In its 2012 Islamic Wealth Management Report, titled “The path to corporate transformation – converting a company to Islam”, Bank Sarasin showed how the Islamic finance market potential is massive, with the global Muslim population expected to increase by 26 per cent to 2030, to 2.2 billion, rivalling China and India in terms of market size. Demographics are also compelling, with 43 per cent of Muslims under the age of 25.

"As Muslims become an increasingly important segment of the global economy, the conversion of a company to Islam will become a greater issue – for entrepreneurs, executives and investors,” said Fares Mourad, head of Islamic finance at the bank.

The bank pointed out that the Shariah-compliance process can be arduous, extending from the design to distribution and beyond, to how the company spends it profits.

Conversion also involves social, political, and financial risks. Extra costs may be associated with Sharia compliance, since a religious audit is required. Marketing is also complex, given the differences in interpretation of Islamic law and observance by Muslims globally. Beyond market factors, governance, legal and financial implications must be considered.

The report also called for the Gulf Cooperation Council to take a leadership role by establishing standards for the registration of Islamic investment products with one regulator. This would allow asset managers to market products to clients across the Gulf without the lengthy and costly registration process now required since products must now comply with different regulations in Bahrain, Kuwait, Saudi Arabia, Qatar and the UAE.

Muslim investment

The size of the sukuk market increased almost 45 per cent in 2011 to $180 billion, as yields surged, said the report. Volumes are expected to continue increasing, with new issuers and those who delayed in 2011 coming to the market in 2012.

Options are limited by Sharia considerations, with futures not allowed and Muslim investors continuing to disdain hedge funds despite approval by many scholars.

While most Islamic indexes fell in 2011 many outperformed conventional indexes because Islamic criteria screens out most financial stocks. As an example, the Dow Jones Islamic Market Pakistan Index, while down 1.06 per cent, beat the conventional Dow Jones Pakistan Index by more than 16 per cent.