (deflation) in
The tightening measures that were introduced by the the last 20 years. At the same time, Premier Wen an-
central banks and that have been applied with increas- nounced his intention to let the Chinese inland partici-
ing vigour will dampen growth. pate in the economic expansion.

Confidence in the USA and Germany at a record level China: Money supply is limited
65 115 10 40
60 110 8 35
55 105 6 30
50 100 4 25
45 95 2 20
40 90 0 15
35 85 –2 10
30 80 –4 5
2008 2009 2010 2011 99 00 01 02 03 04 05 06 07 08 09 10
US ISM manufacturing index CN CPI yoy
China PMI manufacturing CN M1 money supply yoy (R. H. SCALE)
DE ifo business climate (R. H. SCALE) Source: Datastream, Sarasin
Source: Datastream, Sarasin

Islamic Wealth Management Report 2011

Islamic Wealth Management Report 2011

Dampening growth to achieve price stability without Gulf region: Political unrest in focus
causing a hard landing in China is the greatest chal- Paradoxically, the big Gulf states stand to profit from
lenge facing the Chinese government. China’s economic the unrest in North Africa. The continuing rise in oil
governance which is still very similar to a planned-econ- prices will generate a spectacular amount of addition-
omy means that decision makers use crude means to al revenue for the Gulf states. On the other hand, the
influence the economy like production and loan limits. performance of the services industry, especially the fi-
The current very steep decline in the M1 money supply nancial sector and tourism, which the Gulf states have
gives rise to fears that the People’s Bank of China is turned into a second mainstay in recent years, is likely
not in control of the situation. Uncertainty lingers and to differ greatly. While Qatar managed to secure the
will come to a head by the middle of the year. 2022 Football World Cup, Bahrain was forced to cancel
the start of the new Formula One season due to the
Emerging markets: Clear decline in growth political unrest in the country. We expect investor confi-
16 dence in Bahrain and Saudi Arabia to wane in the com-
12 ing quarters due to the political tensions. Meanwhile,
8 Dubai emerges as the regional beneficiary of the crisis.
4 Dubai suffered for a long time under the excesses of
0 the boom years and the uncertain and opaque financial
−4 basis of its major projects. Due to the stable political
2005 2006 2007 2008 2009 2010 2011 situation in the United Arab Emirates, Dubai is likely to
Brazil GDP yoy have gained favour with investors.
India GDP yoy
China GDP yoy Southeast Asian growth cooled from a high level
Source: Datastream, Sarasin The powerful economic growth recorded in 2010 in the
Southeast Asian economies is unlikely to continue in
Dampening in the emerging markets lies ahead the next two quarters. We expect weaker growth until
Whereas China and India are tightening monetary policy autumn 2011, similar to China. Inflation has increased
to dampen growth, emerging markets with flexible ex- significantly in many Southeast Asian economies due
change rates like Brazil are suffering due to an appreci- to the sharp rise in food and oil prices. This is forcing
ation of their currencies. The excessively lax monetary the central banks in the region to discontinue their low
policy in the US is putting upward pressure on emerging interest rate policy of 2009 and 2010. This has hit in-
market currencies and diminishing their competitive- vestments, which soared last year thanks to record-low
ness. The above chart shows that the Brazilian real’s interest rates and pentup demand from the credit crisis.
strength dampens growth more than interest rate hikes Consumption has profited from the economy’s robust
in China and India. This is compounded by the fact that performance in recent years. However, sharply higher
emerging market consumers are hit very hard by higher food prices and rising interest rates will cut consum-
food prices. Even if the catch-up process in emerging ers’ purchasing power. With regard to exports, weaker
market economies keeps growth on a higher trajectory, demand from China and Japan is likely to be partly
economic uncertainty will persist until inflation is sub- cushioned by the stronger-than-expected upswing in
dued and the currency appreciation has been absorbed. the industrialised economies of the West. The forecast
slowdown in growth by the middle of the year could form
the basis for a recovery toward the end of the year and
into 2012. Weaker growth and easing commodity mar-
kets in the second half of the year will help to decrease

