Part II Islamic Law and Contracts in Practice, 12 Shari’a-Compliant Funds: Principles and Practical Considerations

Subject(s):

Islamic financial services — Capital markets

This concluding chapter explores Shari’a-compliant funds. The Shari’a-compliant funds sector is concentrated in three distinct ways, each of which exemplifies constraints on its ability to grow. First, the sector is still largely concentrated in two regions of the Islamic world: the Middle East and Southeast Asia. Second, the sector is also concentrated in a small number of asset classes. Thus, it does not as yet provide its investor base with the broad spectrum of exposure to geographies, asset classes, strategies, and return profiles that are the hallmark of a mature investment management industry. Third, the Shari’a-compliant funds sector lacks significant diversification across managers, with a handful of large managers still dominating the market. The chapter then looks at the basic tenets of Islamic finance and their application to Shari’a-compliant funds. It also considers the various types of Shari’a-compliant funds, as well as the process of establishing and operating a Shari’a-compliant fund.