Marketing Islamic Financial Products Essay

This no doubt, reflects a shift in focus from product development to other dimensions of marketing. But the approach to marketing remains largely tactical, rather that strategic. While organizations, to some extent, are performing various marketing functions, such as, promotion and advertising marketing as a business philosophy is conspicuous by its near-total absence in this industry. In this study, we attempt to derive insights from valuable empirical evidence from a host of research studies, which might be to relevance for the serious marketer.

We also seek to highlight cases of specific marketing strategies tried in the industry – other successful and otherwise, the lessons from empirical research as well as from the case example should help address many issues concerning strategic marketing of Islamic financial services, around which much confusion prevails. ISLAMIC FINANCE AND BANKING The basis of Islamic Finance that it forbids usury termed as riba (which is the lending of money at high rates) but it doesn’t stop just there.

The concept is more accurately that money has no true value – it is only a measure of value, and since money has no value itself, there should be no charge for its use. Therefore, Islamic Finance is said to be asset based as opposed to currency based whereby an investment is structured on exchange or ownership of assets, and money is simply the payment mechanism to effect the transaction. The basic framework of an Islamic Financial System is based on elements of Shariah, which governs Islamic societies.

Shariah, the law of Islam, originates from two principal sources: the Quran, the Holy Book of the Muslims and its practices; and the Sunnah, the way of life prescribed as normative in Islam, based on the teachings and practices of Prophet Muhammad (pbuh). Islamic finance involves structuring financial instruments and financial transactions to satisfy traditional Muslim objection against the payment of interest and against engaging in gambling. It is a field of growing importance for conservative Muslims, especially in the Middle East, who are uncomfortable with Western-style bonds and banking that involve explicit payments of interest.

The Islamic Banking System is an important component of Islamic finance, Islamic banking’ is banking or banking activity that is consistent with the principles of sharia law and its practical application through the development of Islamic economics. Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees (known as riba, or usury) for loans of money. Investing in businesses that provide goods or services considered contrary to Islamic principles is also haram (“sinful and prohibited”).

Although these principals have been applied in varying degrees by historical Islamic economies due to lack of Islamic practice, only in the late 20th century were a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community. For more than a quarter century, Islamic banking and finance has been developing from an idea and an expression of Muslims’ distinct identity to a mature and fast-growing industry. With the latest global financial crisis, Islamic banking and finance became one of the most debated issues around the world.

Because all that is different in their shape and reaction is attractive, Islamic banks have been analyzed since the onset of the crisis in order to identify their characteristics, sources of resilience, weaknesses, potentials and opportunities for growth. THEROTICAL BACKGROUND EVOLUTION OF ISLAMIC FINANCE As mentioned, the basis of Islamic Finance is from the Shariah, so the concepts of Islamic Finance have been around since the origination of Islam itself. The practices of what we see today have been used throughout the last 1500 odd years across the modern Muslim world and beyond.

The modern Islamic finance really originated in the 1960s, escalating with the petro dollar boom of the 1970s when in 1975, the Islamic Development Bank was formed to promote acceptable financial practices according to Islam. While many banks originating in the Middle East strictly follow these principles, many also follow Western practices of finance, with a number following both practices to cater for both markets. Interestingly, many of the internationals larger banks (with HSBC, UBS and Citigroup as notable examples) all have Islamic banking arms, both in the Middle East and the West. PRINCIPLES OF ISLAMIC FINANCE

The principles of Islamic Finance include: * The prohibition or taking or receiving interest at exorbitant rates (Riba), but this does not preclude a rate of return on investment which is agreed up front by both parties contracting. In most cases, the references to interest rates by Islamic financial institutions are to help benchmark the return on investment to offer transparency. This does not imply interest is being used in the transaction. * Risk in any transaction must be shared between at least two parties so that the provider of capital and the entrepreneur share the business risk in return for a share in profit. The prohibition of speculative behaviour (Gharar), meaning that gambling (Maysir) and extreme uncertainty or risk is prohibited and thus contractual obligations and disclosure of information are a sacred duty. * Investments that violate the rules of Shariah, advised against by Shariah boards, and are generally non-ethical meaning that investment in businesses related to alcohol, pork related products, conventional financial services, entertainment (gambling and casinos, pornography, weapons and defense. POTENTIAL OF ISLAMIC FINANCE AND ISLAMIC BANK

The Islamic Finance Industry has immense potential of growth even though there is sluggish development of economy across the globe. These views were expressed by Managing Director at Monetary Authority of Singapore, Ravi Menon, while addressing a two-day event of the “World Islamic Banking Conference: Asia Summit” in the beginning of this week in Singapore which was attended by several banking experts around the world. He happens to be a top banker in Singapore and believes in that there is a lot of potential in Islamic Finance system but, he said, the sector will achieve this potential only if it can overcome its fragmented state.