Islamic Wealth Management Report 2011

central banks’ inflation fears. When the region’s central the RBI’s aggressive interest rate moves. India’s infla-
banks ease back on tightening monetary policy in the tion based on wholesale prices stubbornly clings to the
second half of 2011, the Southeast Asian economies 10 % threshold. The RBI cannot avoid further interest
should resume their strong growth rates of recent years. rate hikes if it is to control inflation and – even more
important – inflation expectations. The slowdown in In-
Southeast Asia: catastrophes accentuate the cycle dia’s economic growth will continue in the summer with
The scenario of a clear slowdown in economic growth further monetary policy tightening. Investments will be
until autumn, followed by a soft landing and an acceler- hit hard by the rate rise. However, the RBI should reap
ation in growth in 2012, should be further accentuated the fruits of its aggressive interest rate policy in the
by the environmental catastrophe in Japan. The interim second half of the year. We expect inflation to subside
slump in Japan’s growth expected by us will also affect on the back of the weakening economy during the year.
the Southeast Asian economies. Their economies are This should give the RBI leeway to stop its rate hikes
closely intertwined with Japan’s. In many of these econ- in the second half of the year and thus build the basis
omies, exports to Japan expressed as a percentage of for a soft landing for the Indian economy and a recovery
total exports are between 10 % and 20 % . Furthermore, in 2012.
Japanese companies are key suppliers of high-tech in-
termediate products and bottlenecks after the disas- Euroland: Austerity programmes and competitiveness
ter are therefore likely to slow production throughout In Europe, the performance of core and periphery
the region. A decline in Japan’s direct investments in economies continues to diverge strongly. On the one
Southeast Asia is also expected because Japan needs hand, core countries such as Germany, Finland or the
its capital to rebuild its own economy. Last but not Netherlands are recovering from the crisis with strong
least, a collapse in Japanese consumer sentiment is growth rates, thanks to their competitiveness, lower
likely to have a negative impact on tourism revenues. fiscal deficits and no hangovers in consumption and
The reconstruction of damaged infrastructure in Japan construction. On the other hand, periphery economies
should give the entire region a boost in the second half are struggling with significant headwinds, due to the
of the year. Economies that stand to profit the most are problems in the banking sector, public austerity pro-
ones with a large share of commodity exports, such as grammes and high structural unemployment. The Inter-
Malaysia and Indonesia. national Monetary Fund, which monitors the conditions
of the EU bailout fund, confirms that Greece and Spain
India: RBI’s battle against inflation dampens growth have made further progress in consolidating their budg-
India’s leading indicator, which closely followed the US ets. The public’s attention focuses on the periphery at
ISM Manufacturing PMI over the last ten years, has the moment, but it is growth in core Europe that deter-
decoupled from its US counterpart in recent months. mines the performance on the continent. In aggregate,
While sentiment in the US manufacturing industry has growth has not been this strong in years.
recovered since last autumn, in India the leading indi-
cator and industrial production growth have declined.
This decoupling is due to the different monetary poli-
cies pursued by the central banks in India and the USA.
The Indian central bank (Reserve Bank of India, RBI)
was forced to continue with its monetary tightening
policy in recent months. It has raised key interest rates
in the last four quarters by almost 200 basis points to
6.75 % . The ongoing surge in prices is responsible for

