Muslims have been underserved by the asset management industry, with limited innovation in product offerings and low growth in assets, according to a study from Schroders and Maybank Islamic.
There are around 1.8 billion Muslims globally, representing a quarter of the world population.
"Still, Muslims have been underserved by the asset management industry, with limited innovation in product offerings and low growth in assets. As of June 2019, only US$3 billion was invested globally in Shariah global equity funds," said Schroders and Maybank Islamic.
We believe that by bridging this divide, the global shariah investment industry can grow and better serve the Muslim community"
The research report notes that product innovation targeted at Muslim investors is limited and shariah asset growth is low. It points out that most of the shariah global equity funds have assets of less than $25m.
The similarities between shariah and sustainable investing are such that Muslims don't have to "compromise between their religious beliefs and their desire to invest in a sustainable manner, given that the underlying principles are so closely aligned", said Maybank Islamic CEO Mohamed Rafique Merican.
"We believe that by bridging this divide, the global shariah investment industry can grow and better serve the Muslim community," he says in a news release issued with the report.
Schroders and Maybank Islamic said in a joint statement on Monday the incorporation of sustainability considerations was both complementary in philosophy to Shariah investing, and had the potential to improve investment outcomes.
Schroders head of distribution Southeast Asia Lily Choh said: "As the paper has found, formal integration of sustainability within a Shariah portfolio recognises that sustainability principles are at the core of Islamic beliefs, a fact which has failed to receive the prominence it deserves among traditional Shariah investment products."
The thought paper noted that traditionally, Shariah investing tend to exclude companies that do not comply with Shariah principles due to their harmful effects to society.
These companies involve those engaging in activities that include alcohol, gambling, adult entertainment and non-Shariah compliant finance and when the revenues they derive from these activities exceed 5%.
"It further found that if investors were to start with a blank slate using Shariah principles as the anchor for their portfolio construction, sustainability considerations are likely to feature strongly - implying that this singular focus of the Shariah investment industry is all set for an alignment with sustainable investing," it said.
Choh added this should pave the way for the asset management industry to explore and develop more innovative solutions for the global Muslim community.