Growth in the Kingdom's personal finance industry has been phenomenal. At the end of last year there were almost 60,000 unit holders and total industry funds under management exceeded SR18 billion, writes Buzz Clifford.
The personal finance industry in Saudi Arabia has grown rapidly in recent years and the Saudi Arabian Monetary Agency has been at the forefront of this progress.
Sometime soon the one hundredth mutual fund will be launched by a Saudi Arabian bank. This is a landmark worthy of note as, just a few years ago, the retail fund management industry hardly existed in the Kingdom. As the Saudi Arabian Monetary Agency noted in a recent report "mutual funds are increasingly becoming an important vehicle for retail investors."
By the end of 1997, estimates SAMA, there were almost 60,000 unit holders and total industry funds under management exceeded 18 billion Saudi riyals. Growth has certainly been phenomenal, with the numbers of funds and unit holders having virtually doubled since 1992.
At the same time SAMA has been developing a proper regulatory environment for the industry to operate within. The basis for the measures introduced thus far has been a desire to ensure that investors are properly informed about the decision they are taking. Accordingly, managers have to disclose certain information and all promotional material must remind investors of the risks involved, including an emphasis on the fact that investments can fall as well as rise in value.
To date SAMA has only allowed domestic banks to offer funds to investors within the Kingdom. Ostensibly, this has been to ensure that only reputable institutions with proper procedures and controls are involved. Whether overseas houses will be allowed to market their products in the future remains to be seen. For now, international players are remaining largely on the sidelines, although some have linked up with Saudi banks, which have been keen to tap into expertise, particularly with regard to their global equity investments.
To help ensure investor protection all funds, regardless of whether or not they are run according to Islamic investment criteria, must adhere to several guidelines:
* no more than 10 per cent of assets can be placed in another investment fund.
* such holdings cannot exceed 15 per cent of the outside fund's net asset value.
* a manager cannot hold more than one per cent of the capital of a Saudi Arabian listed company.
* no one single equity can account for...