He admitted that the last five years have witnessed tremendous resilience by the Islamic finance system and other economic systems, on the other hand, have been wobbling and still trying to be normalized. The Islamic Finance industry has grown by about 20 per cent per annum in this period to reach $1. 3 trillion in total assets last year. However, Menon said, the overall size of Islamic assets is still less than 1 per cent of the global financial system. Consumers have fewer products choices in Islamic finance and there is also a low comprehensive risk management options for Islamic financial institutions.

Menon pointed out that there are constraints in cross-border investment flows due to different interpretations of what is permissible (Halal) or Impermissible (Haram) under Shariah principles. He observed, “The isolated pools of Islamic liquidity in each market restrict opportunities for more efficient allocation of capital across consumers, industries and jurisdictions. ” He suggested that Islamic financial institutions must strike roots in the major financial centers of the world to resolve this problem.

He stated in his address, “The broad and deep investor pools in international financial centers offer an opportunity to channel non-traditional sources of funds into Islamic finance. ” “In Singapore, for instance, several local and foreign issuers have successfully tapped the capital markets using Islamic instruments,” he added. He said that investors from Asia and Europe have been demanding increasingly for such products and many of them are simply attracted by the credit quality and yields offered.

He mentioned that there are opportunities for interaction and collaboration with other players in that international financial centre. Menon stated, “With its strict prohibition on excessive leverage, Islamic finance has been spared the worst of the financial crisis. ” He continued, “Islamic banks are well positioned to reach out to new customers who are in need of financing, as many global institutions pull back on their lending due to the need to repair their balance sheets. ” Islamic finance is also well placed to meet the increased “return-to-basics” investor demand, he said. Islamic finance, with its stronger emphasis on transparency, price certainty and risk-sharing, can benefit from this renewed demand for more basic investments, from Muslim and non-Muslim investors alike,” Menon concluded. ISLAMIC BANKS AND CONVENTIONAL BANKS One must refrain from making a direct comparison between Islamic banking and conventional banking. This is because they are extremely different in many ways. The key difference is that Islamic Banking is based on Shariah foundation.

Thus, all dealing, transaction, business approach, product feature, investment focus, responsibility are derived from the Shariah law, which lead to the significant difference in many part of the operations with as of the conventional. The foundation of Islamic bank is based on the Islamic faith and must stay within the limits of Islamic Law or the Shariah in all of its actions and deeds. The original meaning of the Arabic word Shariah is ‘the way to the source of life’ and is now used to refer to legal system in keeping with the code of behaviour called for by the Holly Qur’an (Koran).

Amongst the governing principles of an Islamic bank are : * The absence of interest-based (riba) transactions; * The avoidance of economic activities involving oppression (zulm) * The avoidance of economic activities involving speculation (gharar); * The introduction of an Islamic tax, zakat; * The discouragement of the production of goods and services which contradict the Islamic value (haram) On the other hand, conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank on one hand, and between the borrowers and the bank on the other.

