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Awareness for Islamic mutual funds is need of the moment

Awareness for Islamic mutual funds is need of the moment

  • To eradicate Riba is duty of every Muslim and custodians of Islamic financial system
  • Al Meezan leads in offering first Islamic Exchange Traded Fund and RDA Investment account for overseas investors

Interview with Mohammad Shoaib — CFA, CEO, Al Meezan Investment Management Ltd

PAGE: Tell me something about yourself and your organization:

Mohammad Shoaib: I am Mohammad Shoaib. I am the founding CEO of Al Meezan Investment Management Limited, which is the first and the only full-fledged Shariah Compliant Asset Management Company in Pakistan. Currently Al Meezan Investments is managing investments of over Rs.180 billion (as on March 31, 2021) across 18 mutual funds/pension funds and discretionary portfolios on behalf of 140,000 clients. We have over 600 employees in the organization.

I hold an MBA degree from IBA in addition to being a Chartered Financial Analyst (CFA) charter holder. I am currently a director of CFA Society Pakistan, which was founded by me as President in 2002. I was recognized as “Most Influential CFA charter holder” by CFA Institute Magazine, in 2006, and was awarded another accolade of “Volunteer of the Year: Lifetime Achievement Award” in 2019 by CFA Institute.

Professionally, I have been an active volunteer in many areas in the financial sector and some of my volunteer roles include:

  • Nominee director of SECP on Board of Pakistan Stock Exchange.
  • Board member of Institute of Financial Capital Markets in Pakistan.
  • Chairman, Mutual Funds Association of Pakistan.
  • Board member Pakistan Institute of Corporate Governance.
  • Member of the Academic Board of Institute of Business Administration, Pakistan.
  • Member of the Central Bank’s Committee on Islamic Capital Markets.

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 30 year career in managing investments.

Introduction to 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 and make it their first choice. Al Meezan Investments, due to the continued trust our customers hold in us, is now Alhamdulillah one of the largest asset management company in Pakistan with a 41% market share in the Islamic mutual funds category and 17% market share in overall industry.

As the leading Fund Manager in Pakistan, we offer a comprehensive range of Shariah compliant investment solutions. With an impressive track record of over 26 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 140,000 investors. 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: What is your perspective about the elimination 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. Since last year we have seen many executive orders for promoting Islamic Finance and conversion of government accounts to Islamic under the Eradication of Riba Bill, however, this is a slow and gradual process. The Shariah Compliant financial system be it the area of Mutual Funds, Banking or Takaful, all have made tremendous progress and gradually gaining market shares every year. 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 by every one of us to make that move rather than waiting for others to make that change for us.

PAGE: How can the mutual fund sector promote Islamic Finance in the country?

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 holistic 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, fulfillment of obligations and the sanctity of contracts. The Islamic financial system is not limited to banking but covers insurance, wealth management, capital markets, and all types of financial intermediation.

Talking specifically about Mutual Funds, I personally believe that it offers a more diverse platform for investment than Banks or any other Islamic or conventional investment avenue. Mutual funds play an essential role for optimal allocation of idle resources available in the economy. The primary goal of mutual fund is to pool small savings, use the idle resources in corporations and invest in a well-diversified portfolio of securities, which would allow the investor to significantly reduce risk. It offers something for everyone based on their investment goals and risk appetite. In addition to diversity, mutual funds also offer lucrative returns and tax benefits to the investors making it an even more attractive offering.

While Islamic mutual funds have gained significant popularity over the past decade and now have market share of over 41% in the mutual fund industry, the level of awareness about mutual funds itself remains dismal when compared with peer markets, especially India. The need of the hour is for an industry wide collaborative effort to spread awareness about Islamic mutual funds and its benefits to the individual and corporate investor.

The growth of Islamic AUMs has remarkably outpaced that of the industry at an impressive CAGR of 28% over the recent decade. In comparison, the growth of conventional funds during the same period was considerably lower, exhibiting a CAGR of 12%. With the right regulatory push, government support and a strategic awareness drive, Islamic mutual funds have the potential for unprecedented growth in the country.

PAGE: Could you tell us about the future strategies and products of the mutual fund sector?

Mohammad Shoaib: Al Meezan will continue to plays its role in making a range of asset classes accessible to the average investor via mutual funds, we have already launched Pakistan’s first Islamic Exchange Traded Fund and we are also the first Islamic AMC to launch the RDA Investment account for overseas investors.

The COVID-19 pandemic has taught us that being future ready is vital for survival hence our strategy is focused towards digitization and moving to a completely paperless model. As part of this strategy we have recently launched an online account opening process, which gives the investors the freedom to open their mutual fund account from the comfort of their homes. Our sales staff is now equipped with a robust app through which they can engage customers remotely while being completely integrated with the system. We are continuously beefing up the customer facing digital assets, which include our Meezan Funds Online portal and the Al Meezan Mobile Application.

Our product team is continuously working on developing innovative products and services and very soon you will witness new asset classes being introduced to our portfolio. I request all readers to follow us on our social media platforms for updates and new developments.

PAGE: How would you compare the mutual fund industry of today with the past?

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 March of this current FY21 stood at Rs. 984 billion, out of which Rs. 403 billion is managed by Shariah compliant vehicles, representing a market share of approximately 59%.

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 almost 16% 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 around 28% over the recent decade. In comparison, the growth of conventional funds during the same period was considerably lower, exhibiting a CAGR of almost 12%. 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 and product innovation.

In hindsight, we can generally say that all asset classes have experienced significant growth, especially in the past decade.

It is interesting to note that only 6 Islamic equity funds existed in 2010 comprising of approximately PKR 5 billion in AUMs whereas right now, this number stands at 28 funds with around PKR 80 billion in AUMs. Conventional equity funds have also increased from 18 to 26 funds with AUMs increasing to around 150 billion.

Similarly, Islamic income funds grew from 9 fund offerings with PKR 6 billion in AUMs in 2010 to 23 fund offerings with 110 billion in AUMs by now. Conventional income funds, however, stood at almost the same number with AUMs almost doubling to 115 billion during the recent decade.

There has also been a lot of innovation seen during the decade where new asset classes were introduced like exchange traded funds, commodity funds and preservation funds/plans. Alhamdulillah, there is an Islamic alternative to all the products and funds which are available to investors on the conventional side.

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