- Islamic mutual funds have the potential for unprecedented growth
- Sukuk issuances will keep growing in future
- Al Meezan hold on to offering valuable and advance products
Interview with Mohammad Shoaib – CFA and CEO, Al Meezan Investments
PAGE: Tell me something about yourself, please?
Mohammad Shoaib: I have the honor of being the founding CEO of Al Meezan Investment Management Ltd (AMIM), which is the first and still the only full-fledged Shariah Compliant Asset Management Company in Pakistan. Al Meezan Investments is managing investments of over Rs.186 Billion USD 1.05 Billion (as on January 31, 2022) across 19 mutual funds/pension funds and discretionary portfolios on behalf of 160,000 clients. We have over 500 employees in the organization.
I got my MBA from IBA in 1988 and CFA charter from CFA Institute, USA in 1999. I am also a Harvard Business School Alumnus completing ‘Advanced Management Program’ (AMP) at Harvard Business School alongside global business leaders and CEOs.
I am currently one of the directors of CFA Society Pakistan, which was founded by myself under the capacity of President in 2002. In 2006, the CFA Institute Magazine recognized me as the “Most Influential CFA Charter Holder“, while as recently as in 2019, I was conferred the very prestigious accolade of “Volunteer of the Year: Lifetime Achievement Award” by the same institute.
Professionally, I have been an active volunteer in many areas of the financial sector and some of my volunteer roles include being:
- Nominee director of SECP on Board of Pakistan Stock Exchange (PSX).
- Board member of Institute of Chartered Accountants of Pakistan (ICAP).
- Chairman, Mutual Funds Association of Pakistan (MUFAP).
- Board member of Pakistan Institute of Corporate Governance (PICG).
- Member of the Academic Board of Institute of Business Administration (IBA), Karachi.
- 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 of MUFAP. I have participated in various seminars, conferences and workshops across the globe during my 30-year career in investment management.
Al Meezan Investments: We began our journey in 1995. The objective of this journey was simple: to bring Shariah compliant investment options to the people of Pakistan and make it their first choice. Due to the continued trust our customers hold in us, Al Meezan is, Alhamdulillah the largest Asset Management Company (AMC) in Pakistan with a market share of around 39% in the Islamic mutual funds segment and around 16 market share in overall industry (as of January 31, 2022).
As the leading Fund Manager in Pakistan, we offer a comprehensive range of Shariah compliant investment solutions.
We are proud to maintain AM1 rating, which is the highest management quality rating in Pakistan, which has been awarded by both VIS & PACRA (Credit Rating companies).
PAGE: Your views on Islamic finance?
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. While true, this fact alone does not provide a holistic picture of the Islamic Financial System 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, the sanctity of contracts, etc. The Islamic Financial System is not limited to banking but also covers insurance, wealth management, capital markets and all types of financial intermediation similar to conventional financial system.
Islamic Financial System operates according to Islamic law (which is called Shariah law) and is based on two primary sources of law which are the Holy Quran and Sunnah. Entities in Islamic Financial System are governed both by Islamic law and the finance industry rules and regulations that apply to their conventional counterparts. One of the primary differences between Conventional Financial System and Islamic Financial System is that Islamic Financial System prohibits usury (Interest/ Riba) and speculation. Shariah strictly prohibits any form of speculation or gambling, which is referred to as maisir. Shariah also prohibits taking interest on loans. In addition, any investments involving items or substances that are prohibited in the Quran—including alcohol, gambling, and pork — are also prohibited.
To earn money without charging interest, Islamic financial institutions use equity participation systems. Equity participation means, for example, if a bank loans money to a business, the business will pay back the loan without interest and instead give the bank a share in its profits. If the business defaults or does not earn a profit, then the bank also does not benefit. The modern Islamic finance industry is young, its timeline begins only a few decades ago. However, Islamic finance is evolving rapidly and continues to expend to serve a growing population of not only Muslims but others as well.
PAGE: Could you share your perspective about Shariah compliant investment solutions?
Mohammad Shoaib: Among Shariah compliant investment solutions, Mutual Funds offer a diverse platform for investments as compared to Banks or any other Islamic or conventional investment avenues. The primary goal of a mutual fund is to pool savings and invest in a well-diversified portfolio of securities, which would allow the investor to significantly reduce risk and seek optimum returns. A Mutual Fund or a combination thereof, tends to offer something suitable for everyone based on their investment goals and risk appetite.
In addition to diversity and competitive returns, mutual funds also offer tax benefits to the investors making it an even more attractive offering. As mutual funds invest in multiple asset classes, the investors have the choice to invest their money in any avenue that best suits their risk profile and investment horizon. Long term investors can invest in high risk, high return Shariah compliant Equity funds like Meezan Islamic Fund while short term investors can take exposure in Shariah compliant Money Market and Income funds like Meezan Cash Fund, Meezan Sovereign Fund, Meezan Islamic Income Fund etc., which fall under the low/medium risk category for low to moderate returns. Al Meezan is also the first Shariah compliant Asset Management Company to launch Pakistan’s First Shariah compliant Commodity Fund i.e. Meezan Gold Fund and the First Shariah compliant Exchange Traded Fund i.e. Meezan Pakistan Exchange Traded Fund, which is traded on the Pakistan Stock Exchange (PSX).
