Islamic Wealth Management: niche or new wave?

Worried about the civil unrest in the region and the effect on your money? Switzerland has always benefited from its reputation as a "safe haven", especially during times of political crisis such as the Middle East and North Africa is going through.

Despite pressures from the US and Germany on the Swiss banking secrecy law (which dates back to 1934), banks in Zurich and Geneva have reported inflows from wealthy Arab clients who prefer to secure and diversify parts of their wealth. Lebanese high net worth individuals (HNWI) were the first in mid-2010 to transfer money from Beirut to Zurich, when their country faced political deadlock, according to a banker in Zurich who spoke to on the condition of not being named.

Nevertheless, local GCC banks have upgraded their private banking divisions in recent years. Gary Dugan, Chief Investment Officer & Acting General Manager, Private Banking, at Dubai-based bank Emirates NBD even says "there is no reason anymore for anyone to open an account in Switzerland". According to Dugan, "Emirates NBD offers all kinds of wealth management services, from customised funds, trusts, family offices and even art banking. On top that, Emirates NBD runs booking centres in Dubai, London and Singapore."

In 2009, the world's population of high net worth individuals surged 17.1% to 10 million, according to the Cap Gemini Merrill Lynch Wealth World Wealth Report 2010. Their wealth jumped 18.9% from the "annus horribilis" 2008 levels when Ultra-HNWIs lost 24.0%, to $39 trillion. The latter group of the "happy few" saw their wealth growing by 21.5% in 2009.

Islamic Wealth Management opportunities

One area that is still underdeveloped among Swiss banks in comparison to their peers in London and the GCC is Islamic finance. Islamic Wealth Management is regarded as the "missing link" between Sharia-compliant retail banking and corporate finance. While Islamic bank accounts for "the man on the street" and Sukuk issuances for project financing in 2010 topped pre-crisis levels, amounting to almost $50bn globally, the development of Islamic wealth management has been neglected by the financial industry.

According to Dr Omar Clark Fisher, Strategic advisor to the Board of Takaful operator Solidarity in Bahrain, the Islamic understanding of wealth consists of four dimensions:
- The correct attitude about wealth.
- A plan for accumulation and preservation of wealth.
- Donation of wealth, or Zakat, usually 2.5% of the total capital.
- Distribution of wealth in the sense of inheritance.
In the Holy Quran, the Surat al-Baqarah Verse 2:262 states that : "Those who spend their substance in the cause of Allah and follow not up their gifts with reminders of their generosity or with injury, for them their reward is with their Lord; in them shall be no fear, nor shall they grieve."

Based on the growing wealth in the GCC, all Islamic banks in the UAE and a number of conventional banks with "Islamic Windows", have established sections of managing wealth above $1m in line with Sharia, meaning interest-rate free and on a risk-shared basis. These sections are called Royal Banking (at Islamic bank Dubai bank), Al Dana Wealth Management (at conventional Commercial Bank of Dubai, known as CBD) or Siraj (at Abu Dhabi's First Gulf Bank) to mention a few.