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Wednesday, 2 July 2008

Developing Islamic Banking Products



Riyadh, Asharq Al-Awsat -

I recently met the CEO of one of the largest banks in the Kingdom of Saudi Arabia. I asked him about the reasons for the lack of new Islamic banking products on offer, as in the past, his bank was considered among the most active. The CEO said my question was unfounded and that the bank has not stopped developing and creating ideas. He indicated that the most recent product released by the bank was a credit card that earns air miles. However, my question did not concern advancing marketing methods; rather it referred to the creation of new products or the development of existing products in order to constrict the cycle of documentation or dispense structured products, which continue to be sources of doubt for bank customers. The CEO referred to nothing more than a marketing method for the credit card.

The reason I mention this incident is to shed light upon the concept of developing Islamic products for some executives of banks that offer Shariaa-compliant services. In reality, product development is a complicated and difficult process that has not been mastered by many. It requires a team that embodies creative thinking, extensive knowledge, patience, perseverance and an encouraging business environment that can afford the risks of this creativity. Those with innovative ideas should not be concerned with expenditure or threatened with dismissal if their idea fails as this approach cripples creative thinking. Through trial and error, we reach impressive conclusions. In addition, creative inspiration must be fostered on material and moral levels.

The most important management facet of any financial institution is product development. This is especially true of Islamic financial institutions, since the Islamic finance industry is new and therefore behind in product assembly. It is still in the development stage, which requires more products that combine the objectives of Shariaa and customer requirements, in addition to the ability to compete in a market that is dominated by its rivals.

Customers of Islamic banking are fed up with the market imitating the tools and methods of conventional banking. This was acceptable only when Islamic banking first emerged, however, as it consolidated itself and was able to displace its rivals, its customers wanted new methods derived from the Holy Quran and Sunnah and distinct from fabrication and trickery. Customers no longer want irreligious credit cards or Tawaruk, or bank vouchers.

In order to achieve this, Islamic banks must look toward managing product development since it is the heart that pumps blood to financial institutions; if this circulation stops, financial institutions die out. This could happen as a result of the inability to develop and create. Professionals must provide this innovation, so that knowledge can be integrated among bankers, jurists, lawyers, IT engineers, and those who oversee the standardization process, policies and procedures. There should be creative thinking, whether inside or outside of the institution, and I am certain that a lack of professionals renders innovation costly to the institution. Professionals are the institution’s real assets.

It is inevitable that product development will pass through a number of stages, beginning with market research, analysis of the competition and customers needs, and considering staff proposals. The next stage is concerns developing the idea, and must be allocated enough time to properly analyze the proposal to amend it as needed to successfully meet the needs of the customer, financial institution and legal environment. The team may begin with one idea that may evolve into a completely different product. This is just one aspect of creativity. After the testing period, the next stage consists of finalising policies, procedures and documents, and building computer systems, which I consider to be one of the most important aspects of Shariaa-compliant product development. Computer software can replace a great deal of paperwork, which is considered one of the shortcomings of Islamic banking. Moreover, it can assist in reducing the level of human error that may cause the product to violate Shariaa. Islamic banking products must take the objectives of Islamic law into account to provide a dignified life for individuals away from the products that encourage unproductive consumer patterns.

* Lahem Al-Nasser is an Islamic banking adviser.

(
Asharq Al-Awsat)



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