Islamic Finance and Wealth Management Report 2021

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1. offer Islamic financial services and products , including Islamic insurance through institutions such as BML Islamic, Ayady Takaful, Bank of Ceylon and Habib Bank149. Exhibit 46: Major Players among Other Islamic Financial Institutions Company Kuwait Finance House (KFH) Description Recognition & Awards (2019-20) Widely considered a pioneer in global Islamic Finance, Kuwait Finance House (KFH) is one of the largest Best Islamic IFIs in the world, with a network spanning the GCC, Turkey and other Asian and European countries. Financial Institution, It is gaining momentum in the Islamic insurance (takaful) market, with an active presence in resinsurance Best Islamic Fund as well. The KFH Takaful app and website led to a surge in demand for its takaful products, as they Manager, Best facilitated easier access to its wide range of insurance products. Islamic Takaful, Best It also established its Islamic fund management operations through KFH Capital Investment, its Islamic Trade investment arm. KFH continues to introduce innovative and new Islamic products and services to bolster Finance Provider its Islamic product portfolio. Boubyan Capital Boubyan Capital operates as an Islamic company and the investment arm of Boubyan Bank. It designs and builds well-diversified portfolios, balancing long-term goals with short-term needs to deliver an intensely resourced pool of wealth management solutions. Boubyan Capital focuses on four core services; including Asset Management, Alternative Investments, Brokerage, and Robo Advisory. Best Islamic Asset Manager Jadwa Investment Jadwa Investment is a Saudi investment management and advisory firm offering a comprehensive range of financial and investment services for both individual, as well as corporate financial goals. It provides services that include asset management, financial advisory, mergers and acquisitions and researched brokerage, among others. A Sharia Supervisory Board governs all investments and financial services offered by Jadwa. The firm aims to pioneer in the Sharia-compliant investment services domain, with innovative investment products and services that can facilitate clients and customers to meet their objectives. Most recently, the firm launched Aldar Investment Fund, a SAR 1 billion (US$ 266 million) Islamic real estate fund to develop over 1,500 homes in Riyadh. Best Islamic Fund Manager Al Rajhi Capital Al Rajhi Capital (ARC) is one of the largest asset managers in Saudi Arabia and a leading investment firm in the region, operating regionally from 16 offices across the Kingdom. ARC is a financial services firm that provides a diverse range of innovative Shariah-compliant financial products and services. It is the investment-banking subsidiary of Al Rajhi Bank, one of the largest global Islamic banks, and integrates its knowledge, resources and experience to deliver streamlined solutions. It leads the market in offering bespoke financial and investment solutions, which address the investment needs and goals of clients, institutional customers and HNWIs Best Islamic Asset Manager Offa Offa emerged in September 2019 as the first-of-its-kind Shariah-compliant bridging lender in the UK. It initiated operations with GB£ 20 million in funding by an Islamic UK financial services institution. It lends up to 75% FTV on residential bridging and up to 65 per cent FTV on commercial bridging products, with a procuration fee of 2% going towards the introducers. Offa’s products are available to both domestic and international clients based overseas; and its launch is likely to spur growth by expanding the reach of the Islamic finance market in the UK. The lender plans to extend its reach into bridging and other specialist forms of lending. This remains an untapped market, but with significant and growing demand from property investors seeking alternatives. It also intends to expand into refurbishment, stretched development, planning and shared risk ethical finance. - Source: Best Islamic Financial Institutions In The World 2019, 2020; Global Finance, The Magazine, Institution Websites 149 Source: “A new Islamic finance hub emerges in the Indian Ocean”, Gulf Times, July 30, 2019 Islamic Finance and Wealth Management Report June 29, 2021 In Page | 45
3. 3 . Islamic Wealth Management Overview Islamic wealth management has five key components: wealth creation, wealth accumulation, wealth purification, wealth protection, and wealth distribution. It primarily aims to provide a level of investment protection, generate and accumulate income and distribute wealth in accordance with the norms of Islamic law. In other words, it stipulates wealth creation through Shariah-compliant investment vehicles such as Islamic funds, sukuks and Islamic equities. Other wealth management tools include estate planning/inheritance, private equity and venture capital. Notably, all Islamic wealth management propositions incorporates the concept of social responsibility and accountability150. Exhibit 47: Key Components of Islamic Wealth Management Source: CAPCO Islamic wealth management remains at a nascent stage of development, both in size and sophistication Although Islamic finance has made significant advancements over the past two decades, Islamic