Financial planning a religious obligation
Islamic banking and wealth management are in their embryonic stages and have yet to come into the mainstream of international banking.
However, a report by Bank Sarasin urges bankers to be more focused on this sector which is expected to grow.
In its second Islamic wealth management report, Bank Sarasin urges the sector to move forward by developing a Sharia framework, diversifying products and differentiating its offerings.
Islamic financial planning, a religious obligation in the Koran, involves the acquisition, preservation and philanthropic distribution of wealth.
It is a religious duty that Muslims must have a will, so proper estate planning is required, often including a trust structure.
Bank Sarasin's report provides investors with an in-depth overview of developments in the Islamic wealth arena last year and explains how best to manage assets according to religious requirements.
The report covers the required approach to Islamic financial planning before focusing on the key areas of philanthropy, the family office service, mutual funds and sukuk - Islamic financial certificates - and an insight into Bank Sarasin's economic outlook for this year.
The report also notes that the Islamic requirement to distribute part of acquired wealth is driving philanthropic giving in the Gulf Cooperation Council (GCC) region, comprising Kuwait, Saudi Arabia, United Arab Emirates, Qatar, Bahrain and Oman.
Annual philanthropic giving in the GCC is already estimated at US$50 billion. Fares Mourad, head of Islamic finance at Bank Sarasin, says: 'Islamic financial planning is largely neglected by the Islamic banking industry.
'It requires a detailed process, as well as structures and products to ensure Muslim investors are fully compliant with Sharia law.'
The report outlines key challenges and opportunities for Islamic financial planning, including managing the Islamic wealth cycle through wealth acquisition, preservation and distribution; achieving the required balance between spiritual and worldly obligations; and understanding the primary issues facing Waqf donors, who give money, property or other items to charity, despite the strong growth drivers in this market.
Other challenges include considering the suitability of the Swiss private banking family office structure as a wealth management tool to ensure effective Islamic governance; recommending challenges facing Islamic mutual funds to achieve growth and performance; standardisation, education and diversification of sukuk in order to increase the supply of products and the liquidity of the market; and analysing Islamic equity and indices performance over the past year.