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ISLAMIC BANKING INDEX BY EMIRATES ISLAMIC™ 2016

Jamal Bin Ghalaita CEO, Emirates Islamic

Introduction

Islamic banking is today a central pillar of the global financial industry. Around the world, despite economic headwinds, the demand for Shari’a-compliant banking continues to expand at a rate unmatched in other financial sectors.

The UAE is at the forefront of this growth, with Dubai as the gateway to the global Islamic economy, in line with the vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, and a primary architect of its success. We, at Emirates Islamic, are proud to have played a leading and formative role in this narrative, both by driving and meeting demand, and by delivering innovative, customer-centric banking solutions.

The ISLAMIC BANKING INDEX by EMIRATES ISLAMIC™ was launched in 2015 as the key, standardized measure of Islamic banking progress within the UAE. Now in its second year, the index offers unmatched insight into the opinions and intentions of UAE consumers towards Shari’a-compliant banking; serving both as a benchmark indicator of the health of the industry, and of Dubai’s role as the global capital of Islamic finance.

This year, the report reveals that there is much cause for optimism. Demand for Islamic banking in the UAE is increasing, with more consumers opting for Shari’a-compliant products. Efforts by Islamic banks to bolster their consumer outreach are paying off, with penetration of Islamic products on the rise. 51% of banking consumers have at least one Islamic product, a sizeable increase over last year’s 47%.

The reputational capital of Islamic providers continues to build, providing a robust platform for future growth. A promising 39% of respondents believe Islamic banks to be trustworthy, up from 32% in 2015, and compared to 30% for conventional banks. Most importantly, Islamic banks are gaining ground in consumers’ consideration of Islamic products, thus expanding the potential for the sector. Fully capturing this opportunity will require Islamic banks to sharpen their business models, and move more decisively towards a digital-first strategy, and the industry is more than qualified to meet the challenge.

The ISLAMIC BANKING INDEX by EMIRATES ISLAMIC™ seeks to inform and inspire the dialogue around Shari’a-compliant banking in the UAE, and to support the industry with specific, data-driven insights for the exciting journey ahead. We, at Emirates Islamic, hope to pave the way forward.

The second annual ISLAMIC BANKING INDEX by EMIRATES ISLAMIC™ was conducted in the UAE to gauge the progress and penetration of Islamic retail banking in the emirates, the perception and understanding of Islamic products among consumers, and the sector’s potential for growth. The methodology, questionnaire and sample size remain in line with that used in 2015 to ensure consistency and comparative results.

For the second year, the survey polled 924 respondents aged 18 and above with a bank account in the UAE and earning more than AED 5,000 per month. Responses were gathered online in August 2016, using YouGov’s proprietary research panel. The sample included men and women of all nationality groups living in the UAE, across seven emirates, and is both representative of banking consumers in the emirates aged 18 and above, and consistent with the sample used in the first ISLAMIC BANKING INDEX by EMIRATES ISLAMIC™.

The findings provide a snapshot of the uptake, attitude and receptiveness of UAE consumers towards Shari’a-compliant banking products, the progress made by the industry to date, and the size of the opportunity still available to Islamic providers.

The survey is based on consumers’ personal reporting and opinions, and may not equate with publicly reported figures.

The ISLAMIC BANKING INDEX by EMIRATES ISLAMIC™ survey was conducted in the UAE to establish penetration of Islamic banking in the emirates, as well as current knowledge, perceptions and future intentions of consumers on Islamic Banking

Methodology

Four indicators of Islamic Banking in the UAE

Notes:

• Penetration score is the percentage of consumers who have any Islamic product from any financial provider

• Perception score is the average rating of Islamic banks on a range of attributes

• Knowledge score is the percentage of respondents able to correctly define Murabahah. This score is calculated by multiplying the percentage of those aware of any Islamic concept (62%) by the percentage of those selecting the correct definition of the concept (59%)

• Intention score reflects the percentage of respondents who indicated they would subscribe to an Islamic banking product in the next six months

PENETRATION SCORE

PERCEPTION SCORE

KNOWLEDGE SCORE

INTENTION SCORE

+4%

+3%

+1%

+4%

Change2015

47%

26%

36%

75%

2016

51%

29%

37%

79%

Top Findings

51% of the UAE’s banking consumers have at least one Islamic banking product, up from 47% in 2015

Shari’a-compliant banking is on the rise in the UAE. In 2016, just over half of banked consumers (51%) have at least one Islamic banking product, an increase of 4 percentage points on the previous year and a sign of the sector’s growing prominence. Among both Muslim and non-Muslim consumers, an increased penetration of Islamic salary transfer accounts has been observed, a product typical of a customer’s “main bank”. 51% of Muslim consumers and 22% of non-Muslim consumers hold an Islamic salary transfer account, up from 47% and 18% respectively in 2015.

