The markets for Islamic banks have become increasingly crowded, but often the institutions are not competing with each other, but were established to serve particular groups of clients. Moving beyond this captive market is a real challenge however. At the retail level there is more competition for savings, which has implications for the cost of funds. The response of many Islamic banks has been to differentiate their savings and investment products from their rivals, catering for those in different age groups for example. In the longer run more takeovers and mergers are likely, as there are diseconomies in being small and having a limited client base. Often personality factors have impeded consolidation in Islamic banking, but in the end it is more likely to be economic and financial factors that will bring consolidation regardless of personality differences.
PROFESSOR RODNEY WILSON
It goes without saying that the new comers have to find themselves a position among the existing banks in an industry which is becoming very competitive. To do that they are either to come with a new concept, or to identify themselves with a niche specialty. The most important fact is that the market is still growing and the more new players there are, the more the industry will be promoted. Therefore it’s not actually a real competition threat as much as it is recognition and confident positioning. JAMIL AK JAROUDI Chief Executive Officer, Sokouk Exchange Centre Bank
Islamic banking is a growth business, so we are all growing at the cost of the conventional banks’ market share. In addition competition is good for a free market. It encourages progress. Islamic banks compete with each other through the following areas:
Each one of us has a chosen niche and is progressing in that niche.
KHALID MAHMOOD BHAIMIA Managing Director, Hong Leong Islamic Bank
Anew entrant to the market could distinguish itself from its competition by refraining from the practice of “fractional reserve” credit creation – which I have yet to see any Islamic scholar credibly justify and by concentrating instead on the investment banking function of bringing together Islamic investors with Islamic investments. CHRIS COOK Principal, Partnerships Consulting
Iasked the head of product development of a newly-established Islamic investment bank the same question a few days before Islamic Finance news put this question to me. The answer was: We don’t need to differentiate as the market is big enough to absorb any new entrants at this point in time. Others may disagree, especially those in Malaysia and other neighboring countries, as the focus of Islamic banking in the far east has for long been competing with conventional banks on an economic turf rather than on Shariah grounds. This trend has started only recently in the Middle East. With the likes of Unicorn Investment Bank and Arcapita, we are now witnessing a new breed of Islamic investment bank which are aggressive in risk-taking to a degree that many western investment banks operating in the Middle East shy to compete with. The key factors to differentiate from other banks are Shariah authenticity, quality of customer services, choice of cutting edge financial technology and real innovation and not merely copying (which some of the Islamic banks and conventional banks involved in Islamic finance are doing). DR HUMAYON DAR Chief Executive Officer, BMB Islamic
By the overall halal awareness and compliance route. The promise to meet conventional regulations and higher ethical standards should convince one to choose the right way. Also the fact that the services are available in the market and there is an open invitation to use them. As the non convinced potential clients are concerned, awareness that they too can participate in this alternative and reap the benefits thereof. Furthermore branding, product diversification and performance will determine the position. PAUL WOUTERS Partner, BENER
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