If Islamic fund management is to continue being a significant force on the global front, it has to go down a new path and chart a different route from what has been done so far. It’s just that organic growth is not doing the job anymore and a real gamechanger has to come.
Right now, there are a lot of small players – which is a problem and an issue as well. As was seen in Australia, mainly small players make market participants less confident in the providers. These providers are finding and servicing the same small group of clients, which means they are literally not growing.
To expand the pool of clients, there is a critical need for economies of scale to achieve more efficient price points. There also has to be upscaling to serve bigger players, especially for Shariah compliant investments, which will need significant resources that small players cannot deploy.
A possible solution will be for some of the stronger players to buy out the smaller players – for the benefit of both. Buying just to eliminate the competition is not a good thing.
What we need is true merging of talents, ideas and products and innovation. And a behemoth to come out of that. Companies that are genuinely taking on the world and growing on a global stage and providing products all over the world.
There should be a few innovative companies that result from such consolidation and these have to operate like lean and aggressive fintechs. They cannot act like banks, which are historically very slow movers. While that is good for the stability of the financial system, banks are not game changers.
We have seen it with WeChat and AliPay in the Chinese economy and many Chinese people around the world have adopted those services. It’s really changed the way that they do things. In the Islamic world, we need something like that, we need a global player.
Another lesson from these China successes is that the focus cannot be local – as this mindset will not create the products that are suitable for the Islamic community worldwide. Building the product is the hardest task as it takes many years of effort until it becomes revenue-generating in the right form.
This is an important aspect that many fintechs fail to embrace. While they’ve been a facilitator, enabling access to a wider population, many of their products haven’t been genuinely owned by them.
To be truly successful, you need to be a holistic provider as a fintech – by offering all the different asset classes plus different types of funding and financing as well. This is the solution which will be meaningful for the Islamic community globally – and non-Muslims will adopt as well.
If done right, the Islamic principle can be enough of an underlying guide to become the dominant financial system – because it ticks many of the key requirements for ethical financing and investments. The Shariah systems stayed solid during recent financial crises, they should secure our future as well.
Hakan Ozyon is the Founding CEO of Hejaz
