Key advantages of banking with Islamic banks

By Peter Bokma

Why one should be banking with Islamic banks, and not just conventional banks, is a question which always comes to the customers’ mind. Each bank has its own unique features, whether Islamic or conventional, with a number of benefits on each side of the fence.

A major factor influencing the customer’s selection criteria is the profit sharing features that Islamic banks offer on certain deposit types, whilst conventional banks purely focus on deposits that reflect market rates. These banks follow central bank-directed interest rates, and partially desired time bucketing approaches, i.e. balance sheet management that may prompt them to offer special rates on time deposits. In general, Islamic banks follow the profit-sharing model for deposits, which creates a direct link between customers and the banks’ performance. Islamic banks do not only offer this in the form of customer deposits, but also on some lending products with risk-sharing characteristics, adding possible benefits to the pricing mechanism.

The customer experience is as important to Islamic banks as to conventional banks. However, the focus lie strongly on Islamic principles, whereby the customer experiences a sense of care from the rules that the Shariah principles impose, which goes beyond just business ethics.

Islamic banks, since its early days, have been embarking on innovation throughout the world, bringing in a message of solid products offering, which have been proven to be effective and, most importantly, providing customer satisfaction. The customer feels being part of the organisation, offering a sense of belonging.

The financial crisis of last decade showed that Islamic banks have been far more stable than its conventional counterparts, mainly due to the conservative nature and underlying Shariah principles, ensuring safety for its customers. The sense of responsibility carried by Islamic Banks weigh heavily on the decision making process and this translates into prudent management of its activities. It is especially a significant feature from the customer’s perspective when it comes to deciding where to put your trust.

The daily activities of Islamic banks can be described as customer-care focused, with stringent internal measures and the decision making processes based on Shariah principles, which means transactions will have further strength beyond the regulatory principles that all banks fall under. 

In general, one can state that Islamic banks are very liquid, i.e. they are mainly net lenders in the financial markets. These activities are also guided by the Shariah principles, and hence any execution must be preceded by Shariah-approved legal agreements, besides the normal assessment that banks make with regards execution of interbank activities with counterparts.

It is expected that Islamic banks’ growth will be exponential in the coming decades and these banks will provide a message of strength and willingness to adapt wherever is required, in an ever-changing environment. All types of customers are welcomed by Islamic Banks and they can expect increasing innovation and, at the same time, secure banking opportunities.