Islamic banking assets gaining bigger share of global banking

Participation banking assets with commercial banks in Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey (QISMUT) are expected to represent a $1.8 trillion participation banking industry, EY’s World Islamic Banking Competitiveness (WIBC) report revealed. Participation banking assets with commercial banks in Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey (QISMUT) are set to cross $753b in 2014 and will represent 82% of the international participation banking assets.

In Malaysia, for example, Participation banking is still growing approximately two times faster than conventional counterparts. In Indonesia, the Participation banking sector is currently growing at super-normal speed, while Turkey is aspiring to build a 15% market share by 2023.

Trade finance, mobile payment solutions and regulatory compliance are three factors that have a significant impact on the industry performance and would help narrow the performance gap that exists between Participation and traditional banks.

Digital banking is the future, with customers of Participation banks showing tremendous interest as they are increasingly active online. Banking is set to evolve towards technology-based, service-driven value propositions.

Banks should invest in analytics, to build rich insights into customers’ delights and pain points and personalize user experience. But customers do not just want their bank to have a digital presence; they want it be tailored to their lifestyle relationships and connections.

They also consider service excellence and capabilities to be the most differentiating factors. A different audience requires a different (and high-impact) brand and communication strategy.

Eliminating operational silos, leveraging customer insights to improve channel performance and risk management are the keys to mainstream profitability.

Ashar Nazim, Global Islamic Finance Leader at EY, said: “Islamic banks in the UAE, also known as participation banks, are eyeing revenue growth through experience-led transformation of their domestic business. Stronger capital position is also driving their international expansion. Initiatives in mobile payments are likely to cause positive disruption to banks’ traditional operating models. Looking at the positive performance of Islamic banks in the UAE, the country is expected to be one of the main markets that drive the future internationalization of the Islamic banking industry.”

Shariah-compliant assets in the UAE crossed the $100 billion milestone for the first time. Islamic banking penetration in the UAE currently stands at 21.4 per cent and represents a 14.6 per cent share of the global market. The industry in the UAE is growing at more than twice the rate of conventional banking. Due to high demand, there is increased pressure on efficiency as more Islamic banks attempt to go mainstream.

In the study, EY monitored 55,884 Islamic banking customer sentiments in the UAE on social media as part of a wider study, which looked at 2.2 million customer sentiments dispersed across various online sources in nine key markets (Saudi Arabia, Bahrain, Kuwait, the UAE, Malaysia, Indonesia, Turkey, Qatar and Oman).

Banking clients were most satisfied with customer service, where positive comments on social media outnumbered negative comments by more than 5 per cent. Half of all the positive sentiments monitored were around customer service levels and complaint handling.

Customer feelings were mixed with respect to branch experience, online banking and phone banking. Out of the sentiments monitored on social media for all the three experiences, there was almost an equal number of positive and negative comments.

The study of social media comments has revealed an improvement opportunity for Shariah-compliant banks with respect to products and services, which were ranked the lowest in terms of customer satisfaction. Half of the overall negative sentiments monitored were about disappointing experiences with regard to product and service offerings.

“The call to action for Islamic banks in the UAE is to build rich insights into customers’ delight and pain points, and break operational silos. The time is right for analytics; banks need to challenge their channel capabilities and push for more customized products and services. Regulatory intervention on product design can help to both attract and protect consumers. The reputations of Islamic banks today will depend on the way banks engage with their customers,” Ashar added.

(Yahoo.News / 30 March 2015)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

New Afghanistan banking law may jump-start Islamic finance

Afghanistan could have a new banking law approved by parliament in a few months including provisions for Islamic products, which may help to draw hundreds of thousands of people into the formal financial sector.

In one of the poorest countries in the world, Afghanistan's government faces a growing fiscal crisis aggravated by a drop in foreign financial aid. An estimated nine out of 10 households in the Muslim-majority nation of 30 million shun interest-based finance, at least partly for religious reasons.

The central bank, Da Afghanistan Bank (DAB) [AFCB.UL], is finalizing a regulatory framework for Islamic banking which will be ready by the time the new law is passed, Akhond Jan Rustaqi, acting deputy director general of Islamic banking at DAB, told Reuters.

"The new banking law, which includes Islamic banking, is with the parliament and DAB hopes it will be adopted by June."

Currently, Islamic banking products are offered by a handful of lenders through so-called Islamic windows, but there is no standalone Islamic lender. As of last June, Afghan banks held $4.2 billion in assets and $813 million in outstanding loans, according to the World Bank.

The central bank has stopped processing banking license applications until the new law is approved, said Rustaqi.

The new banking law and the central bank's rules will cover areas such as operating procedures, contract specifications and the operation of a centralized sharia board to determine whether products obey Islamic principles.

Banks with Islamic windows include Afghan United Bank, Ghazanfar Bank and state-owned New Kabul Bank. Afghanistan International Bank launched an Islamic window last year.

RULES

The central bank's Islamic banking rules have been developed over the past year by Afghanistan Holding Group and Malaysia's Amanie Advisors, with funding from Harakat-AICFO, a non-profit body which channels funds from foreign donors into projects that help to develop the Afghan economy.

The rules are important because several banks want clearer guidance to expand their existing windows or convert themselves into full-fledged Islamic banks, said Ahmed Bassam, managing partner atAfghanistan Holding Group, a consultancy.

"The unbanked population is very conservative, interest is considered haram (unlawful), and banks haven't been able to utilize this market."

A survey by Harakat-AICFO found 83 percent of households in five major urban centers wanted access to mortgage loans, but 93 percent of respondents preferred non-interest based financial products. Housing demand was estimated at 1.5 million dwellings in 2014 by the World Bank and DAB.

Some customers have remained cautious about using Islamic windows because of doubts over their religious permissibility, so the creation of full-fledged Islamic banks could prove crucial.

"The public had lost their confidence and trust in Islamic windows as there was no official regulatory framework in place from DAB to regulate Islamic banking," said Abdul Ali Farahi, senior project manager at Harakat-AICFO.

(Reuters / 29 March 2015)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com