By Mezbah Uddin Ahmed*
Complexity of Islamic finance services was one of the issues discussed during an Islamic finance event organised by Islamic Financial Services Board (IFSB) on 1 May 2019. The event was attended by market players from around the world.
It has already been four decades since the inception of modern day commercial Islamic banking. Yet one of the primary issues faced by the industry is the lack of understanding about Islamic banking concepts and confusing it with its conventional counterparty. Sometimes even the Islamic bank employees add to the confusion by poor selection of words or misstatements. This particularly is true in the markets where Islamic finance is new or the ecosystem is not well developed. For instance, not long before a friend from Bangladesh asked me whether taking a “loan” from a well-reputed Islamic bank would be Shariah compliant. He was concerned that any charge over a “loan” amount would be interest (riba), which is clearly prohibited in Shariah. He wondered in dismay how an Islamic bank could ask for more than the “loan” amount! At first, I thought my friend did not understand the Islamic mode of “financing” as explained by the Islamic bank staff and confused it with the conventional mode. However, in answer to my questions, he claimed it was the staff of that Islamic bank who referred to the “financing” as a “loan” during the whole time of the discussion. The staff also had not explained the technicalities of the contract. My friend needed financing to buy a car. As an Islamic finance enthusiast, I had to explain to my friend that the Islamic bank will not give him a “loan”. It will do “financing” based on a rental (ijarah) contract.
Islamic bank “financings” can be referred to as “investments”. However, calling that a “loan” gives an entirely different meaning. The behaviour of that staff is understandable. Unlike conventional banking, Islamic banking contracts are not straightforward. They require explanation; hence, the time of the staff. The human factors are also relevant here. Not everyone is good at explaining to others. A long queue in front of the staff may also deter giving an elaborate explanation. The staff may also not be well versed in all the technicalities of the Islamic banking contracts. These factors may have contributed to providing a straightforward conventional-like response to my friend’s query, without realising the gravity of it.
The principal argument for the establishment of Islamic banks is to provide Shariah-compliant solutions to banking customers. If an Islamic bank appears to have deviated from the fundamental Shariah principles in its acts or words, then the justification of its existence will be questioned. Portraying an Islamic deposit or financing as merely a conventional one raises a concern about its Shariah compliance and damages the reputation of the Islamic banking industry.
The Islamic banks currently provide a brief explanation of their products on their websites. For a layman, these are not easily understandable. Also, in this digital age, the masses are more receptive to visuals than texts. In addressing this, the Islamic banks may develop short animated videos and infographics explaining their products and the underlying contracts. The critical issues and frequently asked questions (FAQs) of the customers can be addressed in these videos and infographics. Considering the need of the masses and positioning the industry at the international level, the language can be both in local language and English. The Islamic banks can upload these materials on their websites, display them in their branches, and upload in different online platforms (e.g. YouTube, Facebook, etc.). This will reduce pressure on the Islamic bank staff in answering the FAQs. Thus, the staff will be more able to provide customised support to the customers (e.g., addressing a customer’s specific queries) and to build a better relationship with them. This will also reduce the risk of an Islamic bank employee providing a wrong or misleading response, which entails reputational risk. The added benefit of this can be a free advertisement for the Islamic bank. If the quality of the videos and infographics is good, the customers are likely to circulate them to others.
Another area that needs attention is the Shariah audit, which must be strengthened. The audit must be able to identify whether the staff has given any information to a customer that negates the spirit of Islamic banking. The purpose of the audit should not be to penalise the staff unless there is deliberate negligence. The purpose should be to identify the areas of weaknesses and propose strategies for improvement to the management. The audit can be by observing the staff when dealing with customers and/or by mystery shopping.
Proper training should be provided to Islamic bank staffs. In fact, they deserve more training than conventional bank staffs due to the demands of their service. The details on the amount spent and the number of staffs trained in a year can be included in the annual report of the Islamic banks. This will work as an indicator of the Islamic bank’s commitment to growing not only in terms of quantity but also in terms of service quality.
Regular educational and awareness programs can be conducted in different parts of the country. The universities as centres of knowledge can be associated with these programs. The aim of these programs will be to overcome misconceptions and to educate people about Islamic banking products and the underlying Shariah contracts. A more aware customer base will require Islamic banks to provide improved service. These programs will also contribute to greater financial inclusion. The details of the number of such events conducted in a year, the number of participants, and the amount spent can also be provided in the annual reports.
*The writer is a Researcher at International Shari’ah Research Academy for Islamic Finance (ISRA). He can be contacted at email@example.com.