Published On:21 December 2012
Posted by Indian Muslim Observer

Back to the future of Islamic finance

By Rushdi Siddiqui

When a person, company or ‘movement’ hit their glass ceiling of growth, then its time to go back to the future and review, reassess, and respond or ‘retire’.

At the recently concluded 19th World Islamic Banking Conference (WIBC), I spoke on ‘Global Strategies for Global Markets.’ For this niche market to have mainstream acceptance, its about the ‘4Ps.’

Lets start with two questions:

Today, Islamic finance is a domestic phenomenon, what is the value proposition once the novelty has worn out?

Should Islamic finance look at start up ‘consumer’ companies in Muslim countries that have become global brands and leaders, like Emirates airline.


Today, Islamic finance led by dedicated Islamic banks, like Dubai Islamic Bank, and/or windows and subsidiaries of conventional banks, like HSBC Amanah?

To be an international (not global) player with meaningful presence requires size, and Kuwait Finance House (KFH) and Al Rajhi are ‘mega-banks’ with some cross border presence. But, we still have conversations about an Islamic mega bank.

To get to the magical size of, say, $1-10 billion capitalisation, it will happen via acquisitions, as organically, Islamic banks have yet to meet expectations. One might even say destructive competition exists in selected markets that are Islamically over-banked. The regulator has to walk the fine line between encouraging competition and ensuring profitable growth of Islamic banks.

Furthermore, Islamic banks generally do not have brand recognition beyond their borders, as local deposit taking community is aware of the home country banks, especially ‘Islamic.’


Islamic finance needs to move from (fee generating) product pushing to providing holistic solutions in an enabling environment. The first step is undertaking primary market studies to understand demand to flush out the scope of the target market, retail and/or wholesale.

[It should be noted that the only deposit taking Islamic bank in the UK, Islamic Bank of Britain, established in 2004, required a financial rescue package. Thus, broad assumptions that Muslims want Islamic finance is oversimplified.]

The enabling environment entails, be it a Muslim or non-Muslim country, is not only about awareness and education, but also ‘Shariah, Tax, Accounting, Regulation and Standardisation (a minimal level),’ or STARS. The immediate question becomes what country has the most robust Islamic finance infrastructure and how much of it is exportable?

The answer is Malaysia, as its secret entails the 5Cs: commitment (from 1983), continuity (successive governments leading it), coordination (amongst the stakeholders), community (growing) and contribution (responsibilities) combined with lack of complacency. Thus, Muslim and non-Muslim countries wanting to be an Islamic finance hub (to tap the petro liquidity surplus) need to have an enabling environment ‘plus plus’ before the product conversation.


Today, the promotion of Islamic finance comes from conferences, seminars, media (print and on-line), stakeholders, and so on. There is also negative publicity by the anti-Shariah movement in selected non-Muslim countries equating the niche market to financing terrorism. The concept of brand building and brand image needs to be visited if this niche movement is to have mainstream application. For example, ask major public relation firms about Islamic finance, and, oftentimes, their response is the institutions view branding as a cost and not an investment in their future.

For example, we are still have comments like, ‘Islamic finance is only for Muslims’ and, many Muslims, ask questions like ‘what’s the difference to conventional finance?’

To become global, brand building is a must for recall, reach and invoking value proposition. If the objective is mainstream application, then its time to rebrand Islamic finance, and call it for what is stands for: participation finance/banking!


Today’s Islamic banks, takaful operators, and investment funds are small, hence, economies of scale efficiencies associated with size do not yet exist. Does this mean there is a cost of being a Muslim (CoBM), as, say, financing costs are higher for consumer products or sukuk?

If there is a CoBM, then the cross sell of Islamic finance, notwithstanding ethical value alignment, becomes a challenge, correct? Now, will an Islamic mega-bank provide the cost savings economies of scale benefits that get passed on to customers, hence, Islamic finance becomes conventionally efficient?

Thus, a link between size and pricing?


Once the novelty of Islamic finance wears off, and, its happen, it must deliver the often talked about value proposition beyond its friendly shores.

The proposition is capital with a human face, and to move forward, one has to reconnect with the 4Ps substance over the me2 form.

Financial SWAT team for SWOT analysis!

[The writer is Global Head of Islamic Finance & OIC Countries for Thomson Reuters.]

(Courtesy: Khaleej Times)

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Posted by Indian Muslim Observer on December 21, 2012. Filed under , , , , , . You can follow any responses to this entry through the RSS 2.0. Feel free to leave a response

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