wealth management remains at a nascent stage of development, both in size and sophistication. The market is estimated to be small in comparison with the conventional global wealth market and the growing private wealth in the Muslim majority countries in MENA and Asia151. The lack of diversity in product offerings has limited the rise in demand from the wider population group. While more Sharia-compliant Islamic finance solutions are needed in the wealth management segment, there is also a need for market players to boost understanding of Sharia-compliant finance structures and solutions to the wider investor communities. Nevertheless, Islamic wealth creation is witnessing expansion amongst the wealthy individuals and families in the Muslim majority countries across the globe. The trend towards embracing alternative investment options, need of investment in ethical and socially responsible vehicles coupled with the rising population of high net-worth individuals (HNI) and ultra-high net-worth individuals (UHNI) has boosted the market. Younger generations of Muslim HNI and UHNI wealth management clients are more receptive to Islamic finance and Shariah-compliant products, partly as they qualify with the other investment considerations such as environmentally friendly and socially impactful investment for return or yield. Industry stakeholders and providers in the MENA and Asian countries are thus 150 151 Source: “The Emergence of Islami Finance in Wealth Management”, CAPCO Source: “The Evolution Of Wealth Management In The World Of Islamic Finance”, Hubbis, Jersey Finance, 2019 Islamic Finance and Wealth Management Report June 29, 2021 In Page | 46
4. Evolving regulatory developments across the GCC , Malaysia and Indonesia have led to investments flowing back onshore across the world of wealth management offering a wide range of Shariah-compliant wealth management products and solutions, specifically targeting the affluent class of investors. Consequently, the evolving regulatory developments across the GCC nations, Malaysia and Indonesia have led to investments flowing back onshore across the world of wealth management. This offers an opportunity to the region’s Islamic wealth management industry to enhance their onshore Shariahcompliant propositions152. Exhibit 48: Comparison of Investment Options Source: CAPCO Islamic Private Banking Growing affinity for Islamic products among the HNI/UHNI and affluent family offices is likely to aid growth and innovation within the Islamic private banking sector Numerous major global private banks have realized the advantages of integrating Islamic banking services alongside their conventional offerings, due to the large potential it holds for growth. Leading banks in core Islamic finance markets such as SE Asia, the GCC, and the broader MENA region have thus begun to tap into this segment. Large private banks such as Maybank, CIMB Malaysia, Standard Chartered Bank (SCB), HSBC Amanah and Qatar National Bank (QNB) have accordingly developed robust product portfolios that cater to Islamic private banking requirements. A 2019 survey by Hubbis suggests that Islamic private banking is likely to witness growth if major global private banks integrate Islamic banking within their product portfolio153. Such integration is likely to have a two-fold effect - propelling the reach of Islamic private banking in non-core Islamic markets, as well as expanding innovation and product options available to affluent Shariah-conscious investors in core Islamic finance regions. The Islamic finance market is poised to witness strong growth with the onset of more investment opportunities, wherein Islamic banking can meet the needs of capital markets154. Islamic private banking has a large role to play in innovating products and meeting these needs. The growing affinity for Islamic products among the HNI/UHNI and affluent family offices is likely to aid growth and innovation within the Islamic private banking sector155. 152 Source: “The Evolution Of Wealth Management In The World Of Islamic Finance”, Hubbis, Jersey Finance, 2019 Source: The Evolution of Wealth Management in the World of Islamic Finance, Hubbis, November 20, 2019 154 Source: The Evolution of Wealth Management in the World of Islamic Finance, Hubbis, November 20, 2019 155 Source: The Evolution of Wealth Management in the World of Islamic Finance, Hubbis, November 20, 2019 153 Islamic Finance and Wealth Management Report June 29, 2021 In Page | 47
5. Islamic private banking has witnessed notable developments by large institutions across core markets . For instance in December 2020, Ahli United Bank’s (AUB) Private Banking, through its Islamic window Al Hilal Islamic Banking Services, announced a partnership with Islamic investment management firm, Principal Islamic Asset Management, to support its clients’ long-term financial objectives156. Many private banks, both Islamic and non-Islamic, have notably emerged with comprehensive frameworks for Islamic private banking. Some other major players in the Islamic private banking space include: Maybank Group Islamic Banking is a key player in the Islamic private banking market, and the largest Islamic banking group by assets in the ASEAN region. In 2020, the group’s regional wealth franchise comprising Private Wealth, Premier Wealth and