Ernst And Young Launches Islamic Finance Report

by Carla Johnson, Investors Offshore.com

31 May 2007

Big four accounting firm Ernst & Young has launched a new report dealing with the rapid growth of the Islamic finance industry, with a particular focus in the development of the hedge fund sector in the context of Islamic finance.

The 1st Annual Ernst & Young Islamic Funds & Investments Report (IFIR) was launched in Manama, Bahrain, last week and will focus on the spectrum of asset classes and drivers that will have the most significant impact on the industry.

The report will provide new insights into the market, pinpoint critical success factors and identify key trends that will shape the immediate future of the industry, rather than analyse investment performance of Islamic funds.

“The Islamic funds industry has grown tremendously in size and product depth in the last five years," observed Sameer Abdi, Group Head of the Islamic Financial Services Group for Ernst & Young. "With ever increasing investor demand to satisfy, there remains immense potential for the future growth of this sector."

Total assets for all the Islamic banks globally (estimated to be 300 banks) amounts to about US$170 billion. However, this represents a nominal portion of the total assets of the world's commercial banks, highlighting the growth potential of the industry. In addition, the deposits of Islamic banks stand at around US$140 million compared to the US$13 trillion held by commercial banks.

The Key Insights that will emerge from the report are:

  • Macro-economic growth in the region has been robust on the back of strong oil prices and diversification
  • Regional equity capital markets are slowly on the path to recovery after corrections in 2006
  • Average fund size has increased to USD 284 million from USD 230 million in 2005
  • Approximately 50% of the total number of funds have less than USD 50 million of assets under management each
  • The Islamic wealth management industry needs to develop holistic business models that leverage intricate client relationships and implement efficient operational frameworks
  • The critical success factors for a new entrant include product development expertise to fill the perceived supply gaps, client relationship management, operational efficiency, competitiveness with established and multinational players, effective marketing and distribution networks, acquisition of high quality human resources
  • What deal flow can we expect to see emerging in the Islamic Private Equity space?
  • How sustainable is the current appetite for Islamic Real Estate investments?
  • Where will the next Sukuk Mega Deals come from?
  • What are the key institutional shifts in asset allocation, and implications for Funds players?
  • How can Islamic funds more pro-actively target the “value-seekers”?
  • How can structural challenges be overcome that will enable Shari’ah-compliant Hedge Funds to grow from current market levels of less than $1 billion to more than $50 billion by 2010?

The report was launched by Ernst & Young at the Pre-Conference Executive Briefing at The World Islamic Funds and Capital Markets Conference on the 26th of May at the Gulf Hotel in the Kingdom of Bahrain. The executive briefing was led by Sameer Abdi, Group Head Islamic Financial Services and Ali Arsalan Tariq, Senior Consultant, Ernst & Young Bahrain.

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