Islamic Wealth Management Report 2011

Southern Europe struggles to consolidate budgets Macroeconomic forecast 2009 2010 2011 2012
20 4 World GDP (% YoY) –1.3 4.8 4.8 4.5
0 0 USA GDP (% YoY) –2.6 2.8 3.5 2.1
Unemployment (%) 9.3 9.6 9.0 8.5
–40 Inflation (CPI,%) –0.3 1.6 2.1 2.1
–60 Euroland GDP (% YoY) –4.0 1.7 2.0 1.6
–80 Unemployment (%) 9.5 10.0 9.7 9.6
–100 –20 Inflation (CPI,%) 0.3 1.6 1.9 1.8
–120 –24 Japan GDP (% YoY) –6.3 4.0 0.4 1.4
01 02 03 04 05 06 07 08 09 10 11 Unemployment (%) 5.1 5.1 5.1 5.1
ES annual budget balance in EUR bn Inflation (CPI,%) –1.3 –0.7 –0.1 –0.0
PT annual budget balance in EUR bn (R. H. SCALE) Switzerland GDP (% YoY) –1.9 2.6 2.4 1.3
GR annual budget balance in EUR bn (R. H. SCALE) Unemployment (%) 3.7 3.9 3.2 2.8
Source: Datastream, Sarasin Inflation (CPI,%) –0.5 0.7 0.9 1.2
China GDP (% YoY) 8.9 10.4 9.3 9.7
Global demand is being overstimulated … Inflation (CPI,%) –0.7 3.3 4.4 4.4
The vigour of the upswing after the deepest recession Source: Sarasin
in 80 years has surpassed all expectations. Concerns
that the economic cycle might be prematurely cut short … suggesting a hangover in 2012
have evaporated. Even final demand in the USA accel- Due to the continuing underutilisation of capacities in
erated into the fourth quarter of 2010 after some ini- the industrialised countries, this experiment does not
tial reticence. Given that the headwinds from mortgage lead to an inflation spiral. Nonetheless, it is becom-
debt repayments have not slackened yet, the global ing increasingly clear that the global economy needs
economy is proving robust. This is partly due to the to be put on a more consistent but lower growth path
significant catch-up potential in the economy after its after another year of exuberant growth in 2011. It will
steep fall, which is reflected in higher growth rates. become clearer during the course of the year which es-
However, it is mainly due to the fact that fiscal policy sential global fiscal policy adjustments the authorities
remains expansionary (except in Southern Europe and decide to make. But one thing is certain: these damp-
the UK). Also, the global supply of liquidity is very gen- ening measures will lead to a hangover in 2012.
erous and real yields are to a large degree negative. It
is becoming increasingly clear that the global economy Dr. Jan Amrit Poser
is being overstimulated. The central banks in the in-
dustrialised countries are shying away from exposing
their economies to fresh shocks. Furthermore, they are
deliberately focusing on lifting low core inflation rates
to a reasonable level.

Islamic Wealth Management Report 2011

Islamic Wealth Management Report 2011

Bank Sarasin
Switzerland International

Basel – Head Office Abu Dhabi Hong Kong New Delhi

Bank Sarasin & Cie AG Bank Sarasin-Alpen (ME) Bank Sarasin & Cie AG Sarasin Alpen (India) Private
Elisabethenstrasse 62 Limited Abu Dhabi 40/F Edinburgh Tower Limited
Postfach Unit 3 & 4, First Floor The Landmark Office 707, 7th Floor
4002 Basel East, Office Towers 15 Queen’s Road Central Mercantile House
Schweiz Abu Dhabi Trade Centre Hong Kong 15 Kasturba Gandhi Marg
T: + 41 (0) 61 277 77 77 Abu Dhabi / UAE T: + 8 52 2 287 98 88 New Delhi 110001
F: + 41 (0) 61 272 02 05 T: + 971 2 652 9888 F: + 8 52 2 501 40 01 India F: + 971 2 652 9850 T: +91 11 464 44000 F: +91 11 464 44020
Berne London
Bank Sarasin & Cie AG Doha Sarasin & Partners LLP Nuremberg
Waisenhausplatz 10 Bank Sarasin-Alpen (Qatar) LLC Juxon House Bank Sarasin AG
3000 Bern 7 Qatar Financial Centre Tower 100 St. Paul’s Churchyard Am Stadtpark 2
Schweiz Level 3, Room 302 London EC4M 8BU 90409 Nürnberg
T: + 41 (0) 31 560 59 59 P. O. Box 24580 United Kingdom Deutschland
F: + 41 (0) 31 560 59 79 Doha / State of Qatar T: + 4 4 (0) 2 0 7038 70 00 T: + 4 9 (0) 911 21 522 410 T: +974 (0)496 8000 F: + 4 4 (0) 2 0 7038 68 50 F: + 4 9 (0) 911 21 522 419
F: +974 (0)496 8020
Banque Sarasin & Cie SA Manama Singapore
8, place de l’Université Dubai Sarasin-Alpen (Bahrain) B. S. C.(c) Bank Sarasin-Rabo (Asia)
Case postale 33 Bank Sarasin-Alpen (ME) Limited P. O. Box 5898, 34 th Floor Limited
1211 Genève 4 Dubai International Financial West Tower 77 Robinson Road # 31-00
Suisse Center Bahrain World Trade Center Robinson 77
T: + 41 (0) 2 2 322 99 99 Gate Precinct Building 5 (North) Manama Singapore 068896
F: + 41 (0) 2 2 322 99 00 4th Floor Kingdom of Bahrain Singapore P. O. Box 121806 T: + 973 17 135 300 T: + 6 5 6 536 68 48
Dubai / U. A. E. F: + 973 17 135 311 F: + 6 5 6 536 38 66
Lugano T: + 971 (0) 4 363 4300
Banca Sarasin & C. SA F: + 971 (0) 4 363 4343
Via Serafino Balestra 5 Muscat Vienna
Casella postale 5846 Sarasin-Alpen LLC Bank Sarasin & Cie AG
6901 Lugano Dublin 9 th Floor, QNB Building Repräsentanz Österreich
Svizzera Sarasin & Partners Dublin LLP Central Business District Naglergasse 2/11
T: + 41 (0) 91 911 36 36 5 Fitzwilliam Square P. O. Box – 1175, PC 130 1010 Wien
F: + 41 (0) 91 911 36 98 Dublin 2 / Ireland Muscat / Oman Österreich T: + 3 53 (01) 6 38  0850 T: + 9 68 2476 3000 T: + 4 3 1 535 33 88
F: + 3 53 (01) 6 61  0148 F: + 9 68 2476 3050 F: + 4 3 1 535  33  88 - 1020
Lucerne (as of summer 2011)
Bank Sarasin & Cie AG
Schwanenplatz 4 Frankfurt Mumbai Warsaw
Postfach Bank Sarasin AG Sarasin Alpen (India) Private Bank Sarasin & Co. Ltd S. A.
6000 Luzern 5 Taunusanlage 17 Limited Przedstawicielstwo w Polsce
Schweiz 60325 Frankfurt am Main 1st Floor, Forbes Building ul. Mysia 5
T: + 41 (0) 41 561 55 55 Deutschland Charanjit Rai Marg, Fort 00 – 496 Warszawa
F: + 41 (0) 41 561 55 75 T: + 4 9 (0) 6 9 71 44 97 100 Mumbai 400 001 / India Polska F: + 4 9 (0) 6 9 71 44 97 199 T: + 91 22 2201 0265 T: + 4 8 22 596 52 72 F: + 91 22 2201 0267 F: + 4 8 22 596 52 80
Bank Sarasin & Cie AG Guernsey
Löwenstrasse 11 Bank Sarasin (CI) Limited Munich
Postfach Park Court, Park Street Bank Sarasin AG
8022 Zürich P. O. Box 348 Promenadeplatz 8
Schweiz St. Peter Port 80333 München
T: + 41 (0) 4 4 213 91 91 Guernsey GY1 3UY Deutschland
F: + 41 (0) 4 4 221 04 54 T: +44 (0)148 172 51 47 T: + 4 9 (0) 8 9 55 89 99 0 F: +44 (0)148 172 51 57 F: + 4 9 (0) 8 9 55 89 99 499

