Islamic banking is based on core principles of the religion. So it is striking that some banks are removing the word “Islam” from their names – a sign of both the potential of Islamic finance to grow, and the obstacles to it becoming mainstream.
In January, Dubai’s Noor Islamic Bank changed its name to Noor Bank. Abu Dhabi Islamic Bank (ADIB), the emirate’s largest sharia-compliant lender, plans to call itself Abu Dhabi International Bank when operating abroad. In both cases, the changes are part of the banks’ plans to expand.
They aim to move well beyond a relatively small group of customers who stress religious permissibility, to a much larger customer base for whom pricing and service quality are key. The move could open up opportunities for banking professionals able to skilfully straddle the divide.
This approach could help Islamic banks establish themselves globally, not just in the Muslim-majority regions of the Gulf and Southeast Asia, and appeal to larger numbers of non-Muslims. But the banks feel that to compete directly with conventional institutions, need to play down their Islamic nature.
“Rebranding is an essential part of widening the appeal of the industry, whether we call it ethical, alternative or sustainable finance,” says Yerlan Baidaulet, a member of the board of executive directors at the Saudi Arabia-based Islamic Development Bank.“Our mindset has to be global; we have to think wider in terms of customer appeal. Why monopolise the concept and keep calling it only Islamic?”
Islamic banks, which follow principles such as bans on interest payments and pure monetary speculation, have been growing rapidly in the Gulf and Southeast Asia for a decade. They now account for about a quarter of banking assets in the six-country Gulf Cooperation Council.But growth has slowed in some countries recently as banks have largely run out of new customers willing to base their choices primarily onIslamic credentials. In Qatar, Islamic banking assets grew 12.2 per cent in 2013, down from 35.1 per cent in 2011.
To continue expanding, the banks have two options. One is to compete for the mass of consumers who base their choice of bank on non-religious factors.
ADIB is in the process of acquiring a large number of such customers. In April it agreed to buy the UAE retail banking operations of Barclays for an expected 650 million dirhams (US$177 million). The Abu Dhabi bank is now trying to persuade roughly 110,000 former Barclays customers to stay with ADIB. This involves competing directly on non-religious aspects of its service.
The other growth option for Islamic banks is to move into new markets incountries which have Muslim minorities, but where establishing a profitable presence will require attracting large numbers of non-Muslims.
The banks do not intend to change the sharia-compliant nature of their products. But removing the word “Islam” from their names is a way of avoiding any perception that Islamic banks focus on religious issues while neglecting aspects such as quality of service.
ADIB CEO Tirad Mahmoud says Islamic banks have an advantage in being able to stress their moral foundations – which has become more important since banking abuses fuelled the global financial crisis.Islamic banks reject complex financial engineering used by conventional banks. Returns on Islamic bank accounts are based on investment income rather than on interest payments. “The real competitive advantage that Islamic banks have is that they are ethically constructed. We need to promote this,” Mahmoud says.
ADIB says a survey of 1,000 retail customers in the UAE, Egypt, Turkey, Indonesia and Britain found they believed a lack of ethical principles was the biggest problem in their banking relationships. However, the survey also showed that while Islamic banks were perceived as treating customers more fairly, they were seen as lacking best industry practices and failing to deliver a simple banking experience.