Further inspection of Muslim consumers’ data highlight an increased penetration of Islamic credit cards by 4 percentage points, up to 42% in 2016, coupled with a reduction in penetration of conventional credit cards by the same magnitude (66% versus 70% in 2015). The survey also reveals a decline in Islamic personal finance penetration among Muslim customers to 52% compared to 59% last year. This was also coupled with an increase in penetration of conventional personal finance from 41% in 2015 to 46% in 2016.

Base: Total respondents


% Penetration score amongst consumers

Conventional IslamicDon’t know Don’t know

70

63

75

62

54

53

Conventional

69

58

74

64

50

55

48 49 52

43

48

34

29

33

Islamic

50

41

48

36

30

39

51 478 11

5 7

4

4

4

8

4

7

5

ALL BANKING PRODUCTS

Current account with salary transfer

Credit card

Current account

Savings account

Personal finance

Auto finance

100

59

56

46

38

22

100

56

56

47

42

21

17 21

2016 2015

5

5

5

In-depth Insights

Penetration

36% of the UAE’s banking consumers have an Islamic product with an Islamic bank, up from 34% in 2015

% Penetration score amongst consumers

Islamic from conventional

bank

Islamic from conventional

bank

Islamic from Islamic bank

Islamic from Islamic bank

Don’t know

Don’t know

1124 2436 34ALL BANKING PRODUCTS

Conventional Conventional

70

20152016

698

Penetration of Islamic personal finance increased among non-Muslim consumers by 3 percentage points

Penetration of Islamic credit cards increased among Muslim consumers by 4 percentage points

Among non-Muslims, the most significant increase in the usage of Islamic banking products, besides salary transfer accounts, was in the category of personal finance. In contrast to Muslim customers, the number of respondents choosing Shari’a-compliant personal finance products rose by 3 percentage points to 30%. The use of conventional personal finance products by

this group was constant at 65%. The survey also showed a decline in the use of Islamic credit cards among non-Muslim respondents (17% versus 21% in 2015), with a 3 percentage points rise in the use of conventional credit cards within this consumer group (83% versus 80% in 2015).

% Penetration score amongst Muslims

Base: Muslim respondents

Islamic IslamicDon’t know

Don’t know

2

2

9

4

2

6

3

5

3

64

51

42

66

52

68

62

47

38

46

67

59

68



Credit card

Current account

Savings account

Personal finance

Auto finance


63

55

70

54

36

41

34

20152016

61

49

66

55

35

46

29

5

3

48 4

4

5

% Penetration score amongst non-Muslims

Base: Non-Muslim respondents

Islamic IslamicDon’t know

Don’t know

6

9

13

10

6

12

5

9

6

31

22

17

23

30

21

31

18

21

15

22

27

29



Credit card

Current account

Savings account

Personal finance

Auto finance


79

73

80

75

77

65

70

2015201680

72

83

80

71

65

79

12

9

14 9

6

2

% Strongly agree

% Strongly agree


Islamic banks Conventional banks

Islamic banks Conventional banks

In-depth Insights

The perception of Islamic banks’ trustworthiness rose among Muslim consumers (42% versus 37% in 2015)

2015

2015

2016

2016

3736

29

25

32

29

31

29

27

2934

23

2224

2426

23

23

25

22

2828

35

29

21

23

Have outstanding apps for mobile/internet

banking

Are technologically advanced

Are innovative

Provide fast service

Have easy procedures

Provide solutions according to my needs

Offer superior customer service

Offer the best rates for borrowing / financing

Are trustworthy

Have low transaction fees

Support the community in meaningful ways

Are financially sound

Offer the best profit/interest rates on

deposits

44

42

32

24

39

33

34

32

29

3538

25

2324

24

28

24

27

27

23

3032

39

30

25

26


banking


Are innovative






Are trustworthy





deposits

Base: Muslim respondents

Perception

333331

26

37

28

29

2825

2933

23

2224

24

28

25

26

29

26

3131

40

25

20

22


banking


Are innovative






Are trustworthy





deposits

43

4134

24

42

31

34

33

27

3436

26

2323

23

29

28

26

30

23

3435

43

30

24

26


banking


Are innovative






Are trustworthy





deposits

The perception of Islamic and conventional banks remains largely unchanged. Islamic banks are seen as more trustworthy and supportive of the community, and their conventional peers as more technologically advanced and innovative.

