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Thursday, 12 July 2007

The growth of Islamic banking

More and more players across the globe are entering Islamic banking, as new Islamic financial institutions pop up and conventional banks introduce Sharia-compliant practices. So how do banks that already practice Islamic banking keep their competitive advantage? And how do newcomers build the capability to enter the market successfully? A.T. Kearney has just completed a study in which we analysed the critical success factors that differentiate Islamic banking leaders and what lessons they have learned. This study included 25 leading Islamic banks in the Gulf Co-operation Council (GCC), a trade bloc comprised of six Arab countries. In general, successful Islamic banks are moving away from traditional products to become more customer-focused, which is reflected in their efforts to boost marketing, service quality and customer service. They employ marketing strategies that are geared towards building a reputation both as a financial service provider and an Islamic company, as well as a positive brand image in all areas. We also see the importance of the Sharia board's reputation. Oftentimes, well-known Sharia scholars sit on this board, building a bank's reputation. Apart from focusing on customer needs, leading Islamic banks also emphasise the importance of product innovation, product design and product standardisation. Successful banks are also focusing on selected customer segments rather than targeting them all. To support a customer-focused strategy, leading banks are building dynamic and responsive organisations backed by efficient process and effective human resources. The dynamic organisation is supported by effective cross functional co-operation, transparency and a good flow of information and rewards for creativity and innovation. The efficient process and human resources enable quick decision-making that results in faster response to customer needs and the speedy introduction of new products. Leaders also distinguish themselves from the pack in terms of resource endowments, particularly human resources. They have a high-calibre workforce that possesses management capabilities, knowledge, skills and financial expertise. The banks also put a premium on IT skills, as some of the products need specific applications to comply with Sharia rulings. One of the challenges in developing countries is how to find effective workers with strong skills and knowledge. The first step is to decide what segment to focus on and becoming familiar with their needs. By doing so, banks will be able to tailor products and services according to the customer needs. Apart from religion, banks consider competitive returns and customer service when selecting customers. This deeper understanding of customer preferences will help leading banks stand apart. A successful Islamic bank places a strong focus on processes and organisation to facilitate customer service quality. Much attention is placed on turnaround time and customer experience. An efficient Sharia board will also support product innovation. To improve customer service quality, the bank must pay close attention on quality of both its products and employees through well planned training and recruitment programmes. Finally, a successful Islamic bank must also develop an IT environment that meets Islamic banking requirements. - (Bangkok Post, 12 July 07)

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