Up until now, Islamic banks have typically performed better than the conventional banks. However research from A.T. Kearney shows that growth rates are slowing and that profitability is eroding. According to the consulting firm, Islamic banks need to revisit their strategy and positioning or else they will be quickly outperformed by their competitors.
"Strategically Islamic banks need to revisit their business model and positioning and decide whether they want to fully exploit the Islamic banking niche or compete head on with conventional banks," said Cyril Garbois, Partner, A.T. Kearney. "Operationally Islamic banks need to seek greater efficiency across the value chain."
Fully exploiting the Islamic banking niche
Fully exploiting the Islamic banking niche means targeting customer segments that care most deeply about Sharia compliance in their financial dealings, as well as offering products and services that meet not only general financing but also Muslim-specific customer needs. While Islamic banking products abound in auto finance and credit cards, there are limited products available in more sophisticated segments, such as asset management and wealth management.
Tailoring to Muslim-specific needs
In addition, Islamic banks should tailor their products to Muslim-specific needs provide a platform for true differentiation. "Market gaps to better meet Muslim-specific client needs with dedicated banking products, fully aligned with Islamic core values, are many and varied. These market opportunities are under-developed and present attractive platforms for profitable growth, for players willing to exploit the niche," says Alexander von Pock, Principal, A.T. Kearney.
The consulting firm adds that whatever strategic positions an Islamic bank chooses, they will typically need to improve profitability through greater efficiency across their business. A.T. Kearney identifies sales effectiveness, operational efficiency and performance management as key target improvement areas for banks to maximize impact on the bottom line.