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MENA wealth management remains resilient

‘Concepts such as ESG/sustainable investing, and green sukuk are also rising in prominence and gaining investor interest’

Wealth managers can expect an encore this year with the Middle East and North Africa (Mena) seeing a revival as Islamic finance assets are predicted to match the record growth in 2019, according to a report by Alpen Capital and Alpen Asset Advisors.

Sameena Ahmad, managing director of Alpen Capital, said: “Islamic finance and wealth management industry faced the dual shocks of adjusting to the pandemic and historically low oil prices in 2020. While the industry slowed down during the year after experiencing record growth in 2019, it showed resilience and total Islamic finance assets in 2020 are estimated to match the previous year’s figures.”

Expanding wealth creation

Wealth managers should grab the emerging opportunities as Islamic wealth creation is witnessing expansion among wealthy individuals and families in the Muslim majority countries across the globe, the report said.

The trend towards embracing alternative investment options, the need to invest in ethical and socially responsible vehicles, coupled with the rising population of high net worth individuals and ultra-high net worth individuals has boosted the market.

Younger generations are more receptive to Islamic finance and Shariah-compliant products, partly as they qualify with the other investment considerations such as environmentally friendly and socially impactful investment for return or yield.

Industry stakeholders and providers in Mena and Asian countries are offering a wide range of Shariah-compliant wealth management products and solutions, specifically targeting the affluent class of investors.

Consequently, the evolving regulatory developments have led to investments flowing back onshore across the world of wealth management. This offers an opportunity to the region’s Islamic wealth management industry to enhance their onshore Shariah- compliant propositions, the report said.

Promising financial tool

Wealth managers continue to offer sukuk (Islamic bonds) as a promising investment tool. The sukuk market is expected to gain momentum, fueled by its applications as a financial tool to raise funding for governments as well as corporates. The rise in Islamic Fintech’s popularity is prompting a surge in Fintech-focused investment funds, which are likely to accentuate the market and create opportunities for Islamic Fintechs to expand services. This coupled with digital innovations is expected to enhance market attractiveness and further strengthen the industry.

Several new avenues have opened up within Islamic investment, such as charitable trusts, private equity, exchange-traded sukuk funds, Shariah-compliant mortgage investment funds and Halal mutual funds.

Such wide offerings are likely to appeal to a broader consumer base, thus improving demand prospects for Islamic instruments.

“Sukuk is expected to maintain its position as a major growth driver for the Islamic finance industry. Sukuk has witnessed record-breaking issuances over the past year, and this is likely to continue. Concepts such as ESG/sustainable investing, and green sukuk are also rising in prominence and gaining investor interest. The sector has also seen strong M&A activity in both banking and takaful sectors, and consolidation is expected to continue amid weak economic conditions” said Hameed Noor Mohamed, executive director, Alpen Capital.

Limiting factors

The lack of diversity in product offerings has limited the rise in demand from the wider population group. While more Shariah-compliant Islamic finance solutions are needed in the wealth management segment, there is also a need for market players to boost understanding of Islamic finance structures and solutions to the wider investor communities.

Although Islamic finance has made significant advancements over the past two decades, Islamic wealth management remains at a nascent stage of development, both in size and sophistication. The market is estimated to be small in comparison with the conventional global wealth market and the growing private wealth in the Muslim majority countries in Mena.

Innovation is key

Technology adoption has become one of the most critical drivers of survival. The adoption and integration of new and emerging technologies is likely to streamline the Islamic finance market and broaden the service offerings.

The next surge of growth for the Islamic finance industry is expected to be driven through innovation, standardisation, and M&A activity. Newer markets are likely to drive growth as the core Islamic countries grow towards maturity. Investment activity is expected to be skewed towards the Fintech sector as digital capabilities become more critical due to covid-19.

A similar outlook was projected by Accenture when it said in a report that wealth management will likely move from resilience in 2020 to reshaping in 2021 to lay the foundation for reinvention up to 2025.

An Accenture–Orbium Wealth Management survey said six key industry megatrends could progressively impact the industry. They are: the emergence of new technologies; ecological and environment concerns; trend towards hyper-personalisation; shift from support to value generation enabled through technology; paradox of personal data; and rise of platform ecosystems.

Source: IA