Al Meezan has always valued investment in technology and providing ease of access to clients for their transactional needs and therefore, especially during the recent pandemic, we have embarked on digital account opening and usage of remote meeting platforms for enhancing sales and reach of our customers. I believe that this structural shift is here to stay and in future, we will see more advancements in the manner how technology is leveraged to achieve various objectives of the asset management company(ies). This will also be true for Shariah compliant asset management companies and their Shariah compliant product offerings.
Islamic mutual funds have gained significant popularity over the past decade, however, the level of awareness among wider investor base still 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. 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: Islamic mutual funds deploy funds in Shariah-Compliant investments. Your comments, please:
Mohammad Shoaib: With Islamic mutual funds generally outpacing growth in conventional mutual funds, the demand for Shariah compliant investment avenues is ever greater today than it was before. Under the watchful guidance of Shariah advisors, investment in Islamic debt and equities have increased manifold during the last decade.
A rise in popularity of Islamic financing in the country has led to the emergence of the KSE Meezan Index-30 (KMI-30) that tracks the performance of Shariah compliant equity securities listed on the stock exchange. This index provides investors with a suitable benchmark for comparing returns on their Shariah compliant equity investments. The Index comprises of shares of 30 companies, weighted by free float adjusted market capitalization, the Index is recomposed every six months, which keeps the constituents fresh and relevant. Further an Index Tracker Fund is also available upon the KMI-30 Index, which aims to track the performance of this Index. Moreover, the KMI-30 Index was the first Shariah compliant index in Pakistan which was launched in 2008, specifically to provide Shariah conscious investors a Shariah compliant index to track with respect to their equity investment needs.
Further, the overwhelming demand for Shariah based products led to the development of yet another Islamic index. This index was the product of collaboration between Meezan Bank and Pakistan Stock Exchange (PSX). The All Share Islamic Index which was launched in November 2015 currently consists of 226 listed Shariah compliant companies, which tend to provide investors with a comprehensive list of Shariah compliant companies that are traded at the PSX.
Shariah Compliant Fixed Income Funds are governed by Shariah principles and are only allowed to invest in Shariah compliant investment avenues that are duly vetted and approved by the Shariah Advisor. There are certain challenges in designing a particular Shariah structure for any fixed income instrument, due to which there are very limited options available for Shariah Compliant Fixed Income Funds to deploy their excess liquidity.
However, it has been observed that the regulators, Shariah advisors and Islamic financial institutions are working very closely which has resulted in increase in investment avenues available for Shariah Compliant Fixed Income Funds. Furthermore, borrowing through Islamic mode of financing is also a cheaper source as compared to conventional market which has also motivated the government as well as the corporate side to borrow more from Islamic money market.
There have also been fruitful developments with regards to issuance of shorter tenor corporate instruments, which tend to play a crucial role in absorbing excess liquidity available with Islamic mutual funds. These instruments include Islamic Commercial Papers, Short term Sukuk and placement with Islamic Banks or Islamic Financial Institutions (under different modes).
Going forward, we expect that Sukuk issuances will continue in future as the government is also focused on raising the share of Islamic debt in the overall domestic debt of the country.
PAGE: Could you comment on Islamic pension funds?
Mohammad Shoaib: Islamic pension funds are similar to a conventional pension funds except that Islamic pension funds only deploy funds in Shariah compliant investments. Shariah compliant investments are those which follow the principles of Islam, i.e. they are free of Riba (interest) and Gharar (speculation).
Islamic Pension Funds provide a regular Halal income stream to an individual after retirement/disability when one can no longer earn regular income to support a living, thereby reducing dependence on other members of the society. An Islamic Pension Fund may provide flexible savings cum investment option with multiple investment choices to suit clients need.
Private Islamic Pension Funds in Pakistan are governed by the Voluntary Pension Scheme Rules, 2005. A Voluntary Pension Scheme (VPS) is managed by a professional Fund Manager where several investors can invest to accumulate savings for retirement. VPS rules require separation of fund management and custody of funds through the establishment of trust, which protects the pension account holders, similar to other Mutual Fund structures in the country.
Meezan Tahaffuz Pension Fund (MTPF), is Pakistan’s Largest Shariah Compliant VPS with AUM’s of Rs. 13.53 billion (USD 76.61 million), as of January, 2022. It is a Tax Efficient structure and the best way to save for your retirement wherein you can avail Tax Credit (as per ITO Section 63) on up to 20% of your taxable income. The Fund enables one to save/ invest for retirement systematically while one is employed and offers the flexibility of saving as per the desire of the saver, whether by contributing regularly from income or in lump sum amount. MTPF offers tax-free investment returns where one can withdraw up to 50% of the accumulated balance from their pension account, free of tax and also allows tax credit on one’s income till retirement.
Contributions in MTPF are invested in Shariah compliant instruments to earn Halal returns and create wealth over the entire working life of the investor in accordance with the investment policy of the fund. Investors can choose from a wide range of investment options that is most suitable for them depending on their retirement goals, age and appetite for risk.
With the rise in demand of pension funds, the VPS industry has seen a boost as illustrated in the table below:
|Number of Pension Fund Managers||11|
|Number of Fund Managers offering Shariah Compliant VPS||11|
|Number of VPS||21|
|Total Fund Size of VPS (as on January 31, 2022)||Rs.39,098 Mn|
|Total Fund Size of Shariah Compliant VPS (as on January 31, 2022)||Rs. 25,579 Mn|