The term “Islamic Banking” is defined as the conduct of banking activities in accordance with Islamic teachings. Islamic banking is considered an ethical banking system where a customer (individual or corporate) isn’t just a customer but is a partner with the bank. Banks in the conventional banking system earn their money by charging interest and fees for their services while banks in the Islamic banking system earn their money by profit and loss sharing. To say that Islamic banks are different from conventional banks because the former don’t charge interest is accurate, but it’s only the tip of the iceberg.
Islamic banking is unique in the way that it helps individuals and businesses build tangible assets and also encourages the spirit of entrepreneurship amongst its customers. According to Ernst and Young (2016), the nine core markets for Islamic banking the Bahrain, Qatar, Indonesia, Saudi Arabia, Malaysia, the United Arab Emirates, Turkey, Kuwait and Pakistan. From the beginning, general consumers’ preferences toward Islamic Banks were slow but with time, it is increasing and still growing. In Tanzania, a very small percentage of the public are conducting their banking transactions in Islamic Banking. Many factors are contributing to the acceptance and adoption of Islamic Banking. In this article, I will share some of the factors that are contributing to people adopting Islamic banking;
- Knowledge/Awareness –Awareness and knowledge of products and services are significant influential factors in the adoption of Islamic banking. Unfortunately, most mass consumers are unaware of the specific Islamic financial products. Different studies have identified inadequate information about Islamic banking products and services as one of the major factors affecting the desirable rate of Islamic Banking adoption in many countries. Because of that, most people find it hard to differentiate between Islamic and traditional banking models. As a result, some consumers believe that Islamic banking is the same as traditional banking, just with a different name. They argue that the profit rate used under the Islamic banking model is simply a substitute for the interest rate under the conventional/traditional banking model. This misunderstanding may prevent the adoption of Islamic Banking in a community. This is where I believe the government through its several institutions assist the financial institutions to raise awareness about Islamic banking. If the public understands the difference between Islamic banking and conventional banking and understands how Islamic Banking works, the rate of adoption of Islamic Banking within our community will improve drastically.
- Religion — Even though other factors motivate customers to adopt Islamic banking, most Islamic Banking customers have adopted it due to religious reasons. Since Islamic banks are built according to Islamic law, the majority of Islamic banks are relying on religion as a strategy to recruit customers. Nonetheless, Islamic banks should not rely solely on the religious factor as a strategy to attract more customers but should channel their energy and efforts into offering excellent customer service experiences and attractive products that will make them competitive in the market. Also, Islamic banks should not consider that their business is just to fulfil the religious obligations of the Muslim customers but to fulfil the needs of all other non-Muslim customers.
- Branding and Reputation — A good brand and reputation is an important aspect for any bank to sustain or increase its market position while building long-lasting relationships with customers. One of the most important choice criteria to choose a bank for many consumers is the reputation of the bank. If a bank wants to create and maintain a good reputation and strengthen its brand, it has to ensure it provides excellent customer service. Banks that offer Islamic Banking need to do the same to attract more customers hence increasing the adoption level of Islamic banking.
To conclude, it is obvious that there is a general lack of knowledge/awareness of Islamic banking in our society. Thus, there is a need for informative and effective campaigns about Islamic Banking to reach the masses. Also, I shared that since Islamic banks are built according to Islamic laws, therefore, they should use that familiarity to recruit more customers. Nonetheless, it is worth noting that Islamic banks should consider the demand, preferences and behaviour of their target customers to survive in the competitive market. Islamic banks must develop and implement a marketing campaign that promotes and increases the awareness of their products and services. Lastly, the adoption of Islamic Banking needs a hand from the government. The Government's participation and intervention in providing necessary arrangements for legislation and legal framework are critical for the growth and development of Islamic banking in Tanzania.
Written by Kelvin Mkwawa, MBA
Email address: Kelvin.firstname.lastname@example.org
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