The demand/supply imbalance does not guarantee Shariah compliant funds will make money, according to Cerulli Associates.

In a statement, the firm said worldwide Shariah assets are estimated to be worth between US$900 billion and US$1 trillion, and the market is projected to expand to up to US$5 trillion by 2015.

Despite this high volume, Cerulli said demand for Shariah-compliant products outstrips supply in markets such as India.

However, the firm said that success is not guaranteed to Shariah-compliant offerings, and argued a range of key factors must be addressed to make them work.

Cerulli said that while the market itself is large, the variations in interpretation of Shariah have resulted in a fragmentation into a range of smaller local niches.

The marketing of Shariah products was also a critical factor, as was the track record of the fund manager offering the product.

“The best place to start earning that track record is in Malaysia. There are well-designed tax and regulatory structures to help the industry grow, and the Malaysian government has seed money for Shariah asset managers.”

Further, Cerulli said more offering conservative products and providing superior service were also important, as the largest pool of potential investors are Islamic foundations and insurance companies.

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