According to IMF estimates, by the end of 2005 there were more than 300 Islamic financial institutions in the world. Like other countries in the Arab region, Jordan seems to be struck by Islamic finance fever. In February 2008, Jordinvest (Jordan Investment Trust) announced the launch of its first sharia-compliant fund at the 3rd Jordan Economic Forum at the Dead Sea Convention Center.
Jordinvest, with paid-up capital of $41.5 million, provides debt and capital raising, corporate restructuring, financial advisory, and asset management services. “The company is currently managing assets amounting to about $113 million. One of the main financial products is a growth fund dubbed the ‘First Trust Fund for Financial Securities’ or FTF, which is a hybrid equity and bond fund where debt and cash components account for up to 50% of its net asset value,” said Ammar Jarrar, Senior Vice President Capital Markets & Asset Management. He underlined that the FTF has witnessed a performance exceeding 134% to date. “Our new product, the Jordinvest Shariah Compliant MENA Fund, aims at medium to long-term capital appreciation by investing in shariah-compliant securities currently listed in the MENA region capital markets.”
Growth begets more growth
According to Ahmad Tantash, CEO and Chairman of Jordinvest, sharia-compliant investments are among the most promising niches, bolstered by a growth of 15% per annum. “Investors are also frequently demanding sharia-compliant assets. Other investors with traditionally non-Islamic orientations have also shown similar interest in the Islamic finance industry, essentially due to their double-digit returns,” he underlined. The CEO announced that the size of the fund would reach $100 million with a minimum of $5 million, including 1 million units at $100 each.
Jarrar reckons that sharia-compliant funds are a relatively recent occurrence in Jordan, stating that, “Although other financial institutions have been providing channels for such products early on, the Jordinvest Shariah Compliant MENA Fund is the first sharia-compliant vehicle to be provided by a Jordanian investment manager.” According to the senior vice president, Islamic products commonly found in Jordan are essentially banking services such as murabaha and Islamic leasing offered by Islamic banks, which have been established in the market for some 20 years. “Islamic finance per se, including Islamic funds, or other Islamic investment vehicles belong to a relatively untapped industry class.”
The new fund will focus on various economic sectors, each capped at 20%, except for the industrial sector — mining or petroleum — that will have an optional ceiling of 50%.
The open-ended mutual fund is registered in Bahrain. According to Jarrar, the Gulf state was chosen because of its exceptional positioning on the Islamic fund market, adding that: “Another important advantage is that most managers or administrators of Islamic funds tend to have a physical presence in Bahrain, which reflects well on the demand and supply sides.” The fund was not registered in Jordan because in 2004 the Jordanian Securities Commission had frozen the launch of mutual funds, as it redesigns the country’s investment laws and regulations
Reinvesting the dividends
The Jordinvest Shariah Compliant MENA Fund seeks capital appreciation over the medium and long term. “There will be no cash dividends, as gains will be reinvested regularly and returns are expected to vary between 18% and 20% per annum, but I believe we can exceed this projection.”
The fund targets individuals as well as institutions and is monitored by three sharia advisors headed by Dr. Hussein Hamed Hassan, a renowned regional scholar. HSBC Bank Middle East will act as the fund’s administrator and custodian, and Key Point Consulting as the registrar. The fund will be personally managed by Jarrar.
The manager admitted that Islamic finance is a new venture for Jordinvest, one that he believes will yield massive benefits in terms of capacity building and which will grow significantly in the coming years. “This fund is the first member of a family of Islamic funds that we are envisaging, which will most likely feature more complex structures, satisfying the growing need for Islamic products.”
In the absence of similar product lines in the local Jordanian market, Jarrar believes that the fund will undoubtedly add to the company’s competitive edge. “It could also open new windows of opportunity for our company in terms of other services that we might develop in the future, whether in the fields of asset management or corporate finance, building on the new niche and audience we would have penetrated. The spill-over effect would be positive and significant.”