Base: Non-Muslim respondents

% Strongly agreeIslamic banks Conventional banks 20152016

27252626

32

22

24

25

22

2534

2526

22

2533

35

36

34

30

42

45

42

34

24

30


banking


Are innovative






Are trustworthy





deposits

The perception of Islamic banks’ trustworthiness rose among non-Muslim consumers (34% versus 27% in 2015)

Reputational capital and consumer perception are critical to the success of any financial provider. The first ISLAMIC BANKING INDEX by EMIRATES ISLAMIC™ in 2015 highlighted the perceived trust of consumers in Shari’a-compliant providers and the perceived technological superiority of conventional banks, both of which remain unchanged.

The perceived edge for Islamic banks in terms of rates and fees has faded, with both Shari’a-compliant and conventional banks seen to offer similar rates. Consumer perception of lower transactional fees and better deposit and financing rates stand at 24%, 24% and 24% respectively for Islamic banks and 25%, 25% and 23% for conventional providers.

Conventional banks have retained their edge when it comes to the perception of providing superior

service and efficient operations. Among the four categories; namely ‘solutions that meet my needs’, ‘easy procedures’, ‘fast service’ and ‘superior customer service’; conventional banks enjoy a lead of 3 to 7 percentage points. While Islamic providers have improved their perception scores by 1 to 2 percentage points in these categories, conventional banks improved by 3 to 6 percentage points. It is notable that the improved rating of Islamic providers in the service categories was driven predominantly by higher scoring among non-Muslim consumers. Conversely, the improved rating of conventional banks reflected a higher perception score among Muslim customers.


42

31

34

29

30

3036

23

21

22

28

23

23

27

1921

22

18

2423

27

25

21

24


banking


Are innovative






Are trustworthy




deposits

40

33

The majority of consumers in the emirates (62%) are aware of at least one Shari’a-compliant banking product, a rise on the previous year’s findings (59%), and an indication of the sector’s widening customer

base. For a second year, the best-known products remain Takaful and Murabahah, with 40% and 31% of respondents familiar with their use.

3940

2731

1615

1311

1312

65

4138

Takaful

Murabahah

Mudarabah

Ijarah

Musharaka

Bina’

None

% Islamic banking product


Consumer knowledge remains largely unchanged from 2015, with six out of 10 UAE customers familiar with at least one Islamic banking product.

In-depth Insights

Knowledge

2016 2015

Knowledge of Islamic structures is increasing among consumers

Close to six in 10 were able to identify the correct meaning of Murabahah, with Muslim consumers more likely to select the right definition than non-Muslims (43% versus 22%). The survey does show a 3 percentage points year-on-year rise in the number of non-Muslim respondents able to correctly define Murabahah, however this is tempered by a 2 percentage points decline in the score for Muslims (43% versus 45% in 2015).

Among non-users, the profile of Islamic banking products is lower, but not marginal: 44% of respondents are aware of at least one category of Shari’a-compliant products, a 1 percentage point rise on the previous year. Awareness rates are lowest among westerners,

with more than 60% unaware of any Islamic products. This could present an opportunity for Islamic banks to address this knowledge gap, and expand their consumer base.

When knowledge scores are compared with penetration levels - which show 51% of UAE consumers have at least one Islamic banking product - it is clear that a limited understanding of the structure of Islamic products is no deterrent to their uptake. Penetration has increased by 4 percentage points, despite minimal change in the knowledge level of UAE banking customers. but it is also likely that improved awareness of Islamic products and services could spur broader demand.

Total Islam Other religions

37 36 4345

22 19

2016 2015

% Knowledge score

In line with the increased penetration score, the 2016 ISLAMIC BANKING INDEX by EMIRATES ISLAMIC™ reveals a sizable increase in the potential and consideration of Islamic products among consumers. The percentage of customers who actively seek Islamic products has increased to 25% from 22% in 2015, while the percentage of consumers who say they would “never seek a Shari’a-compliant product” has slightly reduced to 24% from 25% in 2015.

