KARSTEN KEMNA, the managing director of CREALOGIX APAC, highlights how digital tools for Islamic finance are at the cutting edge of fintech.
The principles of Islamic finance are based on ancient, long-held values, but it is still very compatible with innovation. The emergence of digital challenger brands across the world demonstrates that there is demand and an opportunity for innovation in this space. The size of the opportunity means that banks are developing targets for this demographic and different communities within it. Innovation is needed to deliver a clear, easy-to-use digital solution that builds trust with a previously underserved market and addresses the need for ethically-driven financial services.
User experience (UX) is the key driver of customer loyalty and growth in a digitalized world. It is particularly important in Islamic finance, because in many traditionally Muslim countries a large proportion of the population are currently unbanked. If the digital solution is too complicated or difficult to use, it may deter people from signing up. Also, there is a growing middle class in Indonesia keen to make more of their money; an accessible digital solution that clearly reflects both their finances and their ethical values could be a powerful tool for building long-term loyalty as they continue to prosper.
Supporting the unbanked Muslim population
When addressing the large proportion of the Muslim population that is currently unbanked, these customers need specific support and financial products that align with their values. This can be seen across Southeast Asia in countries such as Bangladesh and Pakistan. Another example is Indonesia, which has the fourth-largest population in the world. Around 85% of the 270 million living in Indonesia are Muslim and between 60% and 70% of these are unbanked. Digital banking may present a solution to this situation. This is why the digital UX is so important — being easy to use and clearly representative of customers’ values will help to engage these new potential customers.
Essential UX features for Islamic banking
Multi-language capabilities are important for this market segment and it comes with additional considerations. It is not simply a case of substituting one language for another according to the client’s preference; these capabilities include the need for both English and Arabic alphabets. In addition, while western languages read from left to right, Arabic language reads right to left and this needs to be factored into the design. A dual calendar functionality combining Hijri and Gregorian calendars will also be essential.
Once the foundation is built, there is an opportunity to be more creative with additional features which are aligned with customers’ values. This could include the calculation and payment of Zakat, or charitable contributions, directly from the digital platform. A digital app might offer support with the location/direction of Qibla and also with prayer times, or include a loyalty program with Shariah compliant rewards.
Wealth management and investment
An area which could deliver significant growth is in ethical and Shariah compliant investments. Given that in Islamic banking returns from investments are based on underlying economic activities and/or assets that structure the contractual relationship between transacting parties, it is possible to use the asset-based nature and risk-sharing aspects of Islamic finance for greater integration with the real economy and to improve the overall economic balance between the real and the financial sectors. In wealth management, Islamic finance could be viewed as a segment of environmental, social and governance (ESG) investing. It is particularly important to have clear reports which demonstrate that all investments are Shariah compliant and reflect the client’s values.
Many clients in wealth management have ethical preferences — such as a focus on the environment — and exclusions, such as alcohol. Islamic investing is a subset of these preferences with specific requirements. This is not a challenge for providers; it delivers a clear opportunity to tailor communications to promote Shariah compliant products, services and investments through the app and grow assets under management. An increasing interest in wealth management services that align with Muslim values allows us at CREALOGIX to cross-fertilize our skills in conventional wealth management digitization with our experience in Islamic banking. Just as western investment services now include a digital representation of investments in relation to the ESG requirements of the client, the important values of this community can be reflected in their investment portfolio.
Demonstrating Shariah compliance
If your organization provides products and services aligned to the requirements of Islamic finance, these are usually powered by back-office systems. However, building the products is just the start of the journey. Muslim consumers need to be reassured with clear representations of their financial position in a way that aligns with their values. Muslim customers expect the same as everyone else — a unique experience tailored to their interests and that is convenient and easy to use. This means convenient mobile-first banking via a secure app and a seamless, omnichannel experience for in-person support where needed. In short, it is a combination of the customers’ values with the latest in fintech innovation.
While we can talk about the basic principles of Islamic finance, it is worth remembering that personalization on an individual basis is also important. As well as capturing customers’ values, digital tools can be used to capture and display individual preferences and priorities. This may be as simple as a preference to receive all-important information via email or directly via app notifications, or it may be additional dimensions to investments such as an interest in environmentally friendly investments alongside Shariah compliance. These personal touches highlight the added value that an organization can bring to each customer. This can help to build engagement, particularly with previously unbanked customers and can also build longer, lifetime loyalty.
Getting started on a digital solution for Islamic banking
While there may be specific digital and communication requirements for Islamic finance, the challenge is the same for all digital banking initiatives. The key, as with all digital innovation, is not to go it alone. There are experts across the financial services and fintech sectors who can support the digitalization of Shariah compliant products and services. At CREALOGIX, our experience working with major financial organizations across the Middle East, including eight of the Tier 1 banks in Saudi Arabia, means that we understand both the requirements of Islamic finance and a powerful digital solution. CREALOGIX has experience working with top-tier banks in the Middle East such as NCB (National Commercial Bank) and the Al Rajhi Banking Corporation. This is combined with our expertise in delivering a premium, easy-to-use digital front end and means that our partners can deliver an industry-leading digital solution to their customers.
We serve Islamic banks on all key strategic, operational and organizational topics, and we assist conventional banks in building Islamic banking businesses. Our customer base in the Middle East shows our deep understanding of the Islamic banking business. We understand that the key priorities are accessibility, relevance and a great customer experience. Organizations that are just getting started on digitalization will benefit from working with an expert partner with proven experience.