Interest is considered to be the price of credit, reflecting the opportunity cost of money. PRODUCTS OF ISLAMIC FINANCE AND BANKS Islamic ? nancial systems are based on ? ve major tenets founded on the shari’a bans and commandments . They are the prohibition of riba, pro? t and loss sharing, the absence of gharar (speculation and gambling-like transactions), disallowing the derivation of money on money, and the avoidance of haram (forbidden) activities. These have been examined in earlier chapters. Financial products based on these principles have been developed to acilitate everyday banking activities by providing halal (shari’a-compliant) methods of lending or borrowing money and still o? ering some acceptable returns for investors. Listed below are some popular Islamic ? nancial products being marketed worldwide by Islamic banks and ? nancial institutions. * MURABAHA (Cost-plus financing) Murabaha (trade with mark-up cost) is one of the most widely used instruments for short term ? nancing and accounts for nearly 75 per cent of Islamic ? nancial products marketed worldwide. Referring to ‘cost-plus sale ’, murabaha is the sale of a commodity at a price that includes a set pro? of which both the vendor (marketer) and the consumer are aware. * IJARA (Leasing) Ijara (leasing) permits the client to purchase assets for subsequent leasing for a certain period of time and at a mutually agreed upon amount of rent, and represents approximately 10 per cent of Islamic ? nancial products marketed worldwide. * MUDARABA (Partnership Financing) Mudaraba or trust ? nancing is a contract conducted between two parties, a capital owner (rabb al-mal) and an investment manager (mudarib), and is similar to an investment fund. Marketing of Islamic ? nancial products 119The rabb al-mal (bene? ial owner or sleeping partner) lends money to the mudarib (managing trustee or labour partner), who then has to return the money to the rabb al-mal in the form of principal with pro? ts shared in a pre-agreed ratio. * MUSHARAKA (Equity Participation) Musharaka literally means sharing derived from shirkah. Shirkat-ul-milk means a joint ownership of two or more persons of a particular property through inheritance or joint purchase, and shirkat-ul-aqd means a partnership established through a contract. Musharaka is basically a joint contract by which all the partners share the pro? or loss of the joint venture, which resembles mudaraba, except that the provider of capital or ? nancier takes equity stakes in the venture along with the entrepreneur. * MUQARADA (Bonds) Muqarada allows a bank to issue Islamic bonds to ? nance a speci? c project. Investors who buy muqarada bonds take a share of the pro? ts generated by the project as well as assuming the risks of losses. * SALAM (FUTURE) Salam literally means ‘futures’. A buyer pays in advance for a designated quantity and quality of a certain commodity to be delivered at a certain agreed date and price.

It is limited to fungible commodities and is mostly used for the purpose of agricultural products by providing needed capital prior to delivery. Generally, Islamic banks use a salam contract to buy a commodity and pay the supplier in advance for it, specifying the chosen date for delivery. The bank then sells this commodity to a third party on a salam or instalment basis. With two salam contracts, the second should entail delivery of the same quantity and description as the ? rst contract and is concluded after the ? rst contract * ISTISNAA

Istinaa is the solution for manufacture of goods since speculation prevents the selling of something that one does not yet own. With a promise to produce a specific product that can be made under certain agreed specifications at a determined price and on a fixed date, an Istinaa contract is established. Specifically, in this case, the risk taken is by a bank that would commission the manufacture and sell it on to a customer at a reasonable profit for undertaking this risk. * SUKUK (Bond Issue): This essentially amounts to commercial paper that provides the subscribers with ownership in the underlying assets.

MARKET STRATEGY MARKET SEGMENTATION The effectiveness of strategic marketing depends very much on proper segmentation of the market, targeting and positioning of the financial product This obviously depends upon a proper under-standing of the market and the factors that influence the buying behavior of individuals as discussed above The process begins with the identification and profiling of different market segments, followed by the selection of particular target markets and finally the positioning of the offering in the mind of the customers to communicate the benefits the customer is seeking.

Theoretically, market segmentation is the process of dividing a market into a distinct group of individuals, who, along with organizations, share one or more similar responses to some elements of the marketing mix. Accordingly, the segmentation process requires that the total market be divided into homogeneous segments, selecting the target segments, and creating separate marketing programs to meet the needs and wants of these selected segments.

A range of bases for effective market segmentation have been discussed by researchers Kotler has identified the following criteria measurability – there must be some way of measuring the size and purchasing power of the segment(s); accessibility – the firm must be able to reach the segment(s); substantiality – the segment(s) should be economically viable; and action ability – the degree to which effective marketing programs can he designed and implemented to attract and serve the sentiment(s) A few other properties, such as, uniqueness, in terms of the segment’ s response to marketing, stimuli and the stability of the segment over time have also been discussed in segmentation literature Consumers’ segmentation for the Islamic banking industry based on the segmentation of people in the Quran and the segmentation of traders in kasb (earnings) literature.

Based on the state of the soul, a threefold categorization of human personality can be found in the Quran, namely: ammarah (coarse and crude, thoughtless and ill-mannered); lawwamah (self -reproaching) and mutma’innah (the highest level of personality, who is thoughtful, kind, polite and tender-hearted). Kasb literature divides traders into three distinct groups, known as the benevolent-ethical group (wealth is praiseworthy if and only if the wealth is used as a means for seeking salvation in the other world (al-Ahirah)); the rational-moral group (wealth is good in itself and praised for its own sake) and the repugnant-amoral group (trade is an excellent means for the acquisition of wealth). Following these classifications, they subsequently propose a threefold categorization of Islamic finance consumers as given below: 1.