Privilege Wealth segment stood at MYR 244.0 billion (US$ 59.5 billion) in total AUM, registering a growth of 8.3% CAGR over the five year period from 2016157. Maybank’s offers its wide range of Islamic financial products and services through 354 Maybank facilities in Malaysia. It also has a strong presence in Indonesia, Singapore, Hong Kong, the UK and the UAE158. It is one of the largest banks in Malaysia, strengthening its asset management business through new and innovative Islamic banking products. Notably, it has maintained a strong focus on digitalization and the integration of digital tools to improve its services. Its mobile app, Smile, for example, is providing clients access to their insurance policies, and information for strategic decision-making. The bank’s Private and Premier Divisions provide a suite of personalized services for their customers’ daily banking requirements, along with addressing long-term investment objectives159. Some of Maybank’s digital wealth management and private banking offerings include the Maybank Wealth app, which provides affluent clients with an amalgamated view of their product holdings in order to help them manage finances, and evaluate investment status. It also has a digital banking platform, the Maybank2u app, which utilizes Secure2u features and biometrics160, and even enables customers to write wills online. It has also launched a real-time chat platform M2U Live Chat, to provide round-the-clock assistance for premier banking customers. Its QRPay and Tap2Phone solutions have provided affordable digital payment solutions for small merchants, while SMEs in Malaysia can avail of its SME Digital Financing with ten-minute approvals and digital real-time account opening services for SMEs161. Maybank was also the first Malaysian local bank to introduce SWIFT Global Payments Innovation (GPI), enabling faster, more convenient and safer cross-border remittances162. As part of its key focus areas in 2019, Maybank Trade improved its engagement platform to integrate predictive analytic capabilities for customer behavior, as well as introduce biometrics logins for faster and more secure transactions163. 156 Source: ”Ahli United Bank's Private Banking Partners with Principal Islamic Asset Management to support clients' long-term financial goals”, Ahli United Bank, December 27, 2020 157 Source: Maybank Annual Report 2020 158 Source: Maybank Annual Report 2020 159 Source: “World’s Best Private Banks 2021: Middle East”, Global Finance Magazine, December 9, 2020 160 Source: Maybank Annual Report 2020 161 Source: Maybank Annual Report 2020 162 Source: “World’s Best Private Banks 2021: Middle East”, Global Finance Magazine, December 9, 2020 163 Source: Maybank Annual Report 2019 Islamic Finance and Wealth Management Report June 29, 2021 In Page | 48
6. Exhibit 49 : Maybank Malaysia Financials (2018-2020) Maybank Group (in US$ billion) 2016 2017 2018 2019 2020 Total Assets 175 182 192 199 204 Deposits from Customers 116 120 127 130 133 Shareholder's Equity 16 17 18 19 20 2020 2018 2019 2020 Group (in US$ million) Bank 2018 2019 2020 Operating Revenue 11,272 12,593 12,156 6,355 6,414 5,803 Operating profit 2,573 2,586 2,012 2,084 2,004 1,650 Net Income 1,933 1,953 1,544 1,741 1,734 1,421 Deposits from Customers 126,897 129,707 132,522 60,779 57,825 59,556 Net Loans 120,787 122,297 122,008 54,873 53,973 54,768 Total assets 192,225 198,757 204,104 108,765 110,611 113,456 Source: Maybank Financial Statements CIMB is the largest private Bank in Malaysia, with MYR 602.4 billion (US$ 146.8 billion) in total assets as of 2020. Its operating income reached MYR 17.2 billion (US$ 4.2 billion) in 2020, while net profit stood at MYR 1.2 billion (US$ 0.3 billion)164. In 2017, CIMB became the first bank in Malaysia to get regulatory sandbox approval for electronic-know your customer (e-KYC) to accentuate its Consumer Banking proposition165. It established the first Big Data platform in Malaysia, by leveraging open-source software technology. CIMB Private Banking now offers HNIs and affluent clients personalized advisory, portfolio planning and wealth management solutions166. Its digital private banking offerings include Clicks Trader, an online portal that offers online trading conveniences to help clients grow their investments through the CIMB Clicks mobile app. In 2015, CIMB Private Bank collaborated with UOB Asset Management (Malaysia) and BNY Mellon Managed Investments, to introduce a discretionary portfolio platform, and Separately Managed Accounts (SMA) for its ultra-HNI clients. The platform facilitates access to investment strategies from global asset managers for investors, and assists them to invest in global stocks through multicurrency strategies167. Standard Chartered Bank (SCB) has emerged as the first global bank in Malaysia to launch an Islamic banking arm and introduce Islamic products. Its Islamic banking network Saadiq offers global Islamic private banking services that integrate in-depth Shariah expertise with business acumen. In Malaysia, total assets for SC Saadiq Berhad reached MYR 7.9 billion (US$ 1.9 billion) by September 2020168. Saadiq also has a presence in Bangladesh, Bahrain, Malaysia, Pakistan and the UAE, among other nations spanning Asia, Africa and the Middle East169. SCB is the first bank in Malaysia to offer both