Riyadh, Asharq Al-Awsat – The investment landscape of Saudi Arabia’s Islamic banking system reveals a lack of safe investment funds that provide investors with regular revenue and dividends, where the majority of investment funds only provide dividends on the share value. This means that the dividends paid out on investments reflect the value of shares, meaning that these profits are capitalist. This means that in order for investors to benefit from a share increase, they must sell their shares if the investment fund permits this. However if this is a closed investment fund then the investor has no choice but to wait until the investment pays out after reaching maturity. It goes without saying that this is something that does not suit a lot of investors, especially those who want to obtain a regular dividend from their investment, or those who require this dividend as a regular income, such as retired individuals, women, charitable associations, and funds that are under the guardianship of the state such as those belonging to minors, the mentally challenged, and wards of the state. This section of society possesses enormous assets that are either not invested properly or frozen, which is something that is confirmed by statistics published in the Al-Riyadh newspaper in April 2010 which revealed that the assets under the guardianship of the state exceed 10 billion Saudi Riyals. Therefore it is up to the Islamic investment companies in Saudi Arabia to try to create low and medium risk investment funds that see annual returns of six percent, with dividends being paid on a periodic basis, monthly or quarterly, in order to meet the requirement of this category of investors.
Some believe that it would be extremely difficult to create investment funds that meet these requirements. How can it be possible to combine a regular gainful return with a low-risk, Islamic Sharia-compliant investment? I do not believe that it would be difficult to create an investment fund such as this, as Islamic jurisprudence includes a number of [investment] contracts that could secure this. For example there is the close-end leasing agreement. This contract guarantees that regular payments are made, at the same time ensuring low-risk to the capital. The leased asset would either be sold outright, or its sale price would be included in the lease instalments. In all cases, the assets of the fund would remain in the investors name until the full price was paid off, in addition to the existence of other safeguards that secure this investment.
It is not impossible to find this kind of investment fund, as they really do exist, for example the Islamic Ijara Fund V of the National Bank of Kuwait sees an annual revenue of 7.5 percent, distributing this dividend to its investors on a monthly basis.
Therefore let me ask a question that many others have asked before me; why are investors in Saudi Arabia stuck between the low returns of the Murabaha funds that are not even sufficient to pay zakat, and the high-risk investments that have ruined everything? Why do the investment funds not diversify to suit investors’ needs and their capability of meeting risk? Why are we not seeking to invest frozen funds in order to develop the local economy, or diversify financing in the Saudi private sector by creating investment funds that meet these criteria?
The answers to these questions all lie with the Capital Market Authority, which should do more than supervise [investment] but also encourage diversity and creativity with regards to creating financial products, facilitating and stimulating this and providing incentives, as we are still an emerging market and we should not rely solely upon those in investment companies.