By Arif A Jamal and Habib Motani
Islamic finance is currently a multi-billion dollar industry and has the potential to grow considerably bigger. Some commentators have noted that while the amount of money that could be available to be placed in Islamic wealth management structures in significant, the industry has not been able to absorb all this potential investment. This post discusses our article recently published in the Capital Markets Law Journal, and which is situated in this context. In the article, we seek to assess both the prospects as well as challenges for the development of Islamic wealth management. Additionally, we provide a specific focus on Islamic wealth management in Singapore. Singapore has been selected as a case study because of its status as a world financial centre, its geographical proximity to a number of prominent Muslim-majority countries including Malaysia, Brunei, and Indonesia (the world’s biggest Muslim country by population), and its effort to capitalize on the Islamic finance potential to which the first two factors lend themselves.
For Muslims, opting for Islamic finance may be viewed as a matter of faith and piety. In addition, some may see it as providing a more ethical alternative as the general tenor of Islamic finance emphasizes the need to ‘do good’. While Islam permits profit making and in fact encourages it, the earning of profit should be linked to economically beneficial activity such as the creation of jobs or the building of infrastructure, and be for the betterment of society. With the growing wealth in Southeast Asia, including among Muslim communities in the region, and in Singapore particularly, the demand for Islamic wealth management products and services may be expected to rise.
We note, however, that one of the key challenges to the expansion of Islamic wealth management in Singapore is Malaysia. As a Muslim majority country, Malaysia may seem the more ‘natural’ home for Islamic wealth management service providers who, because of both geographical proximity and cultural familiarity, can easily serve the Singapore market. Furthermore, the Central Bank of Malaysia (Bank Negara Malaysia) has been active in setting Shari‘a standards for Islamic banking. There is also more relevant jurisprudence on Islamic wealth management in Malaysia than in most other states, and this case law is more permissive and commercially facilitative. These factors engender a stronger enabling environment for Islamic wealth management in Malaysia than in Singapore. That said, when considering Singapore specifically, MUIS (that is, the Islamic Religious Council of Singapore) may be facilitative of Islamic wealth management by providing both Shari‘a-based legal authority (fatwas) to support certain wealth management structures as well as facilitating a dialogue between general civil law and Muslim law.
More broadly, other challenges to the development of Islamic wealth management also also remain due to lingering issues and risks which are difficult to resolve. One set of risks is practical and concerns the capacity to bring enough good products and expertise to the market in order to make Islamic wealth management viable. This concern is basically about Shari‘a compliance and the availability of sufficient numbers of experts to be able to develop clear and adequately supported standards for Islamic wealth management products. Given the inherent interpretive scope of the Shari‘a, this is no small challenge. A plurality of opinions and concomitant variability in standards is not necessarily a friend to the development of appropriate wealth management products.
The question of Shari’a compliance leads to a second type of risk: the problem of non-acceptance of Islamic wealth management products and structures out of a concern that they only pay lip service to Islamic principles. As Ryan Rittenberg has noted:
Because of the similarities between Islamic and Western investment products, some scholars have criticized Islamic finance as a form of regulatory arbitrage that creates more expensive services and products that simply mimic Western financial products. From this perspective, these Islamic products follow the letter of Islamic law but violate its spirit.
Rittenberg’s comment may foreshadow a real challenge to Islamic wealth management for those individuals seeking out these solutions out of a genuine sense of commitment and desire to operate Islamically. If Islamic wealth management is indeed built upon a fragile Shari‘a basis and is seen to be ‘regulatory arbitrage’, then customers may not be willing to take up its offerings. This could engender an existential crisis for Islamic wealth management in Singapore as well as abroad. On one hand, there are the perils of principle inasmuch as Islamic wealth management products, even if well meaning, may not be accepted as authentically ‘Islamic’. On the other hand, there are the ‘perils of the market’ where products which are not accepted as ‘Islamic’ may not be taken up, even in the absence of alternatives.
In order for Islamic wealth management to be coherent and credible, it must navigate the challenging ground of having to provide both good wealth management solutions as well as, for want of a better phrase, good ‘Islamic solutions’. Meeting both of these requirements in a manner that is satisfying for wealth preservation and enhancement while respecting the normative principles found in Islamic law is not an easy task and will be an ongoing issue for the industry, in Singapore and beyond.
Keywords: Islamic Law; Wealth Management; Singapore
AUTHOR INFORMATION
Dr Arif Jamal is the joint Editor-in-Chief of the Asian Journal of Comparative Law and Associate Professor at the NUS Faculty of Law.
Email: lawaaj@nus.edu.sg
Habib Motani is a Consultant with Clifford Chance, London, and an Honorary Professor at Edinburgh Law School.