BMB sets trend by managing Islamic charity fund

BMB Group, a global alternative asset management and financial services firm, has been chosen to manage a charity fund for International Zakat Organisation (IZO), a newly formed charitable body of the Organization of Islamic Conference (OIC).

The Global Zakat and Charity Fund is expected to be the largest Islamic charitable initiative in the world. Zakat is the Islamic principle of giving a percentage of one's income to charity. It is often compared to the system of tithing and alms, but it mainly serves as the welfare contribution to poor and deprived people in Muslim countries.

The fund aims to raise $750 million within the first year, an amount that is expected to increase to more than $3 billion once commitments are realised. What is unique about this fund is it will be professionally managed by BMB in the same way it would other asset management funds.

This is the first time BMB has been publicly and formally involved with a charitable organisation, although it has had private involvement with charitable institutions in the past. It also marks the first time an Islamic charitable fund will be professionally managed by a fund management company.

By managing the Global Zakat and Charity Fund, BMB believes it is tapping an area of fund management that has huge potential and is a "new and exciting" trend in Islamic fund management.

As a professionally managed fund, it will be supervised by a regulator. There is no decision yet with regard to which jurisdiction the fund will be regulated, except that it is going to be an Islamic-finance friendly one, such as Malaysia where IZO is based, according to Humayon Dar, an Islamic scholar and the London-based CEO of BMB Islamic. BMB Islamic, a unit of the BMB Group, specialises in sharia advisory and structuring.

It makes sense for the fund to be regulated in Malaysia, which has been pushing hard in recent years to become a global hub for Islamic investments.

The fund will be allocated as follows: 20%-30% in sharia-compliant global equities; 20%-30% in income generating for the poor through investing in micro private equity and microfinance-related investments; and another 20%-30% for the development of social enterprises, such as health, education and housing. The balance of the fund will be held in cash. Investments will not be limited to Muslim countries.

"While investing in global equity will follow our normal in-house equity fund management processes, we intend to invest in private equity and microfinance through specialised project management companies set up in different parts of the OIC-block," Dar says. "Similarly, development of social enterprises will be done through project management companies specifically set up for such businesses."

The overall returns of the fund will be measured through a composite of social and financial returns.  

"Of course financial returns are important, but social returns more so, and we must be able to quantify these," Dar says. "The financial return expectation is rather conservative. We expect at least to preserve capital. It belongs to the poor."

BMB and the IZO have yet to finalise the fee structure applicable to the fund.

"Given our commitment to this charitable project, we intend to charge a management fee considerably lower than normal Zakat management fees, which can be up to one-eighth -- closer to western asset management fund levels of 1.5% to 3%," says Dar, who adds that sharia consultancy services will be provided free of charge.

Mat Hassan Esa, managing director and CEO of IZO, says this is the first time the OIC -- which is considered the equivalent of the United Nations for Islamic countries -- has agreed on a common initiative for the global distribution of Zakat.

The fund will act as a rallying call for wealthy Islamic countries to help needy communities all around the world, says Esa.

"Effectively administered, Zakat is a tool that can contribute to alleviating poverty not only from Muslim countries but from the entire world," Esa says.

Many of the 57 members of the OIC have already committed themselves to IZO and its initiatives. The OIC is an international organisation with a permanent delegation to the United Nations. Its 57 member states are from the Middle East, Africa, Central Asia, Caucasus, Balkans, Southeast Asia, South Asia, and South America.

The fund will invest in community development projects with an emphasis on sustainability. The four major areas to be targeted are: income generation through the provision of private equity finance to small and medium enterprises; development of social enterprise through the establishment of hospitals, educational institutions and housing developments; development of agricultural and other vital infrastructure and; the provision of relief and emergency funding.

The fund will also cooperate with western government and institutions in jointly approaching certain problem areas.

While the BMB manages the fund, IZO will serve an advisory role to ensure that the investments remain in line with the objectives and principles of Zakat. A new fund management company will be set up to manage the fund and is likely to be based in Kuala Lumpur. Both BMB and IZO are jointly working to raise the money from member countries of the OIC.

"The fund will invest along an agenda determined by social responsibility that requires every person to help their neighbour," Dar says. "We are also engaging in the highest level of due diligence and governance to ensure that the deployment of our funds do not advance the causes of organisations that do not promote peace and tolerance."

BMB, which was founded by New York-based Rayo Withanage, has become one of the major investment houses to emerge from the Islamic world, with over $10 billion in assets under management. The firm has positioned itself as an institution that marries western and eastern investment capabilities. It is headquartered in the Cayman Islands. Its parent company is based in Brunei with offices in London, New York, Kuala Lumpur and the Middle East.