Islamic funds globally had $105 billion in assets under management (AuM) at end-H1 2023 with its global share concentrated in Malaysia (27.2%) and Saudi Arabia (18.2%), according to Fitch Ratings.
Islamic funds’ AuM fell by 4% quarter-over-quarter (QoQ) in the GCC, Malaysia, Indonesia and Pakistan, while conventional funds’ AuM plunged by 6%. Fitch said the decline was driven by investor outflow mainly due to rising interest rates and financial market volatility.
The funds also faced specific challenges such as limited investment options due to negative Shariah-filters and a lack of economies of scale.
“Islamic funds have a significant share in several Muslim-majority countries. However, the segment – both conventional and Islamic funds – lags in many of these markets compared to western centres, with the Islamic funds having its gaps,” said Bashar Al-Natoor, Global Head of Islamic Finance at Fitch Ratings.
“Islamic funds are different from conventional funds due to the need to ensure Sharia-compliance of the underlying portfolio, contractual relationships, obligations, and fee structures, among others. An extra layer of cost is present due to Shariah governance”.
The funds held the largest share of total public funds in the GCC at 76.5% as of end-H1 2023 (based on AuM), with the balance in conventional funds. Islamic funds share was also sizeable in Pakistan (41%), Malaysia (32%), and Indonesia (8%). ESG-labelled Islamic funds were $6.2 billion.