Islamic Banking: a Growing or Shrinking Consumer Market in Kuwait?

Islamic Banking: a Growing or Shrinking Consumer Market in Kuwait?
By Faten Jabsheh, Weam Behbehani, and Shaima Al-Shamali

Abstract: "The steady expansion of Islamic banks (IBs) has been the hallmark of the Muslim financial landscape of the 1980s and 1990s. With a network that covers over 60 countries and an asset base of over $166 billion, Islamic banks are currently playing an increasingly significant financial and developmental role in their respective economies. Islamic banking has gained increased attention in the GCC (Gulf Cooperation Council) over the past number of years, capturing a growing 13% share of total Islamic banking assets around the world. This paper questions the growth of Islamic banking activity in the GCC, and focuses on developing prospects for one GCC country, namely Kuwait. Using detailed survey instruments regarding the provision of various Islamic banking services, the results of this study affirm the hypothesis that Islamic banking is claiming a growing market share and consumer market in Kuwait."

Islamic Banking: a Growing or Shrinking Consumer Market in Kuwait?

Survey: Perspectives on Trends in Islamic Finance

Hello Global Islamic Finance Resources community,


We are a team of MBA students working on a research project revolving around trends of the Islamic Finance industry. We are hoping to gather some feedback and opinions from the GIFR community on some identified trends that we believe exhibit increasing prominence in shaping the industry for the future. We have prepared a short questionnaire that would take approximately 10 to 15 minutes to complete. Your responses would go a long way in assisting us in our research.


Thanks in advance!

Survey: Perspectives on Trends in Islamic Finance

Survey: Perspectives on Trends in Islamic Finance

A Different Kind of Consolidation in Islamic Finance

A Different Kind of Consolidation in Islamic Finance
By Rushdi Siddiqui
July 2011

One of the most over-used words in Islamic finance is not standardization, scholars, regulations, etc., but 'consolidation'. Islamic banks, Islamic leasing companies, Takaful companies need to consolidate to reach size and achieve scale.

A Different Kind of Consolidation in Islamic Finance

The International Role of Islamic Finance

The International Role of Islamic Finance
QFinance
By Andreas Jobst

Executive Summary

• Islamic finance has become mainstream, with more than US$800 billion of assets worldwide. However, it still faces distinct developmental challenges from economic and legal constraints associated with sukuk, banking-specific issues, and fragmented financial regulation.

• Although Islamic capital markets and banking have defied the impact of the financial crisis, some negative effects were felt in 2008 and are likely to inhibit further expansion.

• Despite current challenges, most of which arise from the infancy of the industry, Islamic finance has promising long-term prospects.

The International Role of Islamic Finance

Banking Behavior of Islamic Bank Customers: Perspectives and Implications

Banking Behavior of Islamic Bank Customers: Perspectives and Implications
Saad A. Metawa, Associate Professor of Finance, University of Bahrain
Mohammed Almossawi, Assistant Professor of Marketing, University of Bahrain

Abstract: "Describes a study designed to investigate the banking behavior of Islamic bank customers in the state of Bahrain. The study sample comprised 300 customers. A comprehensive profile analysis and a series of chi-square tests were conducted to reveal key characteristics and patterns: the majority of Islamic bank customers are well educated; approximately 80 per cent are between 25-50 years of age; more than 50 per cent of the surveyed customers have maintained their current banking relationship with Islamic banks for more than six years; customers’ awareness and usage rates are quite high for savings accounts, current accounts, investment accounts and automated teller machines; customers were found to be most satisfied with the products/services they use most, with the investment accounts receiving the highest satisfaction score; Islamic bank employees received the highest satisfaction score among the elements of the service delivery system; the two most important bank selection criteria were adherence to the Islamic principles, followed by the rate of return."

