INNOVATIONS IN ISLAMIC FINANCE
Driving innovations in Islamic Banking
The next phase of growth in Islamic banking will be driven not just with the offerings that are compliant of Shariah and its positioning vis-à-vis conventional banking, but will have to be on the basis of differentiation, driven by innovation
V. Ramkumar Senior Partner,
Cedar Management Consulting International LLC
IBS Journal November 2017
27
T
hat there has been a remarkable 11% growth in global Islamic banking assets over the last 5 years , compared with 7% growth for conventional banking assets. This is not to be brushed aside as a one-off phenomenon, for the simple reason that this growth is not just limited to the Middle East or Malaysia, but has been increasingly prominent in Africa, Central Asia and also the Far East. Interestingly, Islamic deposits have also seen a 7% growth over the last 5 years, while Sukuks – the Islamic bonds – have been steadily on a growth rate of 5% too.
There are three significant things one could attribute this growth to:
The increasing customer demands, that have been fairly consistent and evident in the growth that have been witnessed both in the corporate and retail banking segments.
The opening up of a regulated Islamic banking market – especially in the Middle East, North Africa and many parts of Asia has allowed for banks to serve an untapped segment.
More importantly, banks have found the benefits of having an Islamic window that compliments the conventional offering, both from a customer segment and a product portfolio standpoint.
Islamic banking has been growing steadily over the last 5 years Islamic Banking Assets ($ bn)
Islamic Sukuk Growth ($ bn)
Interestingly, the advent of Islamic banking drove innovation through a new set products and services that were Shari’ah compliant. However, as the segment has grown, and continues to grow, the need for differentiation, primarily driven through innovation has become inevitable focused more on differentiated customer segmentation, product bundling and positioning, and driving innovation through technology. Let us explore these three areas of innovation a little further.
Segment based offering
One of the key tenets of any successful Islamic bank is in the successful segmentation of its current and potential customer base. For starters, the misconception that Islamic banks are primarily for the Muslim population can limit the potential of any bank, deeply. The corollary to that is also important: a large segment of customers subscribe to the bank’s services more to receive the offerings that cater to its needs, than for purely religious reasons.
Developing a distinctive customer segment – not just based on the income levels and the classic segmentation of mass retail, affluent and HNI, but also based on the demographics – such as
“ One of the key tenets
of any successful Islamic bank is in the successful segmentation of its current and potential customer base
www.ibsintelligence.com
1,269 1,203 1,364 1,451 1,657 1,854
260 284 299 344 328 343
CAGR 11% CAGR 5%
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