Capital Flight through Islamic Managed Funds

Rodney Wilson

in The Politics of Islamic Finance

Published by Edinburgh University Press

Published in print February 2004 | ISBN: 9780748618361
Published online March 2012 | e-ISBN: 9780748653089 | DOI:
Capital Flight through Islamic Managed Funds

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Much of Islamic World finance is generated locally but then invested in the Western markets; this phenomenon is called capital flight. In contrast, Muslim governments mostly fail to raise sufficient revenue to cover their expenditures, and as a result become dependent on international borrowing to fund their deficits. There are, in other words, varying degrees of private affluence, and this is not exclusive to the oil-exporting states of the Gulf. To what extent can Islamic finance help solve these imbalances? Is the application of shariah law a help or hindrance to the development of domestic financial intermediation and national financial markets in Muslim countries? This chapter examines the direction of Islamic investment. It examines the financial flows through the Islamic Development bank, with particular focus on the outward portfolio investment flows, particularly those through managed funds. The chapter argues that there is little Islamic foreign direct investment. This reflects the failure of indigenous multinational companies to develop in most Muslim countries where governments are resistant to competing local centres of economic power beyond their control. The Islamic managed fund industry remains modest in scale, with assets worth less than $10 billion, but it is qualitatively significant, as its experience demonstrates the constraints in redirecting Muslim capital flows to emerging Muslim markets.

Keywords: Islamic World finance; capital flight; shariah law; Islamic investment; managed funds; foreign direct investment

Chapter.  9886 words.  Illustrated.

Subjects: Society and Culture

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