Islamic Finance | |
Islamic Finance | |
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Friday, January 21, 2021 / 11:00 AM / Bukola
Akinyele-Yisau for WebTV /
Header Image Credit: WebTV
Ethical
funds are catalysts for wealth creation and economic value for investors,
especially in frontier markets like Nigeria. Dr. Yusuf
Adeneye, Senior Lecturer, Universiti Malaysia Kelantan, made this point while
explaining "Ethical
Funds, Economic Growth and Public Goods from a Shariah Perspective."
According to
Dr. Adeneye, a mutual fund is a vehicle or an avenue for investments and an
indirect way of investing in the equities market instruments. They serve as a pool
of securities where investors come together to endure that the fund performs
better than the market index.
He provided
further insight into the significance of mutual funds to government issuance.
He said it is about competitive conditions and yields in terms of higher
dividend per share offered to investors than retail banking in terms of the
interest on savings.
The scholar
noted that it was low compared to the yields given by mutual funds, which is
one-way mutual funds have been effective in government issuance.
From the
regulation side, Dr. Yusuf believed it has been less restrictive and favourable
to mutual funds in terms of easy access to the capital market.
Also, he
stressed that there had been an increase in the movement of funds from retail
banking to mutual funds, with retail investors diverting their savings from
conventional banks to mutual funds that bring a pool of resources in terms of
capital to invest in government securities.
They are looking
at the activities of the government and how it could take advantage of the
enormous funds mobilized by ethical funds in 2022. Adeneye said ethical
funds rely on moral and investment considerations, as investors align with
ethical rules before investing.
He
identified the issuance of Sukuk as one way the government can harness ethical
funds or raise Shariah-compliant instruments. He said the ethical fund could be
invested in government green bonds or Sukuk.
"Capital
can be moved from ethical funds to support the government as they invest in infrastructure
projects, instead of going for international investment flows that have
interest rates compounded," Adeneye added.
He restated
the need for the government to look locally by issuing the ethical funds
through Sukuk, which will help reduce the stress of implementing and carrying
out public projects like infrastructure, etc.
Speaking
further, he said the government should look at investors' behaviour and their appetite
for ethical investments guided by rules and regulation to provide enabling policies
that address production rather than waste.
"They
need to manage their policies in a way that will encourage more ethical investors
to participate in the financial/capital market."
According to
him, many corporations invest in SRI products and projects. Another way SRI could
drive economic growth is for the government to look at tax policy incentives to
enhance economic growth.
Another area
he cited as practicable was deploying the concept of social and infrastructural
upliftment. He advocated for investments in local communities through responsible
investments.
He pointed
out that leveraging renewable energy investments as a source of alternative
power can improve people's standard of living and boost financial inclusion. Providing
local communities with socially responsible investments can enhance economic
growth.
The
liquidity of the Shariah-compliant instruments has performed well, and there are
different assets to invest in the market.
Looking at the
likely drivers of activities in the ethical funds' space in 2022, he said the
pre-election year and build-up to 2023 general elections and political movements
will trigger some risks.
He added, "First
thing we might see would be an increase in management fees as fund managers
will want to charge more due to the expected market risk they will face, while investment
managers will want to put their money in ethical funds due to its performance
in the last few years. Retail investors will be pulling their capital from
conventional banks to ethical funds, which may face high costs due to the
upcoming political activities".
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