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Islamic financial system of Pakistan is ripe and has bright prospect

Islamic financial system of Pakistan is ripe and has bright prospect

Interview with Mohammad Shoaib (CFA) – CEO, Al Meezan Investment Management Limited

PAGE: Tell me something about yourself and your organization:

Mohammad Shoaib: I am the founding CEO of Al Meezan Investment Management Limited, the first and the only full-fledged Shariah Compliant Asset Management Company in Pakistan. Currently with Al Meezan Investment I am managing investments of about over Rs. 170 billion (as on October 30, 2020) under 18 mutual/pension funds and discretionary clients’ portfolios, and leading a team of 600 employees of the organization.

I hold an MBA degree from IBA in addition to being a Chartered Financial Analyst (CFA) charter holder. I am also the founding President of CFA Society Pakistan, a member society of CFA Institute. I have been awarded the ‘Most Influential CFA charter holder’ by CFA Institute in 2006, ‘Innovation Award’ in 2006, ‘Strategic Planning Award’ in 2008 and ‘Lifetime Achievement Award’ in 2019 by CFA Institute.

Some of the other prominent volunteer roles that I performed include the following:

Currently, I am the board member, Advocacy and GIPS Chair for CFA Society Pakistan and Senior Vice Chairman, MUFAP. I have participated in various seminars, conferences and workshops across the globe during my over 30 years career in managing investments.

About Al Meezan Investments:

We began our journey in 1995. The objective of the journey was simple: to bring Shariah compliant investment options to the people of Pakistan. In over 25 years since then, Al Meezan Investments, due to the continued trust our customers hold in us, Alhamdulliah we are now the Largest Fund Manager in Pakistan with a 43% market share in the Islamic industry and an 18% share overall as of October 2020.

As the Largest Fund Manager (according to data as of October 29, 2020) in Pakistan, we offer a comprehensive range of Shariah compliant investment solutions. With an impressive track record of over 25 years, we cherish the status of being the only company in Pakistan with the sole mandate to provide Shariah complaint investment solutions to our valued clients.

We are proud to maintain AM1 rating, which is the highest management quality rating in Pakistan. We also enjoy a unique position of being the only AMC in Pakistan to be awarded the highest management quality rating of AM1 by both VIS & PACRA (Credit Rating Companies).

Additionally, we also have the privilege of managing the trust of one of the largest investor base in Pakistan with over 125,000 direct investors and thousands more through the retirement and provident funds being managed by us. Al Meezan has one of the highest levels of penetration among individual investors and has been leading the mission of making Shariah Compliant Investing a first choice for investors.

PAGE: Could you give your views about complete Islamic financial system in Pakistan?

Mohammad Shoaib: I feel before we get into this question, we need to first have a clear understanding of the Islamic Financial System. When it comes to the Islamic Financial System, the products and services are not much different from the traditional financial system. Some people think that the Islamic financial system is simply interest-free. However, that does not provide a correct picture of the system as a whole and tends to create confusion. Yes, prohibiting the receipt and payment of interest is the nucleus of the system but it is supported by other principles of Islamic teachings advocating individuals’ rights and duties, property rights, equitable distribution of wealth, risk-sharing, fulfilment of obligations and the sanctity of contracts. The Islamic financial system is not limited to banking but covers insurance, capital formation, capital markets and all types of financial intermediation.

The future is bright for Islamic finance in Pakistan, with a major role being played by the SBP and SECP. Pakistan has recently been awarded Global Islamic Leadership Award for its effort to promote Islamic Financing Globally.

Within the Mutual Fund Industry, growth of Islamic AUMs has remarkably outpaced that of the industry at an impressive CAGR of 30.3% over the recent decade. In comparison, the growth of conventional funds during the same period was considerably lower, exhibiting a CAGR of 9.5%.

Around 17% of Pakistani banks now have converted to Shariah-compliant instruments and Sukuks have been floated in the energy sector recently as well. The share of Islamic Banking Industry in Pakistan has now grown to 16%.

Alhamdulillah, this is a clear indicator the market is ripe and ready for the taking. The ground work that we laid for a fully Shariah compliant economic system is now bearing fruits. Islamic Finance in Pakistan is on the rise and the growth is increasing many folds with every passing year.

