The growing numbers of non-Muslims using Islamic financial products should be welcomed, as it indicates that they perceive these products to be financially viable and competitive. Their motivation to use the products is financial and not religious, so in a sense they are simply driven by rational choice.
As the products are rather similar in financial (but not in legal) terms to their conventional equivalents, this may increase the comfort factor for non-Muslim clients. However, this does not preclude product development, which could result in products that have greater variety in terms of their risk characteristics. This would make it more attractive for both Muslims and non-Muslims to use the products to ensure greater portfolio diversification.
PROFESSOR RODNEY WILSON
Product development in the Islamic banking and finance industry has historically been lacking. However, as the industry has grown, the Muslim investor has also become more sophisticated, demanding better products both in terms of adherence to the spirit of Shariah and with respect to service and returns. With growth rates well above those of the conventional industry, conventional institutions have recognized the potential of the Islamic market and have tapped into this customer base by setting up Islamic subsidiaries. The issue of product development becomes more critical in the face of growing competition from these conventional institutions who are recognized players with established customer service and product development expertise.
Non-Muslim investors have not traditionally bought Islamic products and services. Such investors are considered to choose their financial services on the basis of customer service and returns rather than on religious grounds. If Islamic finance wishes to appeal to a mainstream rather than a niche clientele, it must develop products and services that are competitive. In Malaysia, where the Islamic banking industry is at a later stage of its product life cycle, with more product diversification compared with the Middle East, there are considered to be more non-Muslims than Muslims buying Islamic financial services. This is a phenomenon which should be replicated elsewhere.
Moving forward, the industry will need to expand its customer base in order to continue on its growth path. It must look to develop products which will retain existing investors and attract both the non-Muslim and the indifferent investor. Therefore rather than a deterrent, appealing to a secular clientele would represent the next logical stage in the industry’s evolution.
Investment Banking, Dubai Bank
People only invest their money where they believe it will be financially sound and sufficiently safe (competitiveness, correct market regulation, transparency and accountability). Their decision is also based upon the possibility of disposing in a timely and economical way of their investments (appropriate secondary markets).
The growing percentage of non-Muslims therefore confirms the excellent development of Islamic financial products as viable alternatives to “conventional” products. It is not at all a deterrent, but rather an enhancer of the depth of the primary and secondary markets and an incentive for further product and industry development.
Of Counsel, Bener Law Office
Islamic finance, like Islam itself, is based on the principles of inclusion. The increasing number of non-Muslims participating in the Islamic finance industry as investors, issuers and professionals is a tribute to the open and increasingly competitive nature of Islamic finance. The growing convergence on corporate social responsibility and ethics-based banking is good news for the evolving Islamic finance industry. It will make Shariah compliant products more competitive and user friendly. As such it augers well for the future of product development and the growth of the Islamic finance industry.
If the percentage of non-Muslim buyers of Islamic financial services is growing – as the question assumes – then this is a strong indication that these services are converging with those existing conventional “western” forms of investment with which non-Muslims are familiar.
It is my view that genuinely Islamically sound products – rather than the pieces of sophistry often marketed as such – could well provide solutions which would be extremely attractive to non-Muslims and Muslims alike. For instance a means of financing renewable energy simply by selling forward a fraction of its production at today’s price. This “self-funding” methodology essentially wipes the floor in economic terms with all other forms of energy, whether renewable or nuclear. There are many such possibilities, each with huge potential, and the Islamic finance industry should explore and embrace such “asset-based” financing, rather than formulating ever more complex and costly veneers to the intrinsically “hollow” deficit-based western financial model.
Principal, Partnership Consulting LLP
Shariah compliant products are open to any and all investors and customers. Islamic finance, although prohibition-oriented, is ethical in nature, but Islam does not have a monopoly on ethics. Other faiths also espouse ethics; however, in some such faiths products may not be available to them for a number of reasons. Therefore, it is reasonable and logical that such ethical consumers would reach out to Islamic finance products. This is probably more acute in Muslim countries with a large expatriate population or an established non-Muslim minority, as they are exposed to Shariah compliant products.
Buy in from non-Muslims for Shariah compliant products is one of the objectives of Islamic finance as: (1) it develops a natural ally; (2) it contributes to growth and diversification; and (3) it goes on the path of mainstream acceptance. The fact that many non-Muslims work in Islamic banking and finance, in senior positions, goes to the inclusionary nature of Islamic finance based on merit. The involvement of non-Muslims in Islamic finance, possibly, at times, as early adopters, should be viewed as badge of merit/acceptance for the universal (ethical) appeal of Islamic finance, and spur more product development.
Why would popularity of a product ever be a deterrent to Islamic finance product development? It should be no surprise that Islamic finance and banking products are attractive to more than just the Muslim community. Some current conventional products have become complicated in hiding fees, rate structures, penalties, etc, whereas the simplicity of Islamic finance and the easy-to-understand fee/cost structure makes it attractive to all.
This popularity is teaching banks and other institutions that their product structures have become too complicated and that bank-centric language is a penalty in terms of competitiveness and growth. Why Islamic products work is not just because of Shariah, but because they are simple.
VP – International, American Academy of Financial Management
The premise of this question seems all wrong to me – the implication that “Islamic financial services” are something primarily for the benefit of Muslims is a misunderstanding. After all, “Islam, the Quran and the model of the Prophet was revealed for the guidance and benefit of all mankind, for all time, till the end of time.” Also, Muslims are required to gain knowledge from whatever source available. So, if there is something good in Islamic finance, then it is for the benefit of all, and the interaction with non-Muslim buyers and practitioners can only broaden, strengthen and enhance development.
Lastly, while Islam’s message is one of unification, I find the use of the terminology “Islamic” finance somewhat – albeit unintentionally – disunifying, in that can be misread as something exclusive for Muslims. Good business and finance practises are for everyone.
Executive Director, Princeton Advisory Group