While the survey reveals a marked improvement in non-Muslims’ willingness to consider Islamic banking

products (68% versus 59% in 2015), over half of the consumers remain to be value seekers. A key finding of the survey continues to be that over half of respondents (51%) would seek Shari’a-compliant products only if the benefits are comparable to, or better than, those offered by conventional products. In last year’s survey, 54% of consumers said value was a key consideration. The message for Islamic banks is clear: as the industry becomes more competitive, Islamic providers will increasingly need to compete on price and benefits, among other factors, to attract and retain customers.

% Very likely to subscribe


Overall intention of consumers to acquire a banking product is slightly up for both Islamic and conventional products, 28% for Islamic products compared to 26% in 2015 and 29% for conventional products, compared to 27% in 2015

In-depth Insights

Intention

2016 2015

2729

14

12

1010

1011

9

10

89

79

ANY CONVENTIONAL PRODUCT


Credit card

Current account

Savings account

Personal finance

Auto finance

26

28

1113

99

1011

1010

7

9

810

ANY ISLAMIC PRODUCT


Credit card

Current account

Savings account

Personal finance

Auto finance

Islamic banking products Conventional banking products

% Islamic banking potential

% Islamic potential score


The percentage of consumers willing to consider Shari’a-compliant banking products has risen 4 percentage points to 79%

A sizable increase in the number of non-Muslim consumers willing to consider subscribing to an Islamic banking product, from 59% in 2015 to 68% in 2016

A quarter of the market are core Islamic users but about three fourths are open to Islamic products

Total Islam Other religions

7975

8486

6859

I always seek Islamicbanking products

25

22

I seek Islamic banking products only if the benefits are better or at least the

same as conventional products

51

54

I never seek or always avoid Islamic banking products

2425

2016 2015

2016 2015

The 2016 ISLAMIC BANKING INDEX by EMIRATES ISLAMIC™ offers a detailed insight into the strengths, challenges and scope of the Islamic banking sector in the UAE, bringing much good news for the industry. Shari’a-compliant banks have succeeded in extending their reach to a larger audience, a finding reflected in the industry’s improved penetration score, which has risen 4 percentage points in the 12-month period. Six out of 10 consumers are familiar with at least one Islamic banking product, and this increase is evident across both Muslim and non-Muslim consumer groups, in an indication of Islamic banking’s broad appeal. For a second year, UAE consumers perceive Shari’a-compliant banks to be more trustworthy than their conventional peers and more supportive of the community: a critical factor within the financial services sector. The index reveals both Muslim and non-Muslim consumers to be more open to Islamic banking products, with non-Muslim customers in particular registering a 9 percentage points rise in their willingness to consider Shari’a-compliant products. The growing appeal of Islamic banking to non-Muslim consumers demonstrates the scale of the potential market for Islamic banks, and will be a key driver of the industry’s future growth.

While the market opportunity is clear, the challenge for Islamic banks lies in capturing it. For a second year, Islamic providers are perceived by UAE consumers to lag conventional banks in technology, innovation and customer service. In the increasingly digitalised UAE market, where smartphone penetration is among the world’s highest, Islamic banks must avoid letting this gap widen. The index also reveals that while a quarter of UAE consumers now actively seek out Islamic banking products, more than half will only consider them if the benefits are comparable to, or better than, those offered by mainstream providers. Islamic banks, while retaining their core values, must then also ensure their products remain competitive. In summary, Islamic banks must be alert to their value proposition. While they have succeeded in expanding their reach and penetration over the last year, the primary hurdle to industry growth remains their perceived poorer service offering, when compared to conventional banks. If Shari’a-compliant banks are to capitalise effectively on the growing willingness among UAE consumers to consider Islamic banking products, it will require consistent effort to address and reposition consumer opinion of their service and product offering.

Blueprint for success: Islamic banking must put customer service at the heart of future growth strategies

Opportunity for growth

A white paper on the Findings of the “ISLAMIC BANKING INDEX by EMIRATES ISLAMIC™“ 2016

Published in 2016 by Emirates Islamic

Copyright © 2016 Emirates Islamic www.emiratesislamic.ae

All Rights Reserved

Content from this document may be re-published, provided clear citing of ISLAMIC BANKING INDEX by EMIRATES ISLAMIC™ as source.

islamic banking index by emirates islamic · pdf filethe islamic banking index by emirates ......

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