The challenge of communicating the growing world of Islamic Finance
Against a backdrop where most of the world’s traditional financial system has been in crisis, a different form of banking – Islamic Finance - has been growing fast. It’s a specialist area where Madano had developed a strong communications expertise.
Even allowing for its own liquidity issues, capacity constraints and standards debates, there has been a drastic growth in Islamic Finance over the past four decades. Largely driven by the increase in the number of practicing Muslims (estimated to be a quarter of the world’s population) or those seeking ethical banking solutions (Shariah principles forbid supporting industries such as pornography, weapons or alcohol), in 2008, the Islamic finance industry reached a new high of $639 billion, representing 0.7% of the global $900,000 billion financial industry.
Despite all this progress, challenges remain. Surprisingly, one of its largest is marketing communications. Put simply, billions of people have grown used to conventional financial models and so require a great deal of convincing and help to evaluate a different option.
The principles of Shariah forbid interest and uncertainty, while preferring shared outcomes between a bank and its customers. For people used to comparing interest rates and the established processes, it is difficult to recalibrate to a new way of doing things.
Another of the big differences between Islamic finance and conventional finance is an explicit versus an implicit trust. In traditional banking, there has always been an implied trust between an institution and the customer, represented by images of strength, scale and the number of customers. In Islamic finance, trust is explicit, declared by both the institution and the customers as the role played by the institution is that of an impartial facilitator of financial services. Therefore, trust in a Shariah-compliant institution is paramount for it to achieve its objectives, facilitate the lifestyles of consumers and to serve the greater needs of society.
Even in the wholesale markets, there remain many confusions and misconceptions. This is in no small part due to the fact that Islamic banks have to allow for extra processes over the usual banking models. They still have to originate, manage risk and liquidity, hold or exit loans, but they also need to use a Shariah committee to approve transactions.
So, despite often having clean capital and extremely sound systems, educating and convincing individuals or companies are no simple tasks. It starts by making sure people are aware of their options and then requires consistent, clear communications to build understanding and favourability.
Fortunately, the evidence suggests that results are worth the effort, especially as we are all now more aware of the importance, risks and benefits of good banking services.
Madano now works with a number of Islamic financial organisations and advisors. We would like to thank our clients Gatehouse Bank plc and WW Advisors, as well as Joe DiVanna of Maris Strategies for furthering our understanding of Islamic Finance.
For more information, please speak to Adam Wurf or Bethany Watson.