PAGE: What is your take on eradication of riba?

Mohammad Shoaib: Allah SBWT & His beloved Messenger (May Peace be Upon Him) have declared war on Riba so as Muslims and custodians of the Islamic Financial System it is our clear goal to eradicate Riba completely from the system. Unfortunately, this is not a change that can happen overnight. A large majority of businesses in Pakistan are based on interest. The eradication of Riba Bill that as passed in 2019 is under constant review by a National Assembly Panel. In a recent meeting, all members of the committee agreed that at least the government should shift its deposits to the Islamic banking. This will definitely provide a big boost to Islamic finance in Pakistan and should be the next step towards eradication of Riba from the system. The Shariah compliant financial system be it the Mutual Fund, Banking or Takaful, all have made tremendous progress in developing their business and service standards at par with the conventional financial system, I personally do not see any road block that may hinder the transition of the masses to a Shariah compliant economy. What is required now is a conscious will to make that move.

PAGE: Could you tell me about the mutual funds sector of Pakistan?

Mohammad Shoaib: The Mutual Funds Industry started out in 1960’s with the launch of two state-owned funds, National Investment Trust (NIT) and Investment Corporation of Pakistan (ICP). Fund management industry in Pakistan is over 55 years old while the Islamic funds industry is just over 18 years old, yet in this short time span, the Shariah compliant sector has captured a significant market share. The mutual funds’ industry opened to the private sector less than 30 years ago and since then, it has flourished, catapulting the depth of the industry to new heights.

The Mutual Funds Industry has shown tremendous growth over the last decade, where the number of Asset Management Companies (AMC’s), number of funds and type of funds have witnessed a dynamic expansion. Assets under management (AUM) for the mutual fund industry at the end of FY20 stood at Rs. 764 billion, out of which Rs. 326 billion is managed by Shariah compliant vehicles, representing a market share of approx. 43%.

In a market dominated by conventional institutions, Islamic mutual funds have been on a consistent rise over the years despite the industry’s comparatively limited infrastructure. The overall mutual fund industry has grown by 14.4% annually over the last 10 years whereby the Islamic segment’s AUMs have more than doubled in the last 5 years alone. Growth of Islamic AUMs has remarkably outpaced that of the industry at an impressive CAGR of 30.3% over the recent decade. In comparison, the growth of conventional funds during the same period was considerably lower, exhibiting a CAGR of 9.5%. The double-digit growth of Islamic finance industry is credited to numerous reasons, ranging from Pakistan’s strong Muslim demographic to investors’ trust in Shariah compliant products, regulatory support, and product innovation.

PAGE: Kindly tell us about the growth of Islamic products in the financial sector?

Mohammad Shoaib: Over the past five years, growth of Islamic funds is colossal in contrast to its conventional counterparts. Islamic funds outperformed the conventional funds substantially in terms of size. The inclination of the market has shifted to Shariah compliant investing. Majority of the funds that are being launched on the equity side are Shariah compliant. There are two appeals behind investing in Shariah compliant funds: fulfilment of religious beliefs and principles, and yielding reasonable returns. Fund management industry in Pakistan is 57 years old (started in 1962) while Islamic fund industry is just over 18 years old (i.e., first Islamic fund launched in December, 2002). In this relatively short span of time, Islamic funds have grasped 42% of total Assets under Management (AUMs) in the asset management industry.

Al Meezan plays its role in making a range of asset classes accessible to the average investor via mutual funds, while ensuring the asset classes and instruments are approved by the Shariah Advisor, thus making them Shariah compliant. As the company’s inception, Al Meezan has launched and continues to offer all asset classes available to investors within the domain of Islamic finance. I will, however, highlight here that the level of innovation in product development that has been witnessed in the Islamic Banking sector is yet to be seen in the asset management sphere. Globally the Asset Management companies have a much broader breadth of products due to a mature market; in Pakistan the market still is at the nascent stage. In order to be able to offer an even more elaborate product range it is vital that we invest heavily in research, innovation and investor awareness.

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