MIAM signals interest in Shariah private credit funds

Despite the rarity of Shariah compliant private credit funds in Malaysia, the Islamic arm of one of the country’s largest asset management companies tells IFN Investor that it wants to toss its hat into the ring, a move that would add vibrancy to the fledgling sector.

“The first institutional-scale Shariah private credit vehicles have emerged only in the past year. We read that as a market beginning to mature; we intend to participate as it does,” shares Muhammad Riduan Jasmi, the chief investment officer of Maybank Islamic Asset Management (MIAM).

The Southeast Asian nation only welcomed its first Islamic private credit fund last August – the Muamalat-I Dana Sinar by Bank Muamalat Malaysia. Berjaya Mutual followed in January this year with the Berjaya Mutual Shariah Private Credit Fund I.

The erosion in conventional private credit is well-documented on the back of deteriorating lender protections, however, Islamic asset managers from the GCC to Europe and Southeast Asia are bullish on this asset class, as we have covered extensively.

Muhammad acknowledges the issue, noting that this global phenomenon was a driving consideration in the group’s deliberate selection of its partner for the conventional MAMG Global Private Credit Fund, launched last month.

“We wanted genuine discipline, no fund-level leverage and a manager willing to walk away from deals that did not meet their standards.”

The nascency of the Islamic private credit fund space means there is no data to support that the Shariah segment would exhibit the same patters. However, as Muhammad explains, the dynamics that erode protections are not faith-specific – they appear whenever too much capital chases too few deals.

Needless to say, Islamic private credit funds also face additional Shariah structuring challenges. It is difficult to reconstruct the economics of private lending through compliant contracts which demand more structuring, tighter documentation and robust Shariah governance in an industry that is still building its standardization.

 “The answer is not to wrap a conventional structure in Shariah language, but to design around genuine asset-backing and risk-sharing from the start,” thinks Muhammad.

Building a comparable Islamic private credit infrastructure is no easy task and certainly not a “single-party endeavor.”  Regulators need to prove legal certainty; scholars to validate standardized and tradable structures; and managers must build volume.

“Malaysia is well-positioned to lead, given the depth of its ecosystem and the alignment between its regulators, scholars and institutions,” notes Muhammad. “We see that as an opportunity.”