One might think that the current economic diﬃ culties in the Middle East would have a negative impact on the wealth management industry in the region. Quite to the contrary, private high-net-worth wealth in the Middle East and North Africa has increased and a variety of reports have come to the same positive prognosis: private wealth in the Middle East will continue growing at a strong and stable rate and it is expected to outperform the development of this market in most developed countries. BISHR SHIBLAQ writes.
According to Capgemini’s World Wealth Report 2018, a total of 656,350 high-net-worth individuals (HNWIs) in the Middle East were collectively holding US$2.5 trillion. The number of HNWIs rose by 2.1% from 2017. A recent study by Deutsche Bank estimates that private wealth in the region will increase by 6% annually, outperforming the US at 4% and Europe at a more modest growth of around 3%.
As the main growth in the Middle East is coming from GCC countries, this will mean that the Islamic wealth management industry will grow at a similar pace, as the Islamic wealth management industry plays an important role in these countries. This has not remained a secret and competition is increasing in the Middle East in the area of wealth management. International banks are increasing their presence in the region in order to att ract more HNWIs. An increasing number of single and multifamily oﬃ ces have been set up in the Middle East while ﬁ nancial jurisdictions in the region such as the Dubai International Financial Centre and the Abu Dhabi Global Market are introducing new legal regimes geared toward the wealth management industry, such as their respective foundation law and trust laws.
A main diﬀ erentiating factor with all competitors will be the ability to oﬀ er products that are tailored to the needs of clients and that also means oﬀ ering the right Shariah compliant products. The main diﬀ erence between conventional and Islamic wealth management is, of course, the fact that Islamic wealth management must be in compliance with the rules of the Shariah.
While conventional wealth managers do not have to consider whether their
products are ethical or in compliance with any religious rules, Islamic wealth managers have a more complicated task. Islamic banking has been steadily advancing in most GCC countries. In the UAE for example, Islamic banking has been growing at 7% in 2018, while conventional players were only growing at 4%. That has led Islamic players to being able to gain market share in these countries. In Malaysia, the market share rose to 25% last year, while in Kuwait it rose to 40% and in Saudi Arabia to even 50%.
Despite this success, Islamic banks remain focused on competing with conventional banks, mainly in the retail space. In the wealth management ﬁ eld, Islamic banks oft en lack the scale and resources to oﬀ er a wider product range. The oﬀ erings still lack two main components. Firstly, they remain mainly focused on their respective home country, with very limited oﬀ ers on cross-border products. Due to the economic conditions in the region, HNWIs are, however, looking to invest internationally in order to diversify and spread their risks across various countries.
Secondly, the universe of Shariah compliant products in the wealth management space remains very limited. Traditionally, Islamic wealth managers are able to oﬀ er their clients products such as Sukuk and Islamic funds or property ﬁ nance in their home jurisdiction. Although the product range has slightly increased, their portfolio is quite limited when compared to their conventional competitors.
Clients are looking at diversifying their portfolio, invest outside of their home jurisdiction and receive guidance on estate planning matt ers. Islamic wealth managers should be able to assist their clients who are seeking property investments in Europe or Asia. They should be able to oﬀ er them private equity transactions, as well as investments in social impact projects, green or sustainable projects. They should also be capable of advising on the right estate planning tools and assist in structuring family wealth. If Islamic wealth managers are able to compete on a global level and with more interesting products, only then can they lead and take advantage of the estimated growth in the coming years.