A group that is strongly guided by religious dictates, labelled as the ‘religious conviction group’; 2. A group that may not be particularly aware or careful of religious dictates but consciously tries to uphold moral values, identified as the ‘ethical observant group’; and, 3. The last group, which is indifferent to both religious and moral dictates and is intent on deciding matters solely from the perspective of personal financial gain (or economic rationalism), is described as the ‘economic rationality group’. In the above segmentation, the bases/groups appear to reveal that consumers are making purchase decisions based on the ascribed values, namely, religious, ethical and economic.

Values constitute the deepest level of culture and are the most difficult to change. In Islam, akhlaq (moral and values) provide a framework that shapes the moral and ethical behaviour of Muslims in the conduct of all aspects of their lives and are expected to have a significant impact on the behaviour of Muslims. Strategic marketing approaches Besides using the regular marketing tools employed by conventional banks, Islamic banks have also developed their own marketing strategies to attract their target client. Some of these strategies are discussed next. Focus on believers The main niche for Islamic banks is target adherents to Islamic faith. They appeal to Muslim consumers’ basic capital needs.

Islamic banks have been able to introduce a variety of financial products that are compliant with shariah, while at the same time offering alternatives to conventional interest-based lending. Shariah supervision A Shariah Supervisory Board (SSB) guides shariah compliance on behalf of the clients. The SSB is made up of distinguished Islamic legal scholars who assume responsibility for auditing shariah compliance of a bank, including its marketing strategies, thereby functioning as a customer advocate representing the religious interest of investors. Special attributes of Islamic banks Hegazy (1995) investigated bank selection criteria for both Islamic and conventional banks, and concluded that the selection attributes for Islamic banks are different from conventional banks.

For example, the most important factor used by Muslim consumers seeking Islamic financial products was the advice and recommendations made by relatives and friends. Convenience of location, friendliness of the personnel, and the bank’s vision of serving the Islamic community regardless of the expected profitability were also found to play important roles in the decision-making processes of individual and business clients. Identifying such features allows Islamic banks and institutions to develop appropriate marketing strategies to ensure high levels of customer satisfaction and retention by striving to develop appropriate marketing strategies. Competing with conventional banks

Marketing of Islamic financial products is faced with various types of competitive pressures from conventional banks. In this environment, Islamic banks have to formulate and implement successful marketing strategies in which a key ingredient is a clear understanding of the behaviour, attitudes and perceptions of their clients. This is achieved through identifying behavioural profiles encompassing banking habits, selection criteria used by target markets, risk-tolerance levels, awareness, preferences and usage patterns of various Islamic bank products. Also Islamic banks offer many of the conventional banking services such as ATM machines, and credit cards to their clients at competitive prices. Conveying trust and piety

Among the more important attractions Islamic banks aim to portray are the characteristic traits of trust and piety. As Islamic-based institutions, the banks foster a God-abiding, trustworthy and pious image, that is well recognized and appreciated by religious consumers, offering a sense of reassurance that their investments are lawful (halal). Conveying credibility and experience Like conventional banks, Islamic banks aim to convince customers of their investment experience. An inexperienced customer, seeking a way to invest his/her savings, strongly appreciates evidence of credibility and past investment performance. In this way, the perhaps daunting task of investing is made easier and within reach.

Complementing regular banks Islamic banks’ marketing strategy can be complementary to that of conventional banks. Services not offered by Islamic banks may be acquired from regular conventional banks while maintaining a sense of religious peace and trust by continuing the relationship with the Islamic banks. Besides using the regular marketing tools employed by conventional banks, Islamic banks have also developed their own marketing strategies to attract their target client. Some of these strategies are discussed next. Focus on believers The main niche for Islamic banks is target adherents to Islamic faith. They appeal to Muslim consumers’ basic capital needs.

Islamic banks have been able to introduce a variety of financial products that are compliant with shariah, while at the same time offering alternatives to conventional interest-based lending. Shariah supervision A Shariah Supervisory Board (SSB) guides shariah compliance on behalf of the clients. The SSB is made up of distinguished Islamic legal scholars who assume responsibility for auditing shariah compliance of a bank, including its marketing strategies, thereby functioning as a customer advocate representing the religious interest of investors. Special attributes of Islamic banks Hegazy (1995) investigated bank selection criteria for both Islamic and conventional banks, and concluded that the selection attributes for Islamic banks are different from conventional banks.

