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.
Abstract: "Islamic capital markets are among the important and growing segments of Islamic finance. These markets are experiencing inflow of innovative financial products and receiving increased investor attention. At the same time various countries and regions competing to position themselves as financial centres are gradually amending and strengthening their regulatory framework. These developments are opening new avenues for Islamic financial markets and posing new challenges."
Abstract: "The development of Islamic capital markets is integral part of development of capital markets in general. Such markets are essential for efficient resource mobilization and allocation. It is more so in an Islamic economy because prohibition of interest implies greater reliance on equities and asset based financing.
The paper focuses on the state of equity and stable income products (sukuk) in Islamic capital markets. Taking Bahrain, Malaysia, Pakistan, and Sudan as sample it surveys the size of the markets for stocks and ijarah sukuk and highlights the issues in their development. [Excluded from the analysis are the other products, the regulatory issues, and the aspects of market micro-structure]. This is done with the purpose to understand how to enhance the proportion of Islamic products in the capital markets of the IDB-member countries. Availability of appropriate products will induce the firms to use the markets in the member countries for raising the funds and investing them there."
A broad overview by KPMG on Islamic finance, worth noting Section 3 which outlines a variety of barriers to entry - amongst them the ever increasing gap in Human Capital and (very current in recent headlines) the need for regulatory and legal frameworks. Also page 13 talks about Women in Islamic Finance, highlighting various industry voices on the challenges faced. While this particular piece dates back t0 2007, it seems that many of the key challenges are still present to this day and some remain unaddressed.
This particular piece sparked an industry-wide debate on the day-to-day practice of various sukuk structures (mainly murabaha and musharaka versions). For a short review of the paper and its market implications also check this short brief from Norton Rose. Among other things Taqi Usmani goes on to discuss 'The Higher Purposes of Islamic Economics', but mainly he focuses his attention on these three key points:
1. Bond Holders' Ownership of Enterprise Assets 2. Regular Distributions to Sukuk Holders 3. Guaranteeing the Return of Principal
The perspective from downunder is rather different than other periphery markets, but noticeably Islamic finance has been developing through community organizations and grassroots initiatives for quite some time now, MCCA being an example. This paper gives some color to the viability of microfinance and other financing schemes in Australia, particularly interesting as local demand might be small but it proves crucial to the viability of Islamic finance.
Abstract: "Microfinance services are commonly viewed for those traditionally considered non bankable. Microfinance tool can be adapted in every environment, based on the local needs and economic situation. In Australia, Islamic microfinance enterprises that mostly rely on their shareholders’ savings proved to be very successful in providing microfinance to their clientele."
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.
"Even though Islamic banks offer profit and loss sharing accounts and therefore expose limited risk of insolvency, systemic risks still exist and deserve much attention."
"Basel II introduces a new approach to evaluating credit risk. Although the scope of Basel II does not include Islamic banks, the new models of credit risk rating introduce compatibility for Islamic banks."
First of all we would like to extend to all a blessed Ramadan Mubarak.As Muslims around the globe observe the holy month we take this opportunity to pause and reflect on where Islamic finance stands today and what’s in store for the industry’s future.As millions of Muslims reflect, so does the industry ponder on its very own direction, principles and ultimate purpose.
This is barely our third edition, but the feedback can be summarized by one of our readers (a director of an Asian-based investment bank) who put it plainly: “there is some really good stuff in this thing”.We push forward and for this edition of OIFI we begin by addressing what we term the 'Two Schools of Islamic Finance' as we delve into a rather unassuming - although significant - division in opinion on how the practice of Shariah compliance should be approached.Interpretation can have far reaching implications, take for instance the Majallah (the civil code of the Ottoman caliphate) which is regarded as the first attempt to codify Islamic law and remains an important source of reference to the present day.
We follow with one of our most requested items – and a good indicator of industry renaissance – a compilation of Islamic finance training programs and certifications.Thereafter, Nikan tackles a more specific discussion on Wa’d in our Featured Structure section, whereas Khalil delves into a forward looking analysis of Islamic financial instruments and arbitration channels in his Lex Islamicus column.Their perspectives are complemented by additional opinions on the role of the Islamic finance framework in our Discussion Board.
This month’s edition includes a Manager Interview with Dieter Küffer, of Sustainable Asset Management, regarding their Islamic water strategy.Their SRI background is by no means accidental, as our Opinion Column further profiles views on social responsibility and corporate governance from Sayd Farook and Usama DeLorenzo respectively.To round it all out, the spirit of transparency is alive and well in our final piece which explores the rather unusual: products from the graveyard (liquidated, obsolete, dare we say unsuccessful).
Once again we welcome your comments & suggestions, and a reminder that you can check the free online archive of Opalesque Islamic Finance Briefing (our daily news summary) which provides a historical data bank of industry news and articles, as well as the back issues of OIFI.It’s all there, it’s all free.
New subscribers can set up their Opalesque subscriptions here.