Important notice
This marketing publication has been prepared by Bank Sarasin & Co. Ltd, Switzerland, (hereafter “BSC”) for infor-
mation purposes only. It contains selected information and does not purport to be complete. This document is
based on publicly available information and data (“the Information”) believed to be correct, accurate and com-
plete. BSC has not verified and is unable to guarantee the accuracy and completeness of the Information con-
tained herein. Possible errors or incompleteness of the Information do not constitute legal grounds (contractual or
tacit) for liability, either with regard to direct, indirect or consequential damages. In particular, neither BSC nor its
shareholders and employees shall be liable for the opinions, estimations and strategies contained in this docu-
ment. The opinions expressed in this document, along with the quoted figures, data and forecasts, are subject
to change without notice. A positive historical performance or simulation does not constitute any guarantee for a
positive performance in the future. Discrepancies may emerge in respect of our own financial research or other
publications of the Sarasin Group relating to the same financial instruments or issuers. It is impossible to rule
out the possibility that a business connection may exist between a company which is the subject of research and
a company within the Sarasin Group, from which a potential conflict of interest could result.

This document does not constitute either a request or offer, solicitation or recommendation to buy or sell invest-
ments or other specific financial instruments, products or services. It should not be considered as a substitute
for individual advice and risk disclosure by a qualified financial, legal or tax advisor.

This document is intended for persons working in countries where the Sarasin Group has a business presence.
BSC does not accept any liability whatsoever for losses arising from the use of the Information (or parts thereof)
contained in this document.

© Copyright Bank Sarasin & Co. Ltd.

All rights reserved.

This publication may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding
or cover other than that which it is published, without the prior consent of the publishers. Neither the publisher
nor the author makes any legal representation or warranty with respect to the contents of the book, and they do
not accept liability for any inaccuracy in the material in the book.
April 2011/ im627al0411en