Though financial returns and social considerations have not always gone hand in hand, the trend seems to be diverting the other way in recent years towards Socially Responsible Investments (SRI)—businesses that produce measurable, positive social and environmental impact alongside a financial return.
Essentially, a socially responsible instrument is suitable for investors who want to produce a profit, but balance it against their ethical and moral principles. These usually involve companies with good social value, or socially conscious mutual funds or exchange-traded funds (ETF).
The fundamental principles of SRIs are also closely related to Islamic finance, and have created an increasing demand for Islamic products in Malaysia.
Data from Morningstar Direct shows that assets of locally domiciled funds in the country, excluding money market funds and fund of funds, grew 20% to RM236 billion in October 2020 on a 12-month period. The growth was driven by domestic Shariah bond funds, which saw year-to-date net inflows of RM19.9 billion.
This increase in demand is in tandem with other initiatives by industry stakeholders to grow the Islamic finance segment in Malaysia.
Most recently, BIMB Investment Management Berhad (BIMB Investment), a wholly-owned subsidiary of Bank Islam Malaysia Berhad, announced a target asset under management (AUM) of RM50 million for its recently launched Makmur myWakaf Fund by the end of 2021.
There are three types of waqf: public waqf, an endowment established for charitable purposes; a special waqf, an endowment created for specific charitable purposes; and shares waqf, shares of companies or businesses or shares in existing abridged endowments.
What is a Waqf?
According to the Securities Commission Malaysia, it is an endowment initiative that is managed according to Shariah Law and plays a prominent role in the Islamic economic system.
The concept of waqf started off as a simple endowment during the time of Caliph Umar al Khattab (RA), but through innovations, waqf management became more clarified and regulated under the time of the Ottomans.
However, over time, the concept and structure of waqf has evolved into self-sustaining business models that generate income not just for the upkeep and maintenance of the assets or properties, but also other philanthropic activities.
BIMB Investment targets RM50 Million AUM for the first waqf fund in Malaysia
BIMB Investment chairman Mohamed Ridza Mohamed Abdulla said Makmur myWakaf Fund is the first waqf unit trust fund under the Securities Commission Malaysia’s Waqf-Featured Fund Framework, launched late last year to enable the growth of the Islamic social finance segment.
Makmur myWakaf Fund is a multi currency, Shariah-compliant global mixed asset fund and supports the Malaysian International Islamic Financial Center (MIFC) initiative. The fund aims to generate income through a diversified portfolio of Shariah-compliant investments in various asset classes locally and globally. It also uses a sustainability approach that incorporates the principles of the United Nations Global Compact (UNGC) and Environmental, Social and Governance (ESG).
Investors can invest in the Makmur myWakaf Fund through three asset classes namely RM, USD and AUD with a minimum initial investment of RM200, USD200 and AUD200 respectively.
Mohamed Ridza said BIMB Investment was targeting a minimum profit distribution of 5% per annum with 50% of the income distribution as waqf asset for waqf purposes and the balance will be channelled to investors.
In terms of Makmur myWakaf Fund’s investment strategy, he said the exposure is allocated to the Sukuk market, Shariah-compliant equities and low risk assets such as Islamic money market instruments to maintain potential income opportunities.
“The fund enables investors to participate in the revenue prospects of the Malaysian, Asia Pacific and global markets with tactical asset allocation. This innovative fund is suitable for corporate investors as well as individuals who want to channel part of their investment returns for wakaf purposes to help the underprivileged community, especially in the areas of healthcare, education and community empowerment,” he said.
The waqf asset will be distributed through the myWakaf AIBIM initiative, an action plan between Islamic banks and the State Islamic Religious Council (SIRC) to develop the potential of waqf and empower the economy of ummah in Malaysia.
Currently, six Islamic banks are involved in the implementation of waqf which consists of Affin Islamic Bank Berhad, Bank Islam Malaysia Berhad, Bank Muamalat Malaysia Berhad, Bank Rakyat, Maybank Islamic Berhad and RHB Islamic Malaysia Berhad.
Investors can also invest in the Makmur myWakaf Fund through BIMB Investment’s robo-intelligence app, BEST Invest.
“As of March 2021, it (the fund) has managed to raise RM11 million,” Mohamed Ridza told a press conference after the official launch of the fund on Monday by Minister in the Prime Minister’s Department (Religious Affairs), Datuk Dr Zulkifli Mohamad Al-Bakri.
Waqf is an important instrument in Islam that serves as a catalyst for the development and economy of the ummah, Dr. Zulkifli said at the event.
“I am very excited with the launch of Makmur myWakaf Fund because it shows BIMB Investment's commitment to wakaf efforts for the benefit of recipients, while continuing to stimulate the development of wakaf instruments in the country,” he said.
“BIMB Investment has also taken a very special, unique, and innovative step through the offering of this fund. It provides an easy and convenient platform for Malaysians to contribute towards the greater good. The result can be realized in this world and in the hereafter,” he added.
So, is a socially responsible investment such as the Makmur myWakaf Fund suitable for you? Here’s a quick pros and cons checklist for you to consider:
SRIs take into account both profits and social considerations when investing.
Pros of investing in SRIs
1. You’ll be investing in an entity that is close to your heart or more aligned with your personal beliefs
Are you an eco-enthusiast? If so, it’s likely that you would only want to invest in companies that value the environment and are doing social good. Investing in SRIs would be good for you as it ties closely with your personal beliefs.
2. You could be part of a real movement to create a better world
Traditionally, corporations have always strive to earn profits above any other agenda, but as time progresses, the world develops, and leading global issues start coming to the forefront, more companies realise the importance of positioning their values alongside these issues.
These reasons have been the catalyst for ethical investing, and is what has led to more investors placing their hard-earned money into similar movements.
Cons of of investing in SRIs
1. You may not have a cause that you are passionate about
If you don't have passion for a certain social cause or calling, you may not be motivated enough to research or understand more about such issues, let alone invest in a company with such values. The reality is that many investors still value companies solely based on their performance, profits and dividends.
2. Performance isn’t always guaranteed
Though there is a clear morale and conscious benefit from investing in ethical investments, these funds are not always performing as well or better than index funds.
And unfortunately, there isn't clear evidence that ethical investments perform significantly better on the long-term compared to unethical investments. But of course, things may change with time.
Is SRI for you and should you go for it?
There are many reasons why you would consider SRIs. Perhaps it’s for religious beliefs, personal values, political beliefs etc. For example, if you are a practicing Muslim, you more likely to want to invest in Shariah-compliant investments, which tie closely into SRIs.
Other investors, however, may not find the need or even want to mix personal values or beliefs with financial goals.
After all is said and done, if you feel that SRIs could be good for your portfolio, then there’s no harm in giving it a try.
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