GCC offers huge growth opportunities to Islamic banks

PwC commissioned a survey of more than 500 retail banking customers in the GCC to find out what customers really want; the findings of which they say can help inform the growth strategies of the region’s banks.

By Abdul Basit – Chief Reporter

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Published: Fri 31 Oct 2014, 12:54 AM

Last updated: Tue 7 Apr 2015, 10:45 PM

Dubai: GCC offers huge opportunities for Islamic banks for growth, but Shariah-compliant financial institutions need to address perception issue and improve service levels, according to a latest survey.

In conjunction with the 10th World Islamic Economic Forum in Dubai, PwC survey said Islamic banks may be missing a huge opportunity within the Muslim population due to a perception gap.

“A perception seems to exist amongst customers, and potential customers of Islamic banks, that they may not be true to Shariah values. In the survey only 52 per cent of Islamic banks customers agreed that their provider ‘was an Islamic bank and followed Islamic Shariah’. This perception gap amongst banking customers is also a huge opportunity,” says the PwC report.

PwC commissioned a survey of more than 500 retail banking customers in the GCC to find out what customers really want; the findings of which they say can help inform the growth strategies of the region’s banks. However, better communicating and demonstrating Shariah values is just one of the areas Islamic banks should consider as part of their strategy to compete, differentiate and grow.

The findings also suggest that service levels are lacking — non-Islamic banking customers were more likely to agree with the statement “My bank provides a fast service” than Islamic bank customers. “But again, there is opportunity,” says PwC, as customers are willing to switch to Islamic banks if they feel that service levels at least match what they get from non-Islamic (or conventional) banks. So, enriching the customer experience can help to drive growth.

“The findings of our Voice of the customer survey suggest that part of the reason customers may not be entirely convinced by Islamic finance may be due to the industry’s tendency to mirror conventional banking products,” said Ashruff Jamall, PwC partner and Global Islamic Financial Services Leader.

“There are huge opportunities for the region’s Islamic banks to grow; expanding populations and economies, with a high proportion of Muslims, create a market with huge potential. But to achieve that potential, Islamic banks will need to address this perception issue and also improve service levels to be competitive with other banks — Islamic and non-Islamic — from a customer service perspective. ”

Key findings

Banks looking to grow by attracting a greater market share of the Muslim population need to build trust amongst their core customer base by clearly communicating and demonstrating their Islamic values. Currently, only 52 per cent of existing Islamic bank customers believe their bank lives up to Islamic Shariah values.

The forecast demographics of the GCC predict a huge increase in the elder population, or ‘silver economy’ by 2050, and with it, an opportunity for Islamic banks to grow together with their customers. The challenge Islamic banks must overcome is reversing the current trend amongst the Muslim population of using conventional banking as customers get older. Generally, older Muslims were most aware of Islamic banking, however, this does not necessarily translate into usage — the proportion of Muslims using a non-Islamic, or ‘conventional’ bank rises with age.

The report finds that 23 per cent of Muslims between the ages of 18-24 years old use non-Islamic products, but the use of non-Islamic products grows to a 58 per cent for Muslims between 45-64 years old.

The survey also highlighted changing banking trends as customers are spending less time in branches and are increasingly using the internet and mobile banking platforms.

“Internet banking is the preferred channel for both men and women, and 51 per cent of respondents said internet banking was an important factor in determining who to bank with. For those institutions looking to achieve scale and grow market share, this customer behaviour offers Islamic banks the opportunity to leapfrog the development of an extensive branch network by creating something more innovative and virtual,” the report said.

Muslim women continue to prefer having women-only branches available, but in reality they are rarely using them, they also express a preference for online banking and they cited online and mobile banking as very important when selecting a bank. This suggests that a compelling digital offering could be a far more significant factor in attracting new female customers than a much costlier effort to develop a network of women only branches. Women are loyal and less likely to switch providers than men, so, if banks can create a strong online and mobile offering that appeals to young females, they will find themselves with a more loyal customer base for the future.

The study finds that retail banking customers are willing to switch to Islamic banks, but will only do so if they feel that service levels match what they get from conventional banks — a fifth of non-Islamic finance customers would consider switching to Islamic banks if service levels matched those of conventional banks.

— abdulbasit@khaleejtimes.com

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