By Alfean Hardy
The twin calamities of the global financial crisis and the Bernie Madoff scandal, where even respected names like HSBC, the Royal Bank of Scotland and BNP Paribas got burnt, have made the idea of investments more of a nightmare than a dream. There is a possible solution, though, for investors looking for a safe haven to park their ringgit, reniminbi, roubles and US dollars — Shariah-compliant structured investment products.
According to Citi’s Asia Pacific markets, regional Islamic structuring head Ahmad Shahriman Mohd Shariff, investor protection is an integral part of any Islamic investment product.
Speaking to The Malaysian Reserve in Kuala Lumpur last week, Ahmad Shahriman said the Shariah guidelines on what were investable were specifically clear.
"No interest, no elements of speculation or game of chance, no investments in what are deemed harmful to man, and no uncertainty, with all contracts made clear and people must know what they are getting into," he said.
"The bottomline is Islamic finance is focused on investing in activities that are deemed beneficial to man while at the same time protecting one’s wealth," he added. Ahmad Shahriman said Islamic products, and Islamic structured products in particular, carry with them a lot of built-in advantages.
"One of the key advantages of Shariah-compliant products is an extra layer of oversight, the Shariah oversight, which is beneficial regardless of whether you're Muslim or non-Muslim," he said.
"Among the key principles of Shariah are the avoidance of speculation, excessive risk and uncertainty. The Shariah oversight will ensure that these principles are adhered to in the transaction that you're entering into, and must be reflective in how the products are sold and documented.
"So, the banks have to prove to the Shariah scholars that, in any Islamic product offered, all the principles of Shariah are maintained.
"Investors effectively have an extra set of eyes looking at the product in order to make sure they're protected," he added.
Ahmad Shahriman said another advantage was the avoidance of excessive risk. "This is reflected in the avoidance of leverage.
In investments containing elements of leverage, a worst case scenario could result in investors potentially losing all or even more than the money they've invested," he said.
"(In Shariah-compliant products) you have this set of oversight that reduces the risks in the products. "Is it perfect? No, I'm not saying it's the solution to all the problems that we're having in finance, but, if you're talking about advantages, it's always good to have a different set of people looking at protecting your interests," he added.
Citibank, said Ahmad Shahriman, has had a commitment to Islamic finance that has spanned about three decades and its Malaysian operations have become an important part of the group's global Islamic finance strategy in going forward. High net worth individuals (HNWI) looking for Islamic structured investment products, he said, stood to benefit from the group's total experience and exposure to the Islamic finance sector.
"We can offer them tailored solutions," he said. "Unlike the retail market, in the high net worth market, the clients are sophisticated enough to know what they want."
"They want from us things that will help them make an investment view and then how to execute that investment view. We have the product platforms for them to execute their view in a Shariah-compliant manner.
"We can support you with the research, the investment ideas and tell you what's happening in the market and. Once you've decided what you want to do, we can help structure and execute it for you," he added.
Ahmad Shahriman said HNWIs looking to become clients with Citibank had an advantage in the bank's need to protect its name when it comes to being Shariah-compliant.
"So, we highlight our transparency and Shariah-compliance to the point where we go the extra mile to ensure our Shariah-compliance," he said. "Also, for any products that we do, while the end client may be dealing with our team in Malaysia, they're actually getting assistance from people working in Singapore, Hong Kong, Dubai and London," he added.
(This story appeared in The Malaysian Reserve on Feb 11, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh) Any source
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