Islamic finance expo: Asset management companies steal the show

Islamic financial institutions set up about 35 stalls.

KARACHI:

The Karachi Expo Centre’s Hall No 1 was full of activity on Friday, as people from different professions visited about 35 stalls set up by different Islamic financial institutions as part of Pakistan’s first Islamic Finance Expo and Conference, 2012.

Although there were eight banks, six asset management companies (AMCs) and three Takaful companies besides a number of other businesses which had established their stalls at the exhibition, booths set up by AMCs were by and large the main attraction.

A giant banner at the booth set up by JS Investments displayed in bold font the annual return – 40.23% – that its Islamic fund gave out in fiscal year 2011.

“That’s probably the highest return any mutual fund in Pakistan offered that year,” JS Investments Head of Corporate Communications Hassan Reyaz Khan said while talking to The Express Tribune.

The JS Islamic Fund investments are limited to asset classes approved by its Shariah Advisory Council while all companies under investment consideration are also screened for Shariah compliance.

As of February 2012, Pakistan’s mutual fund industry was worth Rs360 billion with about 25 AMCs operating in the country. Many of them have separate Islamic funds that invest in Shariah-compliant companies only.

The mutual fund industry grew by 44% during the first eight months of fiscal 2012, as its size was about Rs250 billion in June 2011.

In view of the low investment in the mutual fund industry in Pakistan – currently estimated at 0.49% of gross domestic product compared to India’s 2.74% – the government has offered incentives to salaried and non-salaried investors by reducing their tax liability through tax credits.

For example, according to JS Investments Country Head for Business Development Assad Hameed Khan, if a person invests Rs180,000 out of his total annual taxable income of Rs1,200,000 in the JS Islamic Fund, he can get a tax credit of Rs18,000 based on the applicable tax rate of 10%.

Therefore, in addition to the over 40% return on his investment of Rs180,000 – based on 2011 returns posted by JS Investments - the imaginary investor would have earned a tax credit of Rs18,000 in fiscal year 2011, resulting in net annual profit of Rs90,000 against an investment of Rs180,000 – a net return of 50%.

Earlier, while addressing the “meet the experts” session of the Islamic Finance Expo, Karachi Chamber of Commerce and Industry Acting President Younus Bashir said the growth of 17.5% in assets of Islamic banks last year was reflective of the sound theoretical foundations of Islamic finance.

He invited Islamic financial institutions to participate in the “My Karachi – Oasis of Harmony” exhibition, which will be held on July 13-15 at the Karachi Expo Centre to foster business-to-business linkages between domestic and global corporate players.

Bashir noted that Islamic banking and finance should be part of college and university curricula as well so that young people could understand its basic concepts better.

Published in The Express Tribune, May 19^th, 2012.