Unveiling The Evolving Islamic Retail Banking

The Islamic retail banking sector plays a significant role in its contribution to the Islamic banking industry not only in Asia but also globally around the world. The major Islamic hubs including the most popular hubs listed under QISMUT have all exhibited great promise in the transformation agenda of Islamic retail banks. The Islamic banking retail sector is a growth driver for the Islamic financial industry in Asia and around the world. Islamic retail banking is not only growing in size, but also in sophistication The Islamic banking retail sector has enabled an enhanced distribution with opportunities in promoting further growth and expansion. In addition, the worldwide retail-banking sector is changing and many customers are choosing to opt for fully-fledged Islamic banks as opposed to conventional banks.

Many Islamic retail banks worldwide experienced low profitability which is estimated at 19% lower than their conventional banking counterparts. As compared to conventional banks, Islamic banks have more complex products which involved more process steps and often lack scale economies or find off-shoring difficult. The Islamic banking retail assets has seen a dramatic change in demand as there is a wider scope for both fully fledged Islamic banks and conventional banks, which offer Islamic retail products. Figure 1 outlines the growth of assets for the Islamic retail bankingsector since 2008 to 2014. As clearly shown, you can see that there is an increased demand as the number of assets has risen considerably. Focusing on innovation The Islamic retail banking sector has scope to offer a number of innovative products and services to its customers to cater for the demand for Shari’a compliant banking products. Due to the increased demand for the usage of Islamic retail banking services there is also a need for advancement in technology and an enhanced standardisation of the industry.

Due to the increased demand for the usage of Islamic retail banking services there is also a need for advancement in technology and an enhanced standardisation of the industry

Innovation and digital strategy therefore must remain at the forefront of Islamic retail banks’ new agendas if they are to remain competitive. Islamic retail banks should readily accept that technology progression equals improved operations, cost efficiency and open up a route to competitive advantage. This can further help to spur growth and trust from the customers as the Islamic retail banking sector has to ensure that it follows the principles of the Shari’a in all its new and existing products and services.

The strong growth prospects in Asia are highly beneficial for further development of Islamic finance in the region and promise to bring greater opportunities to the industry. The scope for the growth of the Islamic retail banking can only further grow as there are already an estimated 38 million customers who hold a single Islamic banking account according to the World Islamic Banking Competitiveness Report. It’s demonstrates the rise in Islamic retail banking from having less demand to the changing landscape of playing a significant contribution to the overall Islamic banking industry.

Customer satisfaction  is key

Another important driver of Islamic retail banking and its increased demand is due to the significant Muslim populations in many of the Islamic financial global hubs. Muslim populations of countries such as Malaysia which is a major hub for Islamic banking has assisted in helping to maintain demand from individuals who want to follow their faith. Islamic retail banking provides a lucrative option and one with many benefits for both customers and investors. the Former CEO of Islamic Banking division at Standard Chartered Bank, Afaq Khan, pointed that “Those countries with significant Muslim populations, like Malaysia, Indonesia and Brunei, have a different business opportunity, which is primarily retail and wealth management.” Islamic retail products are increasingly moving to the mainstream. Offerings of Islamic mortgages, savings, insurance and retail investment products are part of a global expansion of the financial industry which are increasingly competitive with conventional financial products.
Set to have a successful tomorrow Islamic retail banking sector is set to prosper in the future as asset growth is showing a steady pace and the momentum of Islamic banking and finance is on the rise around the world. To achieve this, Islamic retail banks need to focus on the needs of their customers by giving their customers what they want. Advancement in new technology has changes consumer behaviours and the way they prefer to perform transactions – via digital platform, with smartphone and tablet adoption, this definitely present Islamic retail banking with opportunity to create their competitive edge against their competitors, as well as evoking new challenges. Innovation, customer engagement, and new technology adoption are a few of the key features that retail banking business should be addressing to have a successful tomorrow.

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