For example, the most important factor used by Muslim consumers seeking Islamic financial products was the advice and recommendations made by relatives and friends. Convenience of location, friendliness of the personnel, and the bank’s vision of serving the Islamic community regardless of the expected profitability were also found to play important roles in the decision-making processes of individual and business clients. Identifying such features allows Islamic banks and institutions to develop appropriate marketing strategies to ensure high levels of customer satisfaction and retention by striving to develop appropriate marketing strategies. Competing with conventional banks

Marketing of Islamic financial products is faced with various types of competitive pressures from conventional banks. In this environment, Islamic banks have to formulate and implement successful marketing strategies in which a key ingredient is a clear understanding of the behaviour, attitudes and perceptions of their clients. This is achieved through identifying behavioural profiles encompassing banking habits, selection criteria used by target markets, risk-tolerance levels, awareness, preferences and usage patterns of various Islamic bank products. Also Islamic banks offer many of the conventional banking services such as ATM machines, and credit cards to their clients at competitive prices.

Conveying trust and piety Among the more important attractions Islamic banks aim to portray are the characteristic traits of trust and piety. As Islamic-based institutions, the banks foster a God-abiding, trustworthy and pious image, that is well recognized and appreciated by religious consumers, offering a sense of reassurance that their investments are lawful (halal). Conveying credibility and experience Like conventional banks, Islamic banks aim to convince customers of their investment experience. An inexperienced customer, seeking a way to invest his/her savings, strongly appreciates evidence of credibility and past investment performance.

In this way, the perhaps daunting task of investing is made easier and within reach. Complementing regular banks Islamic banks’ marketing strategy can be complementary to that of conventional banks. Services not offered by Islamic banks may be acquired from regular conventional banks while maintaining a sense of religious peace and trust by continuing the relationship with the Islamic banks. .TARGET GROUP Islamic finance and banks generally target the following segments: younger generation, female consumers, educated consumers, wealthy consumers, and non-Muslims consumers. Each of these segments requires different marketing strategies, and a certain percentage of annual revenue should be set aside to cover them.

Most Islamic banks devote insufficient funds for marketing in comparison with the millions of dollars invested by conventional banks to promote an image. The idea of an Islamic bank, as seen today, was non-existent not so many years ago and there are still many questions among customers, Muslims and non -Muslims alike. The target market for this product mentioned below; * Muslims * Non-Muslims POSITIONING/BRANDING OF PRODUCT The development of a brands position in the market by heightening customer perception of the brands superiority over other brands of a similar nature. Product positioning relies on the identification of a real strength or value that has a clear advantage over the nearest competitor and is easily communicated to the consumer.

What comes in Product positioning * Entry products * Complementary products * Star products * Product Packaging * Product Bundling Branding is often considered an important element of positioning, since it provides a clear identity to the product in a market place in which organizational boundaries are becoming increasingly blurred. Branding as a process helps build a link between the product and the consumer such that the product is seen by the consumer as having the ability to meet both its functional as well as psychological needs. Successful branding conveys useful information about quality, ensures product differentiation and customer loyalty.

Considering the importance of religion and culture in the market for Islamic financial services, and given that image and reputation of the organization are significant patronage factors for their customers (as highlighted in the survey finding), an Islamic identity for the product would be crucial for its success in the market place. Accordingly, many Islamic banks and financial institutions have sought to use branding for the purpose Marketing challenges Islamic banks share the same marketing challenges faced by regular (conventional) banks. However, they also have their own challenges that are related to their business line and constraints. Some of these challenges are discussed next. Competition from conventional banks

The biggest challenge to Islamic banks, most less than three decades old, is to compete with a well-developed and mature conventional banking industry evolving over the past many centuries. They need to know how to market their products successfully. While there are areas where Islamic and conventional banks pursue similar marketing strategies, there are also areas where Islamic banks pursue different strategies. Many individual and business consumers wish to have a guaranteed return on their investments and would thus have recourse to conventional banks based on zero-default interest payment, a factor that does not have a corresponding substitute in Islamic banks. Dealing with non-Islamic financial institutions

Islamic banks often operate in a business environment where laws, institutions, attitudes, rules, regulations and norms serve an economy based on interest. They are faced with the problem of investing short-term deposits and paying returns on them to depositors, while conventional banks have no constraint, dealing with overnight or short-term deposits as well as charging interest on overdrafts. Delineating an appropriate target market is a prerequisite for the successful execution of marketing strategies by Islamic financial institutions. Maintaining competitive profits Low profit ratios could hurt Islamic banks as they rely solely on the profit and loss sharing (PLS) principle to market their financial products.

PLS is a form of partnership, whereby owners and investors serve as business partners by sharing profits and losses on the basis of their capital share, labour and managerial expertise invested. There can be no guaranteed rate of return in such a case, although some investments (such as mark-up) provide more stable returns than others (such as mudaraba). The justification for the PLS financier’s share in profit is their efforts and the risks undertaken, making it legitimate in Islamic shari’a. Supervision and transparency Islamic institutions need to have some kind of regulatory supervision in day-to-day operations in order to protect their depositors and clients. Because of the differences in their nature and operations, Islamic banks require more strict supervision of the firms’ operations after the disbursement of funds.

