* Islamic banks' growth slows after rapid expansion
* So they aim to go after foreign, non-Muslim customers
* But they face perception problem in service quality
* Removing "Islam" from name is a way to address this
* Helps banks to navigate restrictions in Turkey, Algeria
By Bernardo Vizcaino
July 2 Islamic banking is based on core
principles of the religion. So it is striking that some banks
are removing the word "Islam" from their names - a sign of both
the potential of Islamic finance to grow, and the obstacles to
it becoming mainstream.
In January, Dubai-based Noor Islamic Bank changed its name
to Noor Bank. Abu Dhabi Islamic Bank (ADIB), the
emirate's largest sharia-compliant lender, now plans to call
itself Abu Dhabi International Bank when operating abroad.
In both cases, the changes are part of the banks' plans to
expand. They aim to move well beyond a relatively small group of
customers who stress religious permissibility, to a much larger
customer base for whom pricing and service quality are key.
This approach could help Islamic banks establish themselves
globally, not just in the Muslim-majority regions of the Gulf
and southeast Asia, and appeal to larger numbers of non-Muslims
as well as Muslims.
But the banks feel that to broaden their appeal and compete
directly with conventional institutions for customers, they need
to play down their Islamic nature among the general public.
"Rebranding is an essential part of widening the appeal of
the industry, whether we call it ethical, alternative or
sustainable finance," said Yerlan Baidaulet, a member of the
board of executive directors at the Saudi Arabia-based Islamic
Development Bank, a multilateral institution.
"Our mindset has to be global, we have to think wider in
terms of customer appeal. Why monopolise the concept and keep
calling it only Islamic?"
Islamic banks, which follow principles such as bans on
interest payments and pure monetary speculation, have been
growing rapidly in the Gulf and southeast Asia for a decade. In
the six-country Gulf Cooperation Council they now account for
about a quarter of total banking assets.
In the past couple of years growth has slowed in some
countries, however, as the banks have largely run out of new
customers who are willing to base their choices primarily on an
institution's Islamic credentials.
In Qatar, for instance, asset growth rates of Islamic banks
have dropped to just above those of their conventional peers,
cutting a large lead which the industry previously held. Islamic
banking assets in Qatar grew 12.2 percent in 2013, down from
35.1 percent in 2011, central bank data shows.
So to continue expanding, the banks have two options. One is
to compete for the mass of consumers - by some estimates, 60 or
70 percent of the population even in a mainly Muslim country -
who base their choice of bank on non-religious factors.
ADIB is in the process of acquiring a large number of such
customers; in April it said it had agreed to buy the United Arab
Emirates retail banking operations of Barclays for an
expected price of 650 million dirhams ($177 million).
The Abu Dhabi bank is now trying to persuade roughly 110,000
former Barclays customers to stay with ADIB rather than moving
to conventional banks. This involves competing directly on
non-religious aspects of its service.
The other growth option for Islamic banks is to move into
new markets in Asia, Europe or Africa, in countries which have
Muslim minorities but where establishing a profitable presence
will require attracting large numbers of non-Muslims.
The banks have no intention of changing the sharia-compliant
nature of their products. But removing the word "Islam" from
their names is a way of avoiding any perception that Islamic
banks focus on religious issues while neglecting aspects such as
quality of service.
Islamic Bank of Britain (IBB), which was acquired in January
by Qatar's largest Islamic bank Masraf Al Rayan, is
studying whether to rebrand itself to appeal to a wider customer
base, said IBB chief executive Sultan Choudhury.
"We have to look at branding - sometimes the positioning as
an Islamic bank can work against us," he said. "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
IBB, based in Birmingham, offered a savings account
promotion last year for which it estimated 55 percent of
applications were from non-Muslims. It had similar success in
marketing products in Scotland by avoiding any of the Arabic
terminology often used to describe Islamic financial products,
"Ultimately the contracts are sharia-compliant...but this
helps in consumer understanding."
Tirad Mahmoud, ADIB's chief executive, said Islamic banks
had an advantage over conventional banks in being able to stress
the moral foundations of their business - a consideration which
has become more important since banking abuses fuelled the
global financial crisis.
For example, Islamic banks reject much of the complex
financial engineering used by conventional banks. Returns on
Islamic bank accounts are based on investment income rather than
on interest payments.
"The real competitive advantage that Islamic banks have is
that they are ethically constructed. We need to promote this.
The denomination doesn't matter," Mahmoud said.
ADIB says a survey which it commissioned found 1,000 retail
customers in the UAE, Egypt, Turkey, Indonesia and Britain
believed a lack of ethical principles was the biggest problem in
their banking relationships.
However, the survey also showed that while Islamic banks
were perceived as treating customers more fairly than
conventional institutions, they were seen as lacking best
industry practices and failing to deliver a simple banking
experience. Rebranding can help to change that.
Name changes can also help Islamic banks expand in markets
where regulation limits their branding options: ADIB has plans
to enter Turkey, Algeria and Saudi Arabia, all of which restrict
the use of religious terms, Mahmoud said.
In Turkey, for example, Islamic banks describe themselves as
"participation banks" to comply with staunchly secular
"In respect of awareness of participation banks, there has
not been any problem. Everybody knows they are Islamic banks and
operate according to Islamic banking principles," said Osman
Nihat Yilmaz, deputy secretary general of the Participation
Banks' Association of Turkey.
"Less religiously-linked branding could be useful for the
industry if it wants to attract non-Muslim clients."
ADIB'S Mahmoud rejected the idea that removing the word
"Islam" from banks' names was in any way compromising their
Islamic nature. Instead, he said, it could put the focus where
it should be: on the quality of banks' services.
"Some Islamic banks are unfairly using their Islamic label
in Muslim communities. It is an emotional label that is very
powerful in these communities, but are we leveraging on
(Editing by Andrew Torchia and Peter Graff)