Sharia-compliant investing* is still a relatively nascent practice, but one of which long-standing Islamic finance expert Tariq Al Rifai is a firm advocate.

He argues that Islamic finance would help solve some of the current issues in global financial markets, because they are driven by the buildup of excessive debt and derivatives – which are largely eschewed by sharia law.

In fact, Al Rifai has just set up a think tank with a focus on such issues. Quorum Centre for Strategic Studies (QCSS) was incorporated in the UK last month, is based in London and has a presence in Kuwait.

There are a few people on the advisory board already and Al Rifai plans to add more, along with hiring a research team in the UK and in Kuwait. Further appointments will depend on what the firm covers, he said. “We will focus more and more on what’s happening in emerging markets, what’s brewing in East Asia all the way to the Middle East and Europe.”

“There’s the issue of mounting debt. We will look at what the problems are, how they come about, and how you would tackle them from an Islamic point of view.”

When it comes to sharia investment, institutional allocations are still very small, he conceded, but there is a lot of potential for growth in this area. One of QCSS’s objectives is to encourage sovereign wealth funds in the Middle East to do more Islamic investment, noted Al Rifai, “because they don’t do much now”.

What’s more, there could be a lot more sukuk (Islamic bonds) available for purchase, he said. For example, Saudi Arabia has not yet issued a sovereign Islamic bond, but it is planning to. “It’s a top-notch credit that anyone in the region would be keen to buy.”

Meanwhile, in November Kuwait issued rules providing a basis for the issuance of corporate and sovereign sukuk, he said, and these are pending final approval.

The biggest investors in sukuk are pension funds, added Al Rifai. “They would love to be able to invest more, but they can’t find enough, hence their sukuk portfolios are relatively modest.”

As it happens, there is likely to be a larger pool of Middle East pension assets to tap in the years to come, noted Michael Slater, head of Saudi Arabia at Northern Trust, as reported. Governments in the region are looking to develop defined-contribution plans in addition to the current defined-benefit, end-of-service annuities provided by most companies, he noted.

Al Rifai is also founder and chairman of Chicago-based research and analysis firm Failaka Advisors. He is currently head of research at Kuwait Finance House, but will depart in a month's time, and has also served as director of investment strategy at S&P Dow Jones Indices in Dubai. 

*AsianInvestor's list of the 50 biggest fund managers by sharia-compliant assets will appear in the upcoming (March) issue of the magazine. Data from the project will also appear online in the coming weeks.