Banking Behavior of Islamic Bank Customers: Perspectives and Implications

Attitudes, Perceptions and Motivations of Libyan Retail Consumers toward Islamic Methods of Finance

Attitudes, Perceptions and Motivations of Libyan Retail Consumers toward Islamic Methods of Finance
Alsadek Gait, Andrew C. Worthington
March 2009

Abstract: "This paper reports the results of a survey of 385 Libyan retail consumers in December 2007-February 2008 used to gather attitudes, perceptions and motivations towards Islamic methods of finance. The results indicate that while most respondents have at least some knowledge about some aspects of Islamic finance, specifically Musharakah (full-equity business partnerships) and Quard Hassan (interest-free benevolent loans), they are generally unaware of many other related products. Nonetheless, most respondents (85.9%) are potential users of Islamic methods of finance at the retail level, though potential use varying markedly according to age, level of education, employment, income and nationality. Factor analysis reduces the large number of variables that determine retail consumers' attitudes, perceptions and motivations towards Islamic methods of finance to just four determinants: namely, community service, profitability, religion and unique services. Discriminant analysis shows that religion and community service are the most important factors determining the potential use of Islamic methods of finance by retail consumers in Libya."

Attitudes, Perceptions and Motivations of Libyan Retail Consumers toward Islamic Methods of Finance

Muslim BRIC has arrived

Muslim BRIC has arrived
By Rushdi Siddiqui
Business Times
April 2011

"On April 4, Thomson Reuters, along with their partners, IdealRatings, and World Halal Forum launched the SAMI Halal Food index. The SAMI Halal food index stands for Socially Acceptable Market Investments.

The index is about the beginning of convergence between Islamic finance and Halal industry. But, more importantly, its about Muslim country inward investing as Muslims, presently as 'consumer investors' in these halal food firms become shareholder investors.

Now, within the 'BRIC context,' SAMI stands for Saudi, Ankara, Malaysia and Indonesia. Without getting into the multitude of economic and financial numbers for these four countries on GDP growth, inflation, foreign direct investment, exports, debt capital market development, population growth patterns, and so on, we have a compelling established emerging market that happens to be Muslim countries on the old Silk Road."

Read more: Muslim BRIC has arrived

Muslim BRIC has arrived

Opalesque Islamic Finance Intelligence - Sixteenth Issue

We have compiled a great mix of content for this edition of OIFI (download the PDF version), and we start with our Editorial's anecdotal perspective of the MENA region.  Having repeatedly received inquires regarding consumer appetite for Islamic finance products, our Featured Resource section compiles various country studies on consumer awareness, behaviour and perception.

Mudaraba applied in the context of microfinance is the theme for the Featured Structure segment, as scrutinized by practitioner Azhar Nadeem. Hdeel Abdelhady provides an operational perspective to Islamic finance in Lex Islamicus - with particular emphasis on governance and Shariah Board reports (SBRs).

Having spent time in Matsushima (one of the three famous "views" of Japan) in the north of Miyagi prefecture, it is a welcome coincidence that the Kulliyyah Korner features the research of Kyoto-based Nagaoka Shinsuke. Our best goes to him and everyone in Japan.

The Industry Snapshot offers a further analysis of Education based on the EPL concept (Education, Perception, Liquidity), as seen by strategist Joy Abdullah. This is followed by Douglas Clark Johnson who shares his perspective on Bahrain in our Opinion Column.

We hope you enjoy the sixteenth edition of OIFI and as always we are glad to hear from our readers and welcoming all comments & feedback. Remember that you can visit our online archive (see reference link) for access to our ever-growing databank of Opalesque Islamic Finance Briefing as well as all of the back issues of Opalesque Islamic Finance Intelligence.

Download the complete issue of Opalesque Islamic Finance Intelligence here.

Alternatively you can read each article separately in the OIFI Archive:
Editor’s Note: In the Name of Egypt
Featured Resource: The Islamic Finance Consumer
Featured Structure: Islamic Business Contracts and Microfinance A case of Mudaraba
Lex Islamicus: Operational Excellence is the Key to Unlocking Lasting Value in Islamic Finance
Kulliyyah Korner: On the Theoretical Dichotomy of Islamic Finance
Industry Snapshot: E.P.L. in Islamic Finance - Education (Extra Time)
Opinion Column: Bahrain: Time to be Truly Business-Friendly

