EXUS Collections & Recovery Blog

3 Powerful Lessons Islamic Finance Has For Retail Banks

Posted by Raul Gaitas on Fri, Feb 03, 2017 @ 11:00 AM

Doha_skyline_in_the_morning_12544910974.jpgIslamic banking used to be vogue only in Asia and the Middle East. In 2012, 43% of industry activity was in Iran, according to The Economist. Saudi Arabia and Malaysia accounted for 22%. But the asset class’ appeal is growing fast. The Economist pegs the industry to grow 19.7% per year until 2018. And as Islamic banking booms, its geographic footprint is growing, too.

Banks in the west have raised money with a type of bond (sukuk) used in Islamic finance. And countries outside Muslim-dominant nations are considering issues.

Retail bankers have learned to appreciate Islamic banking's high sustainable growth. They're also fans of its responsible capital allocation.

Yet that's not all they can learn from this industry. Islamic banking offers retail banks in mature markets three big lessons on how to grow in 2016. 

1. Focus on Operational Efficiency

Several top Islamic banks are doubling in size every four years. These organizations have grown more complex. That hinders growth and agility in dynamic new markets.

Retail banks face the same challenge. New markets are visible beyond the rubble of the financial crisis. But mature retail banks carry much operational complexity thanks to legacy systems and processes.

Like Islamic banks, they must improve how they work before improving anything else. Nowhere is this more evident than debt collection and recovery. Legacy practices and tech plague debt collection departments. Faulty logic and tools leave revenue on the table, but this is correctable with today's latest technology.

To grow, both retail banks and Islamic banks must invest in tools that improve processes. That includes document management tools, communications platforms and business intelligence tools.

2. Your Customers Are More Complex Than Ever

Despite product differences, customers served by Islamic and retail banks have much in common.

Both used to be in control. The branch was the only engagement point with consumers. The entire customer relationship used to be simpler. That's no longer the case.

Today's consumer uses more channels than ever to communicate. These include web, mobile and social media. They carry more than one product or debt obligation. They expect to engage with banks when and where they prefer on any platform they deem best.

Islamic banks will enter new markets where this behavior is the norm. Retail banks must understand these new behaviors also come standard with new markets. They must also realize their existing markets have changed, too.

Customers have changed. To serve them, retail banks must make their services available across offline and online channels.

3. Better Manage Risk

Islamic banks don't view risk the same way retail banks do. They eschew speculative products and prefer more solid assets. In short, Islamic banks know how to manage risk. Retail banks need to follow their lead.

Retail banks already follow Basel and national regulations, but better risk management is about more than compliance. It's about building a more sustainable business with better insight into risk.

This requires intelligent tools that provide a real-time picture of portfolio risk. In the past, retail banks understood the obligations on their books. Capital controls and complex risk relationships have changed that. A complete view of risk is no longer a luxury, but a necessity

More revenue, better collections. Download the guide: http://collections.exus.co.uk/collections-and-recovery-best-practices-manual

Image Credit: GotCredit

Tags: Islamic Banking