RFi Group Opinion - Understanding the Islamic banking customer of today

As the new year commences the undercurrents we have witnessed in recent years shaping the international banking industry continue to transform the existing financial architecture. From how lenders operate and engage with their customers in enabling financial institutions to innovate and seek alternative solutions in providing value to their clients, banks continue to prove their relevance in the digital era.

Within this new paradigm, Islamic banking has injected dynamism and renewal to customers by providing real, meaningful and value-added solutions in addressing and meeting their financial goals. Predicated on the concept of being ethical, interest-free and risk-sharing, the Islamic banking industry continues to drive traction in the wider Middle East, North Africa & South Asia (MENASA) region through superior customer service that has resulted in enhanced advocacy.

As Islamic banking assets cross the $US2 trillion threshold, the needs and priorities of these customers changes in terms of sophistication coupled with increased expectations from their Islamic banking provider with respect to service delivery. This demand is even acuter from the retail segment that has been buoyed by increasing levels of affluence and desire for Shariah-compliant banking services. Consider that in 2017 RFi Group data revealed that relatively advanced Islamic banking markets such as Malaysia, Saudi Arabia, Indonesia and the UAE had at least 1 in 2 retail banking customers holding a Shariah-compliant product.

These markets have made great strides in reaching out and addressing the needs of Islamic banking customers, especially from a product development perspective. While the industry continues to address the challenges of standardization of contracts, Islamic banks have introduced not only Shariah-compliant products such as Murahabah Tawarruq based Islamic credit cards but also Shariah-based Mudarabah led investment accounts for depositors. The product suite on offer enables Islamic banks to compete with their conventional cousins on a relatively equal footing as continued economies of scale drive down the costs to serve in many of these markets.

For Islamic banking providers, the positive momentum in the market has also translated into greater advocacy as Shariah-compliant banking product holders have indicated a more likely to recommend their Islamic provider. In fact, RFi Group data shows that 1 in 2 respondents across select markets is likely to provide a score of 8+/10. Saudi Arabia leads the pack among those most likely to recommend.

However, understanding the underlying elements that are driving advocacy is equally important to keep customers engaged with the Islamic banking provider. We are seeing that customer service continues to play a critical role in Islamic provider recommendation but in South East Asian markets such as Malaysia and Indonesia, it is the ability to segregate funds that is equally important. The facility to keep one’s funds away from riba (interest) is paramount to preventing any tainting of wealth or mixing of funds with non-compliant financial instruments. This separation is fast emerging as a “must have” to the emerging Muslim consumer who looks to eat, shop, travel and fundamentally bank in a halal or permissible way.

Why did you give a score of 8+/10 for your likelihood to recommend? - By country

Fundamentally, Islamic banks need to retain customer satisfaction by building on their strengths of providing effective service. These components include offering personalized service with a view to understanding the needs of customers in addition to communicating the Shariah-compliant product features. Furthermore, Islamic banks should be positioned as conduits for helping their customers meet their aspirational goals.

Indeed, Islamic banks need not remain as passive intermediaries but as vehicles where all types of customers can seek an alternate form of banking based on universal values of social equity. The global banking industry and the average retail customer will be better for it.    

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