Opalesque Islamic Finance Intelligence - Sixteenth Issue

A Roadmap for Making Islamic Finance Sources More Accessible

A Roadmap for Making Islamic Finance Sources More Accessible
The Role of Secondary Services in the Dissemination of Research
S. Nazim Ali
Director, Islamic Finance Project
Harvard Law School

Abstract: "Secondary services, particularly electronic databases, have revolutionized research by bringing together more resources for one’s disposal. This virtual network has exponentially increased the availability of information, thus making relevancy one of the most important questions in data collection. The Internet may be useful for finding introductory information because the turn-over time is short and the resources are practically unlimited. However, the internet is inherently flawed as a research tool for serious researchers because there is no barrier to entry, hence regardless of credentials or veracity anyone can post anything as a “fact.” The issue of quality assurance then becomes important. Quality assurance can stem from professional authority (who is writing the article), institutional authority (where is the research being undertaken), or a publisher’s authority (by whom is it being published). Therefore, though the Internet is a good source of industry news, market
news, and consumer perceptions, established outlets (both print media and electronic) should be preferred."

A Roadmap for Making Islamic Finance Sources More Accessible

Opalesque Islamic Finance Intelligence - Eighth Issue

The eighth issue of Opalesque Islamic Finance Intelligence is here (download the pdf version), the underlying thread uniting all the content for this month is looking at Islamic finance from a fresh and open perspective. This month's editorial outlines how Islamic finance is being developed/introduced in new markets - and whether the industry's long term future is being mortgaged for some short term gains. This is complemented in the Featured Resource (with a list of studies that look at Islamic finance from a global or macroeconomic point of view) as well as the Industry Snapshot (with an analysis of the recent report by the IFSB, IRTI and the IDB).

The Featured Structure section welcomes Mohammed Khnifer as he takes a novel approach as to the permissibility of organized tawarruq. Lex Islamicus takes on Islamic commercial contracts as Khalil explores the issues of good faith and fair dealing. The Kulliyyah Korner hears from Ahmed Mohamed Badr-Eldin and profiles his research on adapting conventional ratios to measure the performance of Islamic banks.

Furthermore, the Opinion Column hears from Edib Smolo, from the International Shari’ah Research Academy (ISRA), and his take on the future prospects of the industry. As part of our ongoing industry survey (The Islamic Window), Joy Abdullah provides an overview of the initial findings and some of the most striking signals from consumers.

Welcoming your comments & suggestions and a reminder that you can check the ever-growing archive of Opalesque Islamic Finance Briefing and Opalesque Islamic Finance Intelligence, all available free. In addition, we continue to expand the reach of our industry survey (see reference link) and appreciate it if you can help us disseminate it further.

Download the complete issue of Opalesque Islamic Finance Intelligence here.

Alternatively you can read each section separately:
Editor’s Note: Disclosure, Due Diligence & Death Spirals
Featured Resource: The Macro Perspective
Featured Structure: Maslaha and the Permissibility of Organized Tawarruq
Lex Islamicus: In Good Faith
Kulliyyah Korner: Measuring the Performance of Islamic Banks by Adapting Conventional Ratios
Opinion Column: Islamic Finance Practices at the Crossroads
The Islamic Window: Preliminary Findings
Industry Snapshot: IFSB-IRTI-IDB Islamic Finance and Global Stability Report

Opalesque Islamic Finance Intelligence - Eighth Issue

Market Survey: The Islamic Window

The goal of this market survey is to help measure the level of awareness, perception, misconception and overall understanding of consumers towards the Islamic finance industry (and its various products and services). The survey results will enable us to open a window into the mind of current (as well as prospective) consumers.

The rationale behind the survey is further developed by Joy Abdullah in an article that was featured in the March issue of Opalesque Islamic Finance Intelligence: "The Islamic Window: Consumer Perception and Market Research in Islamic Finance" (refer to pages 24-25).

It is not meant to be a scientific survey but it certainly aims to be as representative as possible. In that sense we need the largest possible sample size for it to succeed - and for this we need your help by sharing the survey with your friends, family, colleagues, classmates, etc. You can use the below link to access the survey:

http://www.kwiksurveys.com/online-survey.php?surveyID=KKNOKO_e9d1d68

We will share the findings in a dedicated section of Opalesque Islamic Finance Intelligence (free subscription) where we will identify consumer segments, market trends, as well as any country-specific issues.

