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Opalesque Islamic Finance Intelligence

Industry Snapshot: E.P.L. in Islamic Finance - Education (Extra Time), By Joy Abdullah

Tuesday, March 22, 2011

With dual expertise in strategic business planning and brand marketing, Joy Abdullah is a Strategic Brand Enabler. Such synthesis of strategic planning enables Joy to aid brands in having a strong reputation, clear image and efficient delivery. Joy's areas of focus are on creating synergies in the business plan objectives and assisting the brand to deliver growth and profitability for an organisation by encompassing governance requirements, corporate values, identifying critical brand risk areas amongst key stakeholders, and market forecasting into the brands' activities.

He has written various articles on the importance of ethical brand marketing encompassing brand reputation management, employee-brand relationship and CSR.

Post the global financial crisis, the business world has been transformed drastically in more ways than one. Industries have had to, quite literally, pull up the hand-break, come to a screeching halt and turn on a dime, in terms of adapting to the changing socio-economic scenario.  Irrespective of whether the businesses are in B2B (business to business) or B2C (business to consumer) functions, many of the golden rules have had to be cast aside and new game rules learnt in order to simply ensure survival.

The Islamic Finance industry is not impervious to these changes.  In fact the industry is at a crossroad: Does it carry on as it has (and probably) fades away in time, gets relegated to a 'regional financial management facility', or does it absorb the changes around it and re-aligns to the realities and grow?

The editorial article of OIFI's January issue -Islamic Finance Incommunicado- (see reference link) aptly summed up the current state of affairs in Islamic Finance by saying "It seems that Islamic finance is getting a makeover".  There definitely exists an issue of awareness and perception of 'Islamic Finance' both from within the industry and at the outskirts at the consumer/retail level.  This is substantiated by this short news item entitled "Islamic Finance still faces challenges" (see reference link) where Professor Volker Nienhaus, an academic under the Securities Commission-Universiti Malaya Visiting Scholar Programme says the following:

  • "more people were looking at Islamic finance because it was more resilient and efficiency."
  • "But the Islamic finance practiced now is not much different from the conventional system,"
  • "A lack of participatory finance, like low retail penetration, is another stumbling block,"

This boils down to a lack of "education" (i.e. awareness and comprehension) of what exactly is the value proposition of Islamic Finance.  In order to survive the industry has to adapt and grow. To do this, it needs to re-focus itself on to what the consumer wants.  The key lies in the industry being willing to be "consumer-centric". At the end of the day, in any industry, the consumer is the reason one is in business (see reference link) and it is critical to identify a strong 'value proposition' that connects with the consumers at different levels. Without a well-articulated and robust value proposition there is no strategic platform for a commercial enterprise to have sustainable growth. Without growth there is no future.  In this scenario, it's important to note that the consumer in this case is the individual decision maker for an organisation (B2B) who also is interested in his personal financial management (B2C).

Can Islamic Finance be consumer centric?

Perhaps this may seem easier said than done. But it's not impossible. The key ingredient, in order to achieve this turnaround is commitment. Commitment in understanding the global socio-economic trends and in providing necessary EDUCATION to people in order  for them to have a clear understanding and thus, the correct, perception of Islamic Finance.

Where does this commitment come from?

The encouragement will  come from within the Islamic Finance industry by the organisations (IFI's and IB's) evaluating their long term strategic direction and taking the efforts to forge partnerships with the various academic institutions (globally) in order to:

  1. Provide knowledgeable industry practitioners to teach (the specific operational requirements of the industry) to the students thus leading to ensuring that the industry has a properly skilled talent pool each year
  2. Jointly research (on key subject matters including product development and consumer needs) in order to improve current products and processes thus ensuring sustainability and growth

How do we bring this about?

Daud Vicary (Global Leader of the Deloitte Touche Tohmatsu (DTT) Islamic Finance Industry group) in his article-"EPL in Islamic Finance: Education" has very correctly shown the three key areas in which education on Islamic Finance needs to be implemented and implemented with the objective of ensuring clarity and comprehension. Of the three areas, the single most important one is "General Mass Awareness".

Improving mass awareness is critical in ensuring that Islamic Finance retail products are accepted and used. However the retail market has its own set of complexities. Depending on the geographical market, awareness and comprehension, of Islamic Finance varies from negligible to aware but not convinced and coupled with that comes specific biases based on socio-cultural conditioning. There is, unfortunately, not a "one-size'fit-all" strategy for educating the mass. In each end market one will have to adapt according to the needs of the retail consumer.

However, on a macro level, one of the industry bodies will have to take the lead and put in place an "educational campaign" that is not an Islamic Finance Module 101 BUT a "Financial Literacy" module that focuses on the salient points of investment, savings, individual financial management from the perspective of Islamic Finance and, most importantly, the value proposition of Islamic Finance.

The content (of this campaign) would be the key in ensuring increasing awareness and comprehension and would need to ensure it:

  • demystifies Islamic Finance and clearly puts forth a rational value benefit

  • highlights what is the benefit of key retail products
  • simplifies the investment products and communicates transparently on how the 'back-end' works

In terms of delivery of the campaign a multi-media approach, with emphasis on social media utilization, would be necessary in order to allow the mass to interact with selected industry practitioners and enable:

  1. feedback--which would help measure improvements of the educational campaign--AND

  2. let the practitioners to know the 'pulse' of the mass i.e. what are their financial needs

Business strategy-wise such a campaign will enable the Islamic financial institutions to identify what the consumers want in terms of investment and retail products and thus ensure product portfolio profitability.  Therefore, the crucial question for the industry at this time is: To Be Consumer Centric or Not To be?

Whilst Islamic Finance continues its growth based on corporate business. Will this provide it a sustainable growth? Would global organisations want Islamic Financing? OR should the industry develop a strong retail base in order to ensure this sustainability?  Educations of the masses can assist in the growth and in fact ensure preference for Islamic Financial products but it will lead to improving current perceptions and thereby bring about a preference in the category from up and coming generations.  The question remains unanswered, will the industry choose to be consumer centric?

Your feedback and comments are very important to us, please feel free to contact the author via email.



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