Survey of Global Islamic Finance

  • July 2012
  • -
  • Timetric
  • -
  • 74 pages

Synopsis

Although the Shariah-compliant retail financial services industry is still in the early stages of development in many markets, there are some lessons and best practice issues emerging in the industry. This report looks at the likely trends within this market and assesses the future potential for growth in mortgage finance, credit cards and wealth management.

Summary

Islamic banking has witnessed significant growth since it was formally launched and has since been boosted by the repatriation of Middle Eastern funds and economic development in that region. Given the favourable demographic trends within core markets, growth is set to continue. In addition, major international financial services firms have launched Shariah-compliant businesses; The UK, US and Singapore all witnessed the establishment of independent Shariah-compliant financial institutions; and regulators of major Islamic banking markets agreed on regulatory standards governing Islamic banking activities. As the re-structuring of global financial services continues, and previously well established financial players attempt to re-position themselves with core audiences, many are arguing that Islamic banking practices have shielded institutions and their customers from the consequences of the credit crunch. As a result, shariah models have gained favour with non Muslim customers looking for an alternative financial model with a prominent moral foundation. At the same time industry observers feel that the continued expansion of product lines has the potential to blur the lines between Islamic and other ‘more mainstream’ types of finance.

Scope

- This report provides an extensive analysis of the global Islamic finance market
- It details historical values for the Islamic finance market
- The report provides a detailed analysis on key trends and drivers, marketing strategies, and challenges in the global Islamic finance market
- It details the marketing strategies adopted by various banks
- It profiles the major banks operating in the Islamic finance sector

Reasons To Buy

- Understand Islamic finance
- Gain insight on the principles governing financial and business activities in Islam
- Identify the growth drivers in the Islamic consumer finance and retail banking industry
- Assess the competitive dynamics of the Islamic finance industry

Key Highlights
- Islamic finance Assets-Under-Management (AUM) grew at 18.8% per annum during the period 2006-2011.
- Iran alone accounts for around a 37% share of Islamic finance assets.
- Unlike conventional products in mature markets, where there is a lot of competition, Shariah-compliant products have a ready market due to significant customer demand.
- Customers of Shariah-compliant products tend to have a more favourable risk profile compared to customers of conventional consumer finance products.
- Although Shariah-compliant vehicle financing is structured differently by institution and country, one of the major issues being faced by financial institutions is the lack of customer understanding of the unique features of these Shariah-compliant products.