Jointly developed and supported by:
Opalesque Islamic Finance Intelligence
Daily Baraka
Islamic Finance Resources Blog

Market Survey: The Islamic Window

Opalesque Islamic Finance Intelligence - Seventh Issue

Welcome to the seventh issue of Opalesque Islamic Finance Intelligence (download the pdf version), once again we bring together a wide array of content that is as diverse as the industry itself. Each of our editions has always delivered a wide range of topics (as this allows us to present relevant material for everyone), but it is increasingly clear that inquisitive research, relevant empirical evidence and timely academic studies are in dire need. This is not only true of their origination but also of their dissemination, thus we gravitate around this particular theme for OIFI VII.

To begin with, our editorial section delves into the realm of data and information providers and how this space is evolving. In addition, we introduce a new academic-oriented section which we affectionately term the 'Kulliyyah Korner'. Its aims is to provide a glimpse into the latest topics that are being discussed and analyzed across the industry - whether this is within the context of a faculty (or kulliyyah), think tank, etc. Above all, the Korner aims to highlight the rich material available from academic institutions (usually available through industry periodicals and journals) while presenting them to a wider audience.

Hence the first installment of Kulliyyah profiles the research of Anne-Sophie Gintzburger, who has developed an extensive study on the regional variations of Islamic financial instruments as part of her thesis at the Australian National University. We complement this with our Featured Resource which outlines a variety of past & present case studies at the country-specific level. Furthermore, Lex Islamicus sees Khalil exploring the Universality and Codification of Islamic Contracts, as it pertains to their enforceability of these in a court of law and the relationship with Lex Mercatoria.

Nikan provides further insights into Shariah compliant principal protected notes as part of the Featured Structure section. This allows for an interesting contrast to our Fund Manager Interview which talks to Nick Barisheff, President & CEO of Bullion Management Group (BMG), and their recent entry into the field with their Shariah compliant BMG Bullion Fund. Taking a look forward, our Opinion Column hears from Professor Mahmood Faruqui, who inquires on where can Islamic Finance contribute as part of repair initiatives in the aftermath of the global financial crisis. Finally, Joy Abdullah makes inquiries in our Industry Snapshot section regarding the need for consumer data and market statistics - with a particular focus on investor awareness and their perceptions of the Islamic finance industry.

We welcome your comments & suggestions and a reminder that you can check the ever-growing archive of Opalesque Islamic Finance Briefing and Opalesque Islamic Finance Intelligence, all available free (see reference link).

Download the complete issue of Opalesque Islamic Finance Intelligence here.

Alternatively you can read each section separately:

Editor's Note: Learning Rushdi-Speak
Featured Resource: Country-Specific Case Studies
Featured Structure: Shariah Compliant Principal Protected Notes
Fund Manager Interview: Nick Barisheff, President & CEO, Bullion Management Group Inc
Lex Islamicus: Universality and Codification of Islamic Contracts
Kulliyyah Korner: Regional Variations on the Permissibility of Islamic Financial Instruments
Opinion Column: Repair Initiatives Post Banking Crises - Can Islamic Finance contribute?
Industry Snapshot: The Islamic Window: Consumer Perception and Market Research in Islamic Finance

Opalesque Islamic Finance Intelligence - Seventh Issue

Opalesque Islamic Finance Intelligence - Sixth Issue

Welcome to the sixth edition of Opalesque Islamic Finance Intelligence (download the pdf version), for this issue we aim to look further into various aspects of Islamic finance that might have been overlooked elsewhere. We begin with an editorial note that explores the linkage between the past and the present constituencies of Islamic finance (be that consumers, investors, or practitioners) or to put it in other words the generational change that is underway and the validity of applying a sustainability label to the industry.

This is promptly followed by our Featured Resource which highlights a survey of various training programs and certifications available in the marketplace, this is a far more detailed version of our earlier attempt (much credit goes to one of our readers). Similarly, the concept of brand identity (within the realm of Islamic finance) has been rarely discussed, hence we turn to the Industry Snapshot section where Joy Abdullah delves into the linkage between corporate culture and brand identity - as these relate to Islamic financial institutions.

