Offering better rates key to Islamic banking growth



A new study released by Dr. John Ireland, Associate Professor at the Rochester Institute of Technology Dubai, suggests that 68 per cent of Muslim customers in the UAE are prepared to shift loyalty from Islamic banks to conventional banks to obtain better rates.
A new study released by Dr. John Ireland, Associate Professor of Marketing at the Rochester Institute of Technology Dubai, has found that whilst Muslim Islamic banking consumers in the UAE have a strong preference towards Islamic banks and products, 68 per cent are prepared to shift loyalty to conventional banking options if a two per cent better rate is offered. The study also revealed that 44 per cent of customers would choose conventional banking offers if the rate increased by just one per cent.
Commenting on the study, researcher Dr. John Ireland said, “Previous research and conventional wisdom would suggest that Muslim customers of Islamic banks are not willing to trade off the benefits of Shari’ah compliance for better rates. However, our research revealed that many Islamic banking customers were willing to switch to conventional products to avoid the high costs associated with Islamic banking. Whilst it is key that the Islamic finance sector continues to remain focused on service, image, religious obligations and location, they must also be aware of price if they wish to achieve a greater market share.
This research goes some way to explaining why Islamic banks in the UAE hold only 19 per cent of banking assets even though 76 per cent of residents and all citizens are Muslim, according to the UAE census of 2015. However, it’s not all doom and gloom for the Islamic Finance sector: the study also showed that 32 per cent of Islamic banking consumers would remain loyal to Shari’ah products and banks even at a two per cent disadvantage.”
The research surveyed 300 current UAE Islamic banking customers. It is the first study to quantify the loyalty of Islamic banking customers in terms of price and demonstrate the existence of price sensitivity tiers. The study used choice-based conjoint analysis and a market simulation to analyse customer preferences for Islamic and conventional investment, savings and car finance products offered by Islamic and conventional banks.
The research is set to be published by the International Journal of Bank Marketing this fall.—Agencies