Banks’ supervision, scrutiny and examination, and sometimes participatory management in the conduct of firms’ operations, are important components of the Islamic financial marketing system set in place, because of the greater risks that the Islamic banks shoulder. In most countries there are no coherent standards of Islamic marketing regulations, and the lack of uniformity in accounting principles and shari’a guidelines makes it difficult for central bankers to regulate such an industry. Thanks to the new standards adopted, such as auditing rules in Bahrain, new international standards are now applied by all Islamic banks, enhancing their transparency significantly. Regulatory hurdles Because Islamic banking operates on a risk-sharing basis, it may not be necessary to have the same obligation as conventional banks to carry certain levels of capital.

However, some regulators take the view that, since Islamic banks are conducting new and unexplored financial pursuits with illiquid assets, they should perhaps have a greater safety margin than conventional banks. In these cases an additional burden is placed on Islamic banks. Need for adequate human resources Marketing success hinges on having a highly-qualified and trained marketing team. Many problems in Islamic banks arise because of insufficient training of their marketing personnel Greater professionalism and competence instituted by proper training programmes are key ingredients for forging successful relationships with clients. Developing new products Islamic banks must strive to provide specific products tailored to satisfy different segments of individual and business consumers.

They can do so by employing strategies ranging from re-engineering products to focusing on some specific services, vis-a-vis conventional banks, which is seen as one of the biggest challenges to a broader acceptance of new Islamic financial products. Developing successful marketing strategies Success in marketing relies on the information retrieved from complete and up-to-date consumer profiles. The availability of such a database is needed for making plausible and effective decisions regarding the marketing of Islamic financial products. Moreover, Islamic financial institutions need recourse to periodic customer surveys to investigate whether clients are aware of new products and to ascertain how many of those products are being used on a regular basis and what benefits are sought by consumers.

Islamic institutions ought to pursue integrated promotion strategies that allow consumers to have adequate information about various products offered that, if properly carried out, will speed up the consumers’ learning about various Islamic products and attract new potential segments. Specific promotional and educational activities may need to be undertaken to increase the level of customer awareness and to narrow the gap in customer usage of these products caused by lack of proper awareness Balancing profit and development Islamic banks have presented themselves as providers of capital for entrepreneurs and business adventurers. In fact, most of their products (for example, murabaha, mudaraba, musharaka, salam and istisnaa) are investment banking-type products.

To the disappointment of many Muslim consumers, most of the banks have focused on consumers’ loans and mortgages using variations of the above-named products rather than financing new ventures and capital expansion projects. Islamic banks argue that they were pressured to perform to offer a viable alternative to conventional banks during the formative years of their operations. Hence they focused on short-term lending rather than supporting long-term profit sharing activities. Now that these banks are more stable and mature, there is a the potential for them to carry out their intended responsibilities to fund longer-term projects. Promoting new client profiles

Islamic banks generally target the following segments: younger generation, female consumers, educated consumers, wealthy consumers, and non-Muslim consumers. Each of these segments requires different marketing strategies, and a certain percentage of annual revenue should be set aside to cover them. Most Islamic banks devote insufficient funds for marketing in comparison with the millions of dollars invested by conventional banks to promote an image. The idea of an Islamic bank, as seen today, was non-existent not so many years ago and there are still many questions among customers, Muslims and non- Muslims alike. Industrial marketing: business to business marketing

A large contribution to Islamic banking’s increasing global success may have been made by major global multinationals (MNCs), operating throughout the Muslim world, which have begun to turn to Islamic financial products as an alternative source of funding for everything from trade finance to equipment leasing. Examples include IBM, General Motors and Xerox, which have raised money through a US-based Islamic Leasing Fund set up by the United Bank of Kuwait, while international oil giants such as Enron and Shell have used Islamic banks to finance their global operations across the Arab Gulf region and Malaysia. Islamic financial institutions are marketing their products across 15 major non-Muslim countries, encompassing the US, Canada, Switzerland, the UK, Denmark and Australia.