Table Of Contents


1 Executive Summary
2 Introduction to Islamic Retail Banking and Consumer Finance
2.1 What is Islamic finance?
2.1.1 Islamic Shariah and its sources
2.1.2 Principles governing financial and business activities in Islam
2.2 Developing Shariah-compliant products
2.3 Techniques used in Islamic banking and finance
2.4 The Shariah approval process
2.5 Dedicated board of Shariah scholars
2.5.1 Board of Shariah scholars at government level
2.5.2 External Shariah audit or certification
2.6 Approaches towards Shariah compliance in the Middle East
2.6.1 The Middle East
2.7 Growth drivers in the Islamic consumer finance and retail banking industry
2.8 Marketing potential
2.8.1 Shariah-compliant products as a customer acquisition tool
2.8.2 Opportunities to open up new market segments
2.8.3 Greater profitability of Islamic consumer finance customers
2.8.4 Low product penetration
2.8.5 Favourable cost structures
2.8.6 Low customer acquisition costs
2.8.7 Low development costs
2.8.8 Profitability of Islamic products
2.8.9 Greater prominence of the industry
2.8.10 Acceptance by conservative customers
2.8.11 Greater transparency and customer advocacy
2.8.12 The adapting role of Islamic financial institutions
2.8.13 Sizing up the Islamic finance market
3 Shariah-compliant retail finance products
3.1 Islamic mortgages
3.1.1 Overview
3.1.2 Murabahah-based products
3.1.3 Ijarah (leasing) plus diminishing equity based contracts
3.1.4 Musharakah-based contracts
3.2 Risk management issues
3.2.1 Default risk
3.2.2 Insurance risk
3.2.3 Image risk
4 Islamic motor financing
4.1 Overview
4.2 Major requirements for Shariah compliance
4.3 Various models of financing
4.3.1 Ijarah-based financing
4.3.2 Murabahah-based financing
4.3.3 Bai Bithaman Ajil-based model
4.3.4 Diminishing Musharakah-based model
4.4 The competitive landscape
4.5 Key growth drivers
4.6 Challenges facing Shariah-compliant vehicle financing
4.7 Market dynamics
4.7.1 The Middle East
4.7.2 Bahrain
4.7.3 Kuwait
4.7.4 UAE
4.7.5 Qatar
4.8 Southeast Asia
4.8.1 Malaysia
4.9 Bank Muamalat Malaysia
4.9.1 Products and services
4.9.2 Indonesia
4.1 South Asia
4.10.1 Pakistan
4.11 Islamic personal loans
4.11.1 Overview
4.11.2 Tawarruq-based model
4.11.3 Leasing-based model
4.11.4 Murabahah-based model
4.11.5 BBA-based model
4.12 Key growth drivers
4.13 Challenges
4.14 Market dynamics
4.14.1 The Middle East
4.14.2 Bahrain
4.14.3 Qatar
4.15 Southeast Asia
4.15.1 Malaysia
4.16 Case study
4.17 Bank Rakyat Malaysia
4.17.1 Product features
4.18 Personal financing products
4.18.1 Financial performance
5 Islamic Credit Cards
5.1 Overview
5.2 Types of Islamic credit cards
5.2.1 Fixed fee on card subscription
5.2.2 Fixed fee on revolving facility
5.2.3 Fixed mark-up on credit limit
5.2.4 Variable mark-up on revolving balance
5.2.5 Fixed mark-up on point-of-sale transactions
5.3 Key growth drivers
5.4 Challenges
5.5 Case study
5.6 Bank Islam Card-i - Bank Islam Malaysia
5.6.1 Fees and charges applicable on Bank Islam Card-i
5.7 Malaysia
5.8 An overview of the Malaysian cards and payment market
5.8.1 Islamic financial services
5.8.2 Malaysia - drivers of growth
5.9 Prepaid initiatives
5.9.1 Islamic cards
5.9.2 Younger cardholders
5.1 Challenges - merchant acceptance
5.10.1 Card fraud
5.10.2 Payments regulation
5.11 Indonesia
5.11.1 Overview of the Indonesian cards and payment market
5.11.2 Mobile banking opportunities in Indonesia
6 Shariah-compliant insurance products
6.1 Takaful-based Shariah-compliant insurance
6.1.1 Key features
6.2 Insurance models
6.2.1 Non-profit model
6.2.2 Mudharabah-based model
6.2.3 Wakalah-based model
6.3 Growth drivers
6.4 Issues and challenges
7 Key considerations in Islamic financial services
7.1 Challenges in manufacturing and marketing Islamic consumer banking products
7.1.1 Areas of concern for conventional banks
7.1.2 Issues faced by Islamic banks
7.1.3 Sustainable growth paradigm for Islamic Finance - a challenging macro environment
7.1.4 Key considerations in rolling out Islamic retail finance products
7.1.5 Success factors in the launch of Islamic retail finance products
8 Case Studies
8.1 Bank Islam Malaysia - a fully fledged Islamic bank
8.1.1 Products and services
8.1.2 Focus on retail segment
8.1.3 Customer response
8.1.4 Marketing strategy
8.1.5 Deployment of information technology
8.2 LaRiba - niche player in the OECD
8.2.1 Products and services
8.2.2 Performance and profitability
8.2.3 Customer response
8.3 Dubai Islamic Bank
8.3.1 Shariah compliance process
8.3.2 Performance
8.4 Takaful Tawuni - Bank Aljazira, Saudi Arabia
8.4.1 Products and services
8.4.2 Product development
8.4.3 Sales process and environmental factors
8.4.4 Customer response
9 Wealth management: Islamic market
9.1 The Middle East
9.1.1 Changing social attitudes
9.1.2 Analysis of services for HNWI, mass affluent and wealth management
9.1.3 Investor behaviour and asset preferences in the Middle East
10 Malaysia
10.1 The wealth market and Islamic finance
10.1.1 Asset allocation and investments of Malaysian High-Net-Worths
10.1.2 Assets under management


List of Tables

Table 1: Major principles of Islamic banking and finance
Table 2: Financing arrangements in Islamic consumer finance
Table 3: Islamic finance AUM
Table 4: Global snapshot of Islamic finance
Table 5: Comparison of key features and advantages of various models of Shariah-compliant mortgages
Table 6: Car finance - profit basis and status of banks in difference financing models
Table 7: Islamic Auto Financer and Its Captives
Table 8: Charges applicable on Bank Islam Card-i
Table 9: Change in marketing strategy


List of Figures

Figure 1: Shariah compliance process in Islamic banking
Figure 2: Islamic finance AUMs - Top 10 countries (USD billion, 2011)
Figure 3: Contracts and concepts commonly used in contemporary Islamic finance
Figure 4: Muamalat Malaysia - Financing Composition 2006-2011
Figure 5: Bank Muamalat Consumer banking: Auto financing trend
Figure 6: Personal financing trend
Figure 7: Personal financing composition in 2011
Figure 8: Bank Rakyat Malaysia, Profit before Tax and Zakat (MYR million)
Figure 9: Bank Rakyat Malaysia, Financing and advances (MYR million)
Figure 10: Tawarruq concept
Figure 11: Indonesian Mobile Operator Subscriber Forecast to 2015'
Figure 12: Branch network
Figure 13: Bank Islam presence in cyberspace
Figure 14: Bank Islam - promotion campaign
Figure 15: Self service terminals (ATM, CDM andETC)
Figure 16: Evidence of short time horizons among Middle East investors
Figure 17: Preferred asset classes in the Middle East
Figure 18: Middle East - changes in time horizons and risk appetite
Figure 19: Malaysian HNWI asset allocation, 2009-10
Figure 20: Comparison of Malaysian HNWI asset allocation in luxury investments, 2009-2010
Figure 21: Distribution of assets in Malaysia (by asset class)

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