Muqaddasah (call option using set-off) is dissected by Nikan in the Featured Structure section, a combination of murabaha and salam which might not be widely used in the market but presents a valuable illustration of how various instruments can be combined to create new permutations. Islamic Venture Capital has also been under-reported and our Allocator Interview profiles Jordan-based Ahmed Muhammed Almanasreh from Sanad Islamic Investments, who shares his views on Islamic VC in the MENA region.

Khalil once again provides food for thought in Lex Islamicus by discussing the debate over the commercialization of fatwas, whereas our Opinion Column hears from Furqan Ahmad who scrutinizes some of the core challenges being faced by the industry today. Always welcoming your comments & suggestions and a reminder that you can check the ever-growing Opalesque Islamic Finance Briefing and Opalesque Islamic Finance Intelligence, all available free in our Online Archive.

Download the complete issue of Opalesque Islamic Finance Intelligence here (registration required).

Alternatively you can read each section separately:

Editor's Note: Insufficient Funds
Featured Resource: Islamic Finance Training Programs & Certifications 2.0
Featured Structure: Call Option using Set-Off
Allocator Interview: Ahmed Muhammed Almanasreh, CEO, Sanad Islamic Investments
Lex Islamicus: Fatwa Incorporated
Opinion Column: The Future of Islamic Banking and Finance in the GCC and the World
Industry Snapshot: Importance of Corporate Culture in Brand Identity

Opalesque Islamic Finance Intelligence - Sixth Issue

Islamic Banking Theories, Practices and Insights for Nigeria

Islamic Banking Theories, Practices and Insights for Nigeria
Toni Uhomoibhi Aburime
Deakin University

Abstract: The broad aim of this paper is to introduce knowledge of Islamic banking theories and practices to banking and finance scholars and practitioners in Nigeria, as well as draw some useful insights on Islamic banking in Nigeria. Prohibition of interest, low consumer lending, profit and loss sharing and high real sector investing are primary characteristics of Islamic banks. Islamic banks operate the three conventional deposit accounts. They also engage in investment financing, trade financing, lending, and other financial services. Differences between Islamic and conventional banks lie in prohibition of interest, emphasis on Islamic principles of morality, emphasis on collateral, certainty of deposits and returns, liquidity risk and solvency risk; while similarities between Islamic and conventional banks lie in profit-making objective and nature of banking services. Though there is a dearth of Islamic banks in Nigeria, Islamic banking has become a fast growing concept. The emergence of full-fledged Islamic banks in Nigeria should be expected in the near future.

Islamic Banking Theories, Practices and Insights for Nigeria

Marketing Strategy of Islamic Banks

The following paper from KLBS was presented in May 2005 at the International Seminar on Enhancing Competitive Advantage on Islamic Financial Institutions in Jakarta. The study highlights how the new Islamic banks in the Malaysian market (and the new Islamic windows of conventional banks) have exhibited a much more aggressive marketing strategy than their established counterparts. It goes on to specify key elements such as product placement, pricing & promotion, distribution channeles, etc.

Marketing Strategy of Islamic Banks: A Lesson from Malaysia

by Professor Sudin Haron and Dr Wan Nursofiza Wan Azmi

KLBS - Working Paper Series 006

May 2005

Marketing Strategy of Islamic Banks

Islamic Marketing Ethics

Ethics, governance, corporate behaviour, branding - all in all, how does one combine marketing and Islamic finance? On the other hand, what is the level of recognition and validity given by Muslim customers to Shariah compliant investments? How does one determine the level of preference for a compliant solution versus a conventional one? Is there such a preference or is it perceived as a penalty on financial performance? Is there a way to quantify all this? Can this methodology be applied to other services beyond banking products (from insurance & car financing to food, clothing, etc?). A vast topic indeed!

This specific piece from KAU provides a good starting point for discussion. Note the original link to the paper is broken, shown here is a mirror link.

