The great theoretical appeal of Islamic finance is that it need not be sold only to Muslims. So, as the industry looks for direction after 20 years of growth and consolidation, perhaps the best engine for its future growth is for it to align itself more with the sustainable and ethical investment camp.
On the banking side, this is already happening. Tirad Al Mahmoud, CEO of Abu Dhabi Islamic Bank, says that while its core customer base is still predominantly Muslim, ADIB is seeing more non-Muslim expatriates opting for Islamic banking services. He believes that, marketed properly to a customer base that is demanding more ethical products and morally sound business models, global demand for Shariah-compliant banks and services will eventually outpace that of conventional banks.
But perhaps for that, there’s a branding exercise that needs to happen, one that starts with ignoring the Islamic bit. An interesting take on this theme can be seen with the fund manager Arabesque – a Shariah-based firm whose marketing materials never refer to Shariah or Islamic finance. (In fact, even the ‘Arab’ bit is a red herring: Arabesque is a form of art-based geometry, a thematic pattern, and has nothing to do with the Arab world.)
Aim or consequence
It is pitched instead as a quant fund that combines socially responsible environmental, social and governance information with other fundamental considerations, with the principle that ethical investment does not exclude performance but actively generates it. In this methodology, things that are excluded by Shariah – the obvious things like armaments and alcohol, but also companies with a high level of debt – are removed by default anyway.
So is its Shariah compliance an aim of the strategy, or an indirect consequence of it? “We are trying to be a global quant equity fund that uses ESG information to enhance the portfolio and drive outperformance,” says Omar Selim, CEO of Arabesque. “The result is: yes, it has 100% Shariah compliance,” but only insofar as the best risk/return outcome the manager can see happens to be Shariah compliant. He describes it as “the Prêt à Manger of asset management: a healthy meal that tastes good”.
As the features in this edition demonstrate, Islamic finance has grown dramatically in both asset size and sophistication. But as the industry takes stock and considers where to go next – whether growth is the priority, or a refocusing on product development towards structures that truly mesh with the principles of Islamic finance – it could do worse than market itself as a way of banking that is less about faith than about sustainable and ethical practice.