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 In January, Dubai-based Noor Islamic Bank changed its name to Noor
Bank. Abu Dhabi Islamic Bank, 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 monopolize the concept and keep calling it only
Islamic?"
GROWTH
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 <BARC.L> 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, 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 all-inclusive."
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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, Choudhury said.
"Ultimately the contracts are sharia-compliant...but this helps in
consumer understanding."
ETHICAL
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 fueled 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 legislation.
"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 emotions?"
(Editing by Andrew Torchia and Peter Graff)
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