Islamic Marketing Ethics and Its Impact on
Customer Satisfaction in the Islamic Banking Industry
Abul Hassan, Abdelkader Chachi, Researcher, Islamic Economics Research Centre, King Abdulaziz University, Jeddah, Saudi Arabia, and
Salma Abdul Latiff, Director of Centre for Islamic Banking, Finance and Management, University Brunei Darussalam.

With thanks to Joy Abdullah for suggesting the topic.

Islamic Marketing Ethics

Case Study: Bank Runs in Turkey

This paper is presented in Topics in Middle Eastern and North African Economies (electronic journal, Volume 7, Middle East Economic Association and Loyola University Chicago, September, 2005). While the focus is on the behavioral aspects of bank runs (consumer over-reaction, information asymmetries, self-fulfilling elements, etc.) the authors also make a very interesting comparative analysis of the balance sheets of conventional banks versus Special Finance Houses (i.e. Islamic Financial Institutions in Turkey). The concluding remarks are focused on the benefits of deposit insurance, but the overall piece brings a refreshing view - one that is in stark contrast to claims of Islamic bank's "immunity." It would seem the most important behavior of consumers is their short-term memory!

Bank Runs in Emerging-Market Countries:

The Experience of Turkey’s Islamic Banks in the 2001 Crisis
Martha Starr, American University
Rasim Yilmaz, Dumlupinar University

Abstract: "This paper examines a set of runs on Turkey’s Special Finance Houses, an uninsured sub-sector of Islamic banks, during the 2001 financial crisis. We argue that, although fundamental factors were influential in initiating the runs, the magnitude of withdrawals from the SFHs was out of proportion with the risk, suggesting overreaction."

Case Study: Bank Runs in Turkey

Opalesque Islamic Finance Intelligence

Opalesque launches Islamic Finance Intelligence as industry faces great debates in a number of fronts

Setting a new standard: 19 pages of intelligence.

Welcome to the first issue of Opalesque Islamic Finance Intelligence (OIFI), designed with a practitioner approach – focused on precise and relevant content for investors, product manufacturers, and fund managers of this truly global community. This free, monthly publication complements Opalesque Islamic Finance Briefing (our daily industry news briefing) and leverages on the success of the Opalesque family of specialized publications (Alternative Market Briefing, A Square, Roundtable Series, etc).

The industry faces great debates in a number of fronts – from market gaps, distribution networks, standardisation initiatives, risk & compliance concerns, to structural question marks. These issues are faced by both current industry players as well as new entrants. A case in point is the recent debate over Tawarruq, with Nikan scrutinizing the matter in our Featured Structure section.

The range of topics is vast - Islamic finance products now extend to all asset classes (from exchange traded funds to private equity vehicles), the industry is ever-evolving in its core markets (the GCC and Southeast Asia) and product cross-pollination with conventional fund houses is an emerging trend. Our maiden edition further provides an overview of Islamic contract law - detailed by Khalil in our Editorial Column. We also debate over the outputs of the transaction: practitioners share their thoughts in our Discussion Forum on the use of conventional benchmarks (i.e. LIBOR) by Islamic banks, whilst Toby Birch of Birch Assets Ltd scrutinizes the industry pitfalls in our Allocator Interview.

Market awareness has skyrocketed in recent years - experts once touted the existence of 60 Islamic equity funds whereas the industry now boasts a universe of well over 700 Shariah compliant investment products. Growth projections usually land between 15 to 20 percent per annum, yet some of the largest Muslim countries (i.e. Indonesia, Egypt and India) remain untapped. A comprehensive product range is unheard of (in stark contrast to the conventional world), yet this bestows the industry with endless prospects. Bernardo sheds light on these by analyzing Islamic fund of funds in our Industry Tables section.

Opalesque Islamic Finance Intelligence is a free subscription- new readers can register here and make your choice from our menue of eleven specialized publications. (Note that while most of our publications are free, we also offer three premium/paid publications).

Download the first Opalesque Islamic Finance Intelligence issue here!


(Sorry for the Marketing Spiel, but we wrote it and its free).

Comments, as always, are welcome! JAK!

Opalesque Islamic Finance Intelligence