NBC: Innovation,tailor-made products key drivers to Islamic banking

02Jun 2016
Prosper Makene
The Guardian
NBC: Innovation,tailor-made products key drivers to Islamic banking
  • • Islamic finance products must go beyond the conventional products and must satisfy their customers’ banking needs as well as outperform products of conventional banks in terms of service and pricing

The National Bank of Commerce (NBC), one of the mainstream banks that provide Islamic banking in the country, has said that innovation and developing of new products are the key drivers to the growth of the service.

NBC Head of Islamic Banking, Yassir Masoud.

In his presentation at the just ended Third Islamic Banking Summit in Dar es Salaam last week, NBC Head of Islamic Banking, Yassir Masoud, said banks that provide Islamic banking must always be at the cutting edge of developing new products.

Masoud also said that Islamic finance products must go beyond the conventional products and must satisfy their customers’ banking needs as well as outperform products of conventional banks in terms of service and pricing.

“There is a huge demand for retail banking facilities. Most of the retail products are fairly simple and basic lifestyle requirements,” he observed.

He pointed out that Islamic retail banking has gone from typical liability gathers to providing asset products that include home and personal finance, auto finance and Shari’ah-compliant credit cards.

“Retail banking serves communities and has been the backbone of success of every Islamic finance company operating in Tanzania and in the Middle East,” he said.

He added: “Islamic banks within their retail banking platforms are increasingly profiling their customers and segmenting their customer base from pure retail banking customers to wealthy customers and ultra–high net worth customers”.

The Islamic banking expert went further to say that the concept of relationship management and relation-based selling has become more prevalent and the philosophy underpinning the establishment of Islamic banks is to cater for the underprivileged.

“This can be executed solely by the banks or through mutual understanding with flourishing Shari’ah-compliant Saccos”.

He underscored that in Islamic banking, there are innovative products which fill the gaps such as Financing Products Personal Finance (under Qardh structure) – Interest free loans provided to the distressed and underprivileged education, rehabilitation and for water and sanitation.

Other innovative products include financing social entrepreneurship sustainable Investments as well as micro-initiative Investments – collateralized Investment provided to graduated micro clients and micro entrepreneurs.

However, Islamic banking is banking or a banking activity that is consistent with the principles of Sharia (Islamic law) and its practical application through the development of Islamic economics. As such, a better term for Islamic banking is Sharia-compliant finance.

Sharia prohibits acceptance of specific interest or fees for monetary loans (known as Riba, or Usury), whether the payment is fixed or floating. Investment in businesses that provide goods or services considered contrary to Islamic principles (pork or alcohol) is also ‘haraam’ or sinful and prohibited.

Although these prohibitions have been applied historically in varying degrees in Muslim countries/communities to prevent un-Islamic practices, only in the late 20th century were a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community.

As of 2014, Sharia-compliant financial institutions represented approximately 1 percent of total world assets. By 2009, there were over 300 banks and 250 mutual funds around the world complying with Islamic principles and as of 2014 total assets of around $2trn were Sharia-compliant.

According to Ernst & Young, although Islamic banking still makes up only a fraction of the banking assets of Muslims, it has been growing faster than banking assets as a whole, growing at an annual rate of 17.6 percent between 2009 and 2013, and is projected to grow by an average of 19.7 percent a year by 2018.