secured foreign currency wealth lending, as well as banking services through video, audio and chat mediums for Personal and Priority Banking customers170. It won the award for Malaysia’s best Islamic Digital Bank for the fourth straight year in 2020. Its digital private banking offerings include Smart Direct, a tool that enables FX transacting across 250 mutual funds and online portfolio tracking; Smart Goals, for customizing financial goals per investor needs and preferences; and 164 Source: CIMB Annual Report 2020 Source: “CIMB is First Bank to Receive Regulatory Sandbox Approval For E-KYC”, CIMB, November 23, 2017 166 Source: Digital Wealth Management in Asia Pacific Report, KPMG, March 10, 2021 167 Source: “CIMB Private Banking To Offer SMA”, Finews Asia, May 29, 2015 168 Source: Standard Chartered Saadiq Berhad Financial Statements for the period ended 30 September 2020 169 Source: Standard Chartered Website 170 Source: Digital Wealth Management in Asia Pacific Report, KPMG, March 10, 2021 165 Islamic Finance and Wealth Management Report June 29, 2021 In Page | 49
7. Wealth Power , which enables investing in bonds, unit trusts, insurance products and more, for potentially better returns171. HSBC Amanah Malaysia is another major player in the Islamic private banking market that offers a host of Shariah-compliant products and services to its customers, as part of its Islamic private banking portfolio. In December 2020, its total assets stood at MYR 18.4 billion (US$ 4.5 billion). Although this represented a 13.2% decline from MYR 21.2 billion (US$ 5.2 billion) in 2019, the bank’s capital and liquidity ratios have stayed strong, and above regulatory requirements172. HSBC Amanah’s offerings enable investors to engage in Shariah-compliant equity market investing, and offers a range of wealth management solutions for individual needs. Moreover, it offers personalized assistance and tools such as its online payment gateway FPX, which enables easy and real-time online payments; NetPlus, offering fraud awareness and cybersecurity threat information. Its digital wealth management and private banking offerings include digital account onboarding, real-time mobile access to trade transactions (Trade Transaction Tracker), online wealth management platform (Wealth Dashboard), fund monitoring access, investment-related news and updates, and instant cross-border money transfers via mobile banking173. HSBC Amanah has won several awards for its Islamic banking offerings in 2020 including the Islamic ESG Bank of the Year, Best Islamic Trade Finance Bank, Best New Sukuk, Best Quasi-Sovereign Sukuk, Best Trade Finance Product, Best Structured Financing, Islamic Finance House of the Year, and Best Islamic Syndicated Financing Deal of the Year174. Qatar National Bank (QNB), which is one of the largest and fastest growing lenders in the Middle East, holds a 30% market share in the region’s private banking175. It has tailored its private banking services to cater to the evolving preferences of the Middle East’s customer base that comprises of increasingly young HNIs. The bank’s investments into technology have enabled it to create a niche digital banking system with advanced digital tools such as video link platforms, mobile applications using face recognition and collaborations with telecom operators. Accordingly, the bank has expanded its offerings across the globe with presence in more than 31 countries spanning Asia to Europe176. Several other private banks continue offer a wide range of similar services in core markets like Malaysia. For example, Citi Malaysia’s total wealth advisor platform, and its array of investment products comprising retail bonds, unit trusts, market-linked investment to dual currency accounts, and many more are witnessing strong growth177. This trend is likely to continue, largely driven by an uptick in the appetite for Shariah-compliant banking products from HNIs in the Middle East, as well as in Asian countries like Malaysia and Indonesia. Retirement and Pension Funds The belief in administration and management of wealth in a sustainable manner, along with the religious guidance that encourages Muslims to save during times of abundance, makes it imperative for religiously observant investors to plan for their old age in advance178. This leads to the need for good retirement planning that is Shariah-compliant, where apart from constantly ensuring the compliance to Shariah laws, the investors also need to establish a procedure for Zakat. Another factor that makes retirement planning important is the growing 171 Source: Digital Wealth Management in Asia Pacific Report, KPMG, March 10, 2021 Source: HSBC Amanah Malaysia Berhad Financial Statements 2020 173 Source: Digital Wealth Management in Asia Pacific Report, KPMG, March 10, 2021 174 Source: HSBC Amanah Malaysia Annual Report 2020 175 Source: “World’s Best Private Banks 2021: Middle East”, Global Finance Magazine, December 9, 2020 176 Source: “World’s Best Private Banks 2021: Middle East”, Global Finance Magazine, December 9, 2020 177 Source: Digital Wealth Management in Asia Pacific Report, KPMG, March 10, 2021 178 Source: “Analysing Shariah Compliant Retirement Planning: the Case of Malaysia”, Science Publishing Corporation, 2018 172 Islamic Finance and Wealth Management Report June 29, 2021 In Page | 50