Profits attract UK, Singapore non-Muslims to Shariah-compliant banks, Malaysia leads with ‘Islamic First’ policy

We spoke to the biggest retail Islamic banks in UK, Singapore and Malaysia. 55 percent of all UK's Al Rayan’s new customers since 2014 and 90 percent of its fixed-term deposit customers last year were non-Muslim. "Close to half” and almost two-thirds of Maybank Islamic's “affluent" customers are non-Muslim.

After dropping “Islamic” from its name, Britain’s only retail Shariah-compliant bank discovered that non-Muslims would soon form the majority of its new customers. Its table-topping savings rates may have something to do with it, too.

In 2014, fresh from its takeover by Qatar’s biggest Islamic bank, Masraf Al Rayan, the Islamic Bank of Britain (IBB) became Al Rayan to align it more closely with its parent, it said. At the same time, CEO Sultan Choudhury also talked about re-branding.

“We have to look at branding—sometimes the positioning as an Islamic bank can work against us,” Choudhury told Reuters at the time. "After the takeover we want to look at how we present the bank to customers. We have to consider how to position the brand to be all-inclusive.”

At the time IBB was acquired by Masraf Al Rayan, the bank had not once in its ten years turned a profit. The acquisition, which swept in changes including new products and enhancing digital offerings, finally pushed it into the black with profit of 1.2 million British pounds ($1.57 million) for 2014.

In the four years since then, 55 percent of all Al Rayan’s new customers are not Muslim, and neither were 90 percent of all fixed-term deposit customers last year. It is now one of the fastest-growing banks in Britain, with assets rising 26 percent to 1.81 billion pounds ($2.38 billion) in 2017. In the same year it earned 9.45 million pounds ($12.44 million) in profit before tax.

“It’s always been within our remit to reach further and be much more broadly appealing as a bank to do that,” Simon Walker, head of retail sales at Al Rayan, told Salaam Gateway.

Beyond the name change, the bank reckons new customers are attracted by the nature of Shariah-compliant banking, especially as public esteem towards conventional finance remains shaky a decade after the global financial crisis.

“Many bigger banks—the traditional high street banks—have been damaged since what happened since 2008,” said Walker. “We see ourselves as an ethical, responsible Shariah finance provider. We attract customers who are particularly interested in the ethical side of banking and looking for an ethical place to put their savings.”

Perhaps profit plays a big role, too, for Al Rayan has table-topping savings rates.

On January 31 the bank increased its expected profit rate on its 12-month fixed-term deposit from 2.10 percent to 2.15 percent, lifting it to the top of the tables on comparison site Moneyfacts Best Buy.

“With regard to the non-Muslim market, we are on the Best Buy tables, which seems to work very effectively for us,” said Walker. 

The 12-month fixed-term deposit account joins the bank’s 18-month, 24-month and 36-month deposits to head at the comparison site’s tables, which currently offer EPRs of between 2.30 percent and 2.50 percent—2.52 percent if reinvested.

“We have an online presence and a contact centre presence but it’s probably the appearance in the Best Buy tables that is grabbing a lot of the attention of non-Muslim customers. That’s one of the reasons why non-Muslims are attracted to Al Rayan to get a very good profit return on their investments,” said Walker.

While the British bank’s approach is singly Shariah-compliant, Southeast Asia’s leading Islamic bank by assets has taken advantage of “windows” that enable its conventional bank to also provide Islamic services.

‘ISLAMIC FIRST’, MAYBANK ‘CLOSE TO HALF’ NON-MUSLIM

Maybank, Malaysia’s biggest high street bank, has been offering Islamic accounts since 1993, when the government there announced banks could operate under both conventional and Islamic principles. Under these “Islamic windows”, customers can open Shariah-compliant accounts at banks where they are offered.

Maybank Islamic markets Shariah-compliant accounts ahead of conventional ones to some new customers under a strategy to boost its Islamic assets. 

“The business strategy in Malaysia and selected other jurisdictions is overlaid by an Islamic-inspired agenda, or ‘Islamic First’,” Nor Shahrizan Sulaiman, deputy head of Mabank Group’s Islamic banking and deputy CEO for Maybank Islamic, told Salaam Gateway.

“Eight years on, the Islamic First policy has translated into significant growth and market share for Maybank Islamic Berhad,” he added.

Maybank holds around 30 percent market share of Malaysia’s Islamic banking assets. For 2017, the Group’s Islamic banking business earned 2.75 billion Malaysian ringgit ($0.67 billion) in profit before tax. This accounted for around 27 percent of Group profit, according to Salaam Gateway calculation.

Though the bank will not reveal its precise ratio of non-Muslim customers to Muslims, and the rate of growth in this regard, it would say that “close to half” are not Muslim, and almost two-thirds of its “affluent customers” fall into this category.

Other banks and industry groups canvassed by Salaam Gateway were equally cagey about revealing their customer demographics by religion. 

CONVENTIONAL, ISLAMIC ALMOST IDENTICAL

Maybank’s conventional and Islamic products are almost identical.

“Through Maybank Islamic, products and services are created to be on par with, or more competitive than, those offered in the conventional space in terms of their profitability and accessibility features,” Nor Shahrizan said.

Ceteris paribus, with Maybank’s “Islamic First” approach, a new customer, Muslim or otherwise, will likely emerge from a branch with an Islamic account and take out Shariah-compliant financing down the line.

CUSTOMER PERCEPTION

Several studies have looked at why non-Muslims choose Islamic banking in Malaysia.

Rather than religion, perceived good customer service is the biggest attraction, said one of the most recent, by Universiti Utara Malaysia, which cautioned the need for visitors to be given more information about the Islamic banking system.

“Non-Muslims will consider founding a banking relationship with any Islamic bank if they have sufficient information on banking operations,” it said.

“Customer perception and satisfaction can be considered as the key [factor] for overall performance.”

ISLAMIC PROFIT-DRIVEN IN SINGAPORE

In Singapore, where the Muslim population is in the minority similar to the UK, Maybank’s operation is almost identical to its Malaysian parent, though it doesn’t operate targets for Islamic growth.

According to Amirah binti Husni Zai, manager of Maybank Islamic Singapore, it is decided either at branch level or centrally if the focus will be to sell more Islamic accounts.

“In KL, they are pushing Islamic deposits and financing products to the masses. We don’t keep targets [for Maybank Islamic in Singapore]. It’s up to the branch or the customer whether they’re okay with Islamic banking,” Amirah told Salaam Gateway.

“How we push Islamic depends on our internal strategy, whether certain branches are encouraged centrally to push.”

Like with Al Rayan in the UK, the commercial factor attracts the customer. Most customers specifying an Islamic account will do so when profit rates are more attractive, said Amirah.

“It’s not so much that they are attracted to the Shariah compliancy of such accounts, it’s the commercial aspects—the rate is slightly different. In Singapore we have the concept of upfront profit accounts, where you get your profit up-front if you take a term deposit.

Those sort of features are what attract customers to Islamic accounts, rather than any Islamic aspects of it,” said Amirah.

(Reporting by Richard Whitehead; Editing by Emmy Abdul Alim emmy.alim@refinitiv.com)

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