LONDON, 2 August 2004 — The figures are mind-boggling. The private liquidity in the MENA (Middle East & North Africa) is in excess of $2.3 trillion — of which some $1.5 trillion is in Saudi Arabia, Kuwait, the UAE, Qatar, Oman and Bahrain. This is the so-called new money, created by the oil price bonanza, the real estate boom, and investments in the equities markets. Not surprisingly, the emergence of private family wealth and high net worth individuals in the MENA and Asia Pacific regions, has been a major boon to the private banking departments and institutions in the West, mainly in the US, Switzerland, UK, Germany and France. These individuals and families, according to The Boston Consulting Group, are sitting on a combined asset pool of a staggering $10.2 trillion, most of which are invested in the US, Europe, and East Asia. Other studies suggest that the number of millionaires in the MENA region with more than $1 million to invest is growing at an annual rate of 3 percent.

Another major development is Islamic private banking and discretionary portfolio management, Islamic trust administration and Islamic estate management. Not surprisingly, Islamic financial institutions are now competing with conventional banks in engineering Shariah-compliant investment portfolios.

In the post-9/11 environment, Arab and Muslim investors prefer Swiss and British banks whom they perceive as more responsive to their investment needs. Arab and Muslim investors resent the new immigration regulations in the US nwhich they perceive as being discriminatory and targetting anyone with an Arabic sounding name.

They are also wary of the freezing of assets of Arab investors by the US authorities. Arab capital has seen some repatriation from the US to markets in the UK and Europe. Most Arab invested assets in the US are in long-term treasury papers, private equity buyouts and in real estate development. This takes time to divest even if they wanted to.

An increasing amount of money is coming to the Islamic financial sector. Judging by the highly successful recent IPOs for Islamic banks and subscriptions to Sukuk (Islamic bond) offerings, the growth in the Islamic sector has been impressive. And with National Commercial Bank recently announcing a partial conversion of its activities to dedicated Islamic banking, the growth may yet over take the conventional sector.

Private bankers naturally argue that private banking is complex, sophisticated and necessary. In emerging countries, the need for private banking could not be more opportune. But private banking in Arab banking is relatively under-developed. The same is true in general of the other Muslim countries.

Trust administrators such as Izham Yusoff, managing director of Amanah Raya Berhad (ARB) in Kuala Lumpur, Malaysia, stress that Muslims in general, and Malaysians in particular need to manage their wealth. “We are not used to doing this because in the case of the Malaysians in general, we were never wealthy before. It is a new phenomenon,” he adds.

In Muslim countries, wealth is not only in the hands of families and individuals; but also in the form of endowments, of which the Waqf is unique to Muslim societies. Waqf are estimated to run into billions of dollars worldwide, yet hitherto there have been no systemic attempts to leverage this invaluable pool of assets to raise liquidity; to develop the Waqf properties and services; and to benefit society as intended. Some countries such as Malaysia, Singapore and the GCC states have begun to leverage these assets, but mostly at a primary level. In Malaysia, for instance, Waqf property, says Yusoff, covers over 32,000 acres of land — although the size and quality of the land and properties vary.

Earlier this year, a largely Saudi-owned Rusd Investment Bank, was incorporated in Labuan with a capital of $50 million, with a specific and dedicated mandate as one of the first Islamic private banks. According to Rusd Investment Bank chairman, Dr. Saleh Malaikah, formerly CEO of Al-Tawfeek Company for Investment Funds in Jeddah, the bank inter alia plans “to provide sophisticated wealth management and future financial planning services for Muslims across the globe on an offshore basis, under a trust, Waqf, or any financial vehicle, which we can legally create, and which can give Muslims that leverage to control the fate of their future wealth past their lifetime.”

Dr. Malaikah claims that Rusd Investment Bank is in fact “re-engineering and re-introducing many of the great Islamic concepts such as the Waqf and its derivative Rasad, in a modern context.” The bank is on the verge of introducing its first Islamic trust product; and a series of asset management products.

Dr. Malaikah stresses that based on the feedback and inter-action with his bank’s clients and investors, there is a huge demand for Shariah-compliant wealth management products and services. “Our clients want to rest easy, knowing that if they are committing investments, they are getting a halal (ethically permissible) return. We are taking this proposition to Muslim clients around the world, which is a very viable investment alternative.”

The reason for incorporation in Labuan is also for Rusd Investment Bank to bridge the Islamic investment gap between the GCC and Malaysia, which are the two growth areas also for Islamic banking.

The message to banks such as Clariden and others of the same like, is that you ignore Islamic private wealth management at your peril.