Azzad in Indonesia—Traveling the Globe for Ethical Investments
Jamal Elbarmil arrives at Jakarta International Airport on Sunday evening. He is tired after a 30-hour flight. As he leaves the terminal to catch a cab, the warm, sticky air outside clings to him—unsurprising for a tropical island nation. What is surprising, though, is the volume of noise he hears coming from the highway after he catches a cab and heads for his hotel. The capital’s highways are packed with motorcycles, weaving in and out of traffic. PT Astra, the country’s largest automaker and distributor, has a strong presence on the roads. Indonesia’s domestic automobile and motorcycle industry is doing well. But it’s not only manufacturing. In many ways, Indonesia appears to be a country on the rise.
Indonesia is a densely populated chain of islands with almost as many people as the United States but a fraction of the land mass. Three key components drive the country’s emergence as a destination for capital and investment—governmental reforms, natural resources and a rising middle class. It’s no coincidence that each of those topics was explored at the annual Islamic Financial Network (IFN) Conference, which took place in mid-April in Jakarta. The conference—this was Elbarmil’s fourth—is held in multiple countries each year and focuses on the prospects for Islamic financial markets in the host country. Indonesia is of particular interest to Elbarmil, who is lead portfolio manager for the Azzad Wise Capital Fund (sym: WISEX) at Azzad Asset Management, a halal wealth management provider in Falls Church, Virginia. The Fund is the first halal fixed-income fund in the United States, investing in sukuk (Islamic bonds) and partnering with Islamic banks on development projects overseas. He used the occasion of the conference to pay visits to several Islamic banks in Indonesia, beginning the long process of due diligence for finding acceptable candidates for investment.
“We are looking at several Islamic institutions in Indonesia that participate in microfinance projects, which help develop more rural, underprivileged communities,” he says. “The people are benefitting from private sector interest in rural development.” It’s the microfinance angle that interests Elbarmil the most. “Our Fund is structured to provide investors with an expected, though not guaranteed, rate of return. But it’s supposed to do more than that. We look for opportunities as certificate holders at Islamic banks to partner with individuals and small business and help them contribute to society. The Islamic banks serve as both facilitator and agent for us, matching investors with projects in need of capital.” Elbarmil mentions that the Azzad Wise Capital Fund currently holds certificates and notes from Turkey’s participation (Islamic) banks. They have already seen the social good that comes from taking an equity stake in a project at the local level and sharing in the profits that project can generate.
Indonesia represents a new frontier for halal fixed-income investing since their Islamic banking sector focuses more on making small capital injections to individual projects in need of financing. Projects range from digging wells to starting up a chicken farm. “Indonesia has a less developed economy than Turkey, so more Islamic banks here use microfinance to help communities,” says Elbarmil. “Partnering with Islamic banks in Indonesia would give us another avenue to harness the social capital of an upwardly mobile population in need of help and with room for economic growth.” The chance for portfolio diversification isn’t a bad thing either, he adds. “We are always looking for opportunities to enhance both the appeal and return of the Fund. But making a positive impact on society is the most important concern.”
After a week of visiting banks and attending the conference, Elbarmil is back on the highway that takes him to the airport. He’s preparing yet again for the toll that more than a full day’s worth of travel can have on the body. But according to him, it’s all worth it. The roar of motorcycles and cars all around him takes on a new meaning for Elbarmil. “Progress,” he says, rolling up the window of his Indonesian-made taxi. “What we’ve got to figure out is how to make sure the gains from growth are shared by everyone.” If the strategy he’s used so far is any indication, Elbarmil and Azzad Asset Management look poised to turn that vision into a reality.