Although Islamic financial institutions employ classical marketing tools encompassing the four Ps of marketing-mix (product, price, promotion and place/distribution), their marketing strategies employ different orientations. This is due to the unique attributes of Islamic financial products, on one hand, and the distinctive psychographic (lifestyle and personality) profiles of its consumer market, on the other, as reflected in consumers’ religious belief structures influencing their behavioural attitudes and dispositions. For instance, these institutions avoid using sexy models in their promotional campaigns while promoting their products. Many do not aggressively market their Islamic products, but rather depend largely on word of mouth for promotion and distribution of flyers among attendees of mosques, Islamic educational institutions and Islamic centres.

Similarly, Citibank does not necessarily employ an aggressive promotional campaign for the successful execution of its marketing strategy, but rather relies on its globally renowned brand for generating awareness among its consumer and business segments. The Five Ps of the Marketing-Mix from the Islamic Perspective In defining Islamic Marketing ethics, Saeed, Ahmad and Mukhtar, (2001) state that Islamic marketing ethics based on the principles of justice and equity in Islam differs from secular ethics in many ways. They discussed the three characteristics of market ethics from the Islamic perspective. Firstly, Islamic ethics are based on Qur’ anic commandments and leave no room for ambiguous interpretation by marketing executives to suit their individual whims and desires.

Secondly, the main difference is their transcendental aspect of absoluteness and non-malleable nature. Thirdly, the Islamic approach emphasizes value-maximization in view of the greater good of the society rather than the selfish pursuit of profit maximization. Such properties grant Islamic ethics a tremendous capacity to penetrate human conscience and are capable of influencing the behavior of marketing executives from within. Banking or commercial activity from an Islamic perspective is governed by two principles: (i) submission to the moral order of God and (ii) Empathy and mercy to God’s creations which implies refraining from doing harm to others and thus preventing the spread of unethical practices.

In this section, an attempt is made to analyze the five Ps of marketing ethics within the context of ‘marketing’ as determined by Islamic ethics. The five Ps are: product, price, promotion, place and people. Product/ Production Process The development of Islamic banking products should be visualized quite differently as compared to Western thinking. The Islamic perspective incorporates moral and transcendental elements within the production decision-making process in product development and is guided by the principles of Islamic business ethics. These principles dictate, as Ibn al-Ukhuwwah (1938) remarked, that firstly, the product should be lawful and not to cause dullness of mind in any form. Secondly, the product must be asset backed.

Thirdly, the product must be deliverable since the sale of a product is not valid if it cannot be delivered. Fourthly, there is a need of identification of extra cost-added features that might materially change the product or impact on the buyer’s purchase decisions. Fifthly, all parties intend to discharge their obligations, financial and otherwise, in good faith; and should be based on principle of the justice, fairness and equity. Under the Islamic approach, the production process has to be guided by the criteria of the value and the impact of the product upon the whole society. This is due to the highest importance given to the actualization of the optimum welfare of a human being and society.

The primary objective of the development of suitable banking product is to deliver, elevate and satisfy basic human needs. Product Pricing Pricing policies are, in the main, formulated to exploit and manipulate human psychology as witnessed by common practice whereby the recommended retail price printed on a product is often substantially higher than what retailers actually charge. The aim of such pricing policies is to give customers a false impression that they are in fact getting a bargain. This type of practice is banned under Islamic law. Islam prohibits getting something too easily without hard labor, or receiving a profit without working for it.

Furthermore, it is not allowed to change a price without altering the quality or quantity of the product because this is cheating the easy-going customer for illicit gain (Ibn Taymiyah, 1982). Islam also prohibits false propaganda or publicity on the part of marketers regarding the position of demand and supply through the media. It should be pointed out that Islam does not prohibit price controls and manipulations to meet the needs of the market. It means that the Islamic ethics allows some time in which to charge higher prices as a result of natural scarcity of supply of a given commodity or setting price ceilings to curb opportunistic tendencies among merchants. Islamically, self-operating mechanism of price adjustments and healthy competition are to be encouraged (al-Qur’an, 83:26).

However, the essential conditions for the successful operation of such a mechanism dictate that there should be no corner market, no hoarding, no unjustified price manipulation, and no restriction on trade. The hoarding of any product is strictly prohibited in Islam. But the system offers flexibility if competing marketers sell at one price amounts to coercion and distortion of the free market or if it means very high product prices. Product Promotion There is no room in Islam to justify any cover up of deceptive promotional behaviour. Al-Qur’an condemns all forms and shapes of false assertion, unfounded accusation, concoction and false testimony (al- Qur’an, 43:19).

