When many people think of Islamic banking, they picture an outdated system of finance unsuited to the modern era and tarnished by accusations of terrorist funding. This image, that is far from the truth, is not the result of a clash of cultures but merely a lack of communication about a sector that has the vast potential to provide tailor-made and modern solutions in an increasingly customer-oriented world.
Islamic banking has long been overshadowed by conventional banking and finance and deemed a second-rate way of managing funds that merely caters to one segment of the population, who wish to fully observe their Muslim religion. Such a downplayed image, however, hides the fact that Islamic banks have a vast ability to serve customers and meet many of their needs that remain unanswered by other financial institutions. Yet, before Islamic banks can take on these challenges they must work to change the image that has been created by a defensive approach to communication.
So far, Islamic banks have engaged in little communication with the general public, save to defend their reputation that his been under attack in the controversy surrounding the funding of terrorist groups in the Middle East. In fact, many of these defensive messages have even been initiated by other parties than the financial institutions themselves, which shows how these banks have yet to be proactive when it comes to their own communication.
When Islamic banks have engaged in communication efforts, these most often have failed to highlight to the general public their systems’ benefits and the added value they offer versus conventional banking, focusing instead on promoting the bank with Muslim investors on the assumption that they are already familiar with the sector.
As such, many investors are left in the dark about what Islamic banking can offer them, and the majority considers that this area of investment is closed to non-Muslims or would not be beneficial to them. At most, audiences have come to view the sector as an acceptable alternative to conventional finance, rather than a competing one.
This inefficient communication has led to the misperceptions that Islamic banking systems are archaic, lack a proven track record and are unprofitable, at best, and engaging in controversial or even terrorist activities at worst.
Ironically, banking clients today realize traditional banking has numerous drawbacks, including being profit-driven, which places clients in the backseat to the overall interests of the financial institution itself. The subprime formula is the perfect example of this, given its risky method of making profit at the expense of other lenders and those who were subject to predatory interest rates but could never really afford to pay back their large loans and mortgages.
However, global and regional banks are outshining the existing flaws of the traditional banking sector through communicating what they can do for their clients. Giants such as Bank of America demonstrate their commitment to local communities by attracting Hispanic households and maintaining them through their contributions to Hispanic neighborhoods. Citibank educates student borrowers about loan repayment and credit in order to build their trust and confidence in the brand, while their slogan “Let’s Get It Done” inspires an image of the bank and client working together towards mutual goals. Credit card ads around the world, including ones for HSBC’s card, promise customers to deliver an easy and convenient way for them to shop and travel, highlighting services that are worry-free. As such, conventional banks have succeeded at allowing customers to forget about the problems brought about by their banking system and focus solely on its advantages.
Islamic banks should take a page out of this book and shed some light on the obvious advantages they have to offer a variety of stakeholders, positioning itself according to four pillars: its social and ethical dimension, its modern alternative to conventional banking, its profitable new way of managing finances, and its universality and inclusiveness.
By adopting a positioning that reflects all of its beneficial aspects, Islamic banks will be able to communicate to their stakeholders the fact that they offer a social and ethical alternative to investment that promotes the modern values of transparency, inclusiveness and equal opportunities for corporate or personal development. Moreover, they must clarify that their concept of profit-and-loss sharing as a basis of financial transactions is a progressive one as it distinguishes between good and mediocre performance and encourages better resource management, and that Islamic bankers, keeping pace with sophisticated techniques and latest developments have evolved value-added investment instruments that are not only profitable but are also ethically motivated.
Communicating this modern approach to finance that keeps pace not only with profit, but also the needs and betterment of the community, will surely touch a cord with everyone from the Muslim community to individual entrepreneurs and institutional investors, who can relate to these benefits that go beyond religion to be in line with a universal and inclusive vision of society. These powerful messages have even greater potential given the large geographic coverage and demographic distribution of Muslim and other investors and the vast pool of untapped consumers across the world. As such, Islamic banks should seek to clearly target investors and institutions outside of their traditional target audience of the Muslim community, allowing them to grow and develop, becoming a first choice rather than a compromise.
Ramsay G. Najjar is chairman of S2C
