gif Leadership


the increasingly competitive financial mar- ket but also is a response in ensuring that customer needs are met. For example, on the retail side, more and more customers are seeking a return for the funds deposited with their banks.


Mudharabah-based profit-and-loss sharing investment accounts have been designed as a vehicle to address this need.


Likewise, the need to be able to fund pur- chases of real estate over long periods of time has led to the development of Islamic mortgages. Steps which can be taken to ensure differentiated product development capability are as follows (Information from source P Vayonas):


Product Development and Innovation Distribution


Operational Ex cellence


Distribution of Islamic products involves taking into careful consideration the Sha- riah compliant rules against riba (interest) and gharar (speculation), and maysir (gam- bling), Islamic transactions generally owner- ship in contracts transferred twice: from the


62 Global Islamic Finance February 2011


seller to the bank and from the bank to the ultimate buyer. Many leading Islamic banks offer their front-line staff extensive training that covers not only the product features but also how the transaction is processed.


This enables the front-line staff to satisfy the increasing number of customers who are not satisfied with a simple statement that the product is Shariah compliant, but want to understand the underlying features of the product or service.


Operational excellence is imperative in the highly competitive Islamic financial world and it is necessary that a solid team pro- vides the foundation for competent opera- tional handling of Islamic products and suc- cessful delivery and promotion.


Potential Business Models for Islamic Banking Products and Services When creating a business model it is impor- tant to first look at the conventional busi- ness model that conventional banks use in order to apply the different frameworks for the Islamic banking business model. Below shows a diagram of the conventional busi- ness model:


Income provides profit, rent or dividend from the Islamic banking business. The Islamic banking institution will keep the profits in the mode of deposit or funding (Information from Islamic Banking Industry Slides). The


pure commercial-banking model in Islamic banking in the Gulf Co-operation Council (GCC) is being increasingly complemented by other, recently developed forms of more specialised Shariah-compliant financial in- termediation, says Moody’s Investors Serv- ice in its special report entitled ‘Islamic Banks in the GCC: a Comparative Analysis’ (AME Info).


Competition has been heating up, forcing Islamic banks to enhance their commercial entrenchment, develop relevant business models, strengthen their brands and repu- tation and provide innovative solutions to a growing number of clients attracted by the concept of interest-free banking. In the re-


• A market intelligence process that captures customers’ needs;


• A robust methodology for rapid development and deployment of products;


• A mechanism to engage the Shariah board early on to seek approval for the proposed product or service;


• Automated monitoring and compliance tools that ensure compliance of increasingly com- plex products with the relevant fatwa, or reli- gious ruling, in a cost effective


manner;


• A management information system to track performance and fine-tune the product or serv- ice as needed.


u


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