In terms of Islamic marketing ethics, it is unethical for the salesman or customer relation advisor (CRA) to over-praise his products and attribute to them qualities which they do not possess (Ibn al-Ukhuwwah, 1938). Furthermore, giving a false impression of any kind to promote or sell a product is strictly prohibited within the Islamic ethical framework of international marketing practices. Therefore, in the area of product promotions, Islamic marketing ethics will follow the following rules: (i) Avoidance of false and misleading advertising; (ii) Rejection of high pressure manipulations, or misleading sales tactics; (iii) Avoidance of sales promotions that use deception or manipulation. According to Islamic ethics, a seller is a person who feels accountable to God.

He should be honest and fair in his marketing activities. Only true documents which reveal accurate specifications in terms of quality, contents, etc. will exchange hands. To practice otherwise constitutes disgraceful, dishonorable and shameful gain through pandering, deceit, treachery, theft or injustice. According to Islamic principles, marketers are required to “disclose all faults in their goods, whether obvious or hidden; to do otherwise is to act… fraudulently” (Ibn al-Ukhuwwah, 1938:42). It is obligatory for the seller to reveal all known defects which cannot be seen “on the surface” and cannot be found out by the “cursory glance” to the purchaser.

In Islamic ethics, promotional techniques must not use sexual appeal, emotional appeal, fear appeal, false testimonies and pseudo research appeal, or contribute to the dullness of the mind or encourage extravagance. Within the Islamic framework, these methods are unethical since they are utilized purely to exploit the basic instinct of consumers worldwide with a view to gain profits and greater market share. Furthermore, Islamic ethics strictly prohibits stereotyping of women in advertising, and excessive use of fantasy. The use of suggestive language and behaviour, and the use of women as objects to lure and attract customers are also not allowed. Place: Distribution Channels

The ethical dimensions of decision-making pertaining to distribution are of great significance in the area of marketing. Physical distribution can be viewed as an integrated collection of information, people, equipment, and organization. In respect of distribution of product, therefore, Islamic financial institutions will follow the following principles: (i) Not manipulating the availability of a product for purpose of exploitation; (ii) Not using coercion in the marketing channel; (iii) Not exerting undue influence over the re-sellers choice to handle a product. It is not surprising to note that decisions made on the profit maximization principle are not necessarily the most appropriate for a society’s welfare.

Other cases of unethical practices in distribution include the usage of packaging designs without adequate security and protection for the product, inappropriate packaging, and dangerous and toxic products transported through public highways. From an Islamic perspective, such treatment of customers is unforgivable and equates to unjust marketing practices. People Islam emphasises the importance of “free” and “independent judgment” on the part of the customer. The ability to think rationally while making any decision relating to global marketing activities is a pre requisite in Islamic law. The society at large should not be deprived of honest, free from coercion marketing information.

A customer’s right to acquire such information is his right and is indicative of the status given to him by Islam, as well as of the ingrained rights of his wealth which he spends in purchasing products and services. It is the responsibility of the marketers not to resort to any form of coercion and they must, under all circumstances, have a regard for the intellectual integrity and a higher degree of consciousness of the consumers to ensure that the hard earned money of customers is not wasted. It follows therefore, that whenever some coercive force is applied for the purposes of concluding a global marketing deal, the fundamental and vital condition of mutual consent remains unfulfilled and the resultant transaction is unethical and unlawful.

According to Islamic principles, sexual appeal, emotional appeal, fear appeal, subliminal advertising and pseudoscientific claims all have elements of coercion which cause them to be categorized as unethical as a means of marketing. An ethically sound marketing-mix, therefore, dictates that customers’ decision decision-making freedom must be protected from all elements of coercion. Tips in Marketing Islamic Banking Products M –To MOTIVATE the interest to participate A – Do ACQUIRE on what customers’ want R – Do RESEARCH on the progress and development K – Build up KNOWLEDGE in various products E – Be EFFECTIVE in handling customers’ objections T – Apply TRADING concepts in promoting financing products I – Apply INVESTMENT concepts in promoting depository products N – NEVER give up in promoting G – GOAL is an achievement in marketing The Do’s & Don’ts DO offer Islamic Banking products as alternative to Conventional Banking Products * DO convince that Islamic Banking products are different than Conventional Banking in terms of operational concepts and payment of dividend * DO explain that the depository products are based on profits sharing and in the past they have been paying attractive returns * DO inform that the financing products are trading and renting of assets at a fixed installment throughout the tenure * DO explain clearly the attractive benefits of Islamic Banking products * DON’T intimidate the non-Muslims by saying “This is Islamic banking products” * DON’T try to explain too much on the concept used * DON’T say “We cannot promise any profit for Wadiah Account” instead, rephrase to “Based on last month’s profit, we have paid…………% p. a. ”