Room for diversifying banking products

Nearly a dozen lenders are operating in the country based on the Shariah principle alongside conventional banking. They are thus making their additional contribution to the growth of the country's Gross Domestic Product (GDP). This is resulting in employment generation also. The religious people of the country like very much the Islamic banking products completely free from any interest. So, these products are well-accepted by this particular section of people. But, to cope with the present situation in a competitive market we need to diversify the products, since the demand for such attractive products is going up among the customers.

It is a matter of grave concern that there is hardly attached any importance to product diversification in the banking arena, though it is very important to take the sector forward. With the age-old three dozen products the banks have been carrying on their business operation for decades. But, innovation of demand-driven products is completely absent. Both customers and banks are counting the cost of it. There is no initiative in the banking arena to go for launching new products with lucrative offers. It is high time to take the move for the sake of the economy.

Of late, the customers are becoming reluctant to go to conventional banks for banking. They are switching over to Islamic banking. In view of this, a good number of conventional banks are in a queue to seek approval from the Bangladesh Bank (BB) to open their own Islamic banking windows. The existing Islamic banking windows have proved their ability to show better performance than many of the conventional others doing interest-based banking. Moreover, the customers' mindset has completely changed as they believe in the after-world The people living in remote areas are in a mad rush to establish their relations with Shariah banks located far away from their dwelling places.       

Against this backdrop, the Bangladesh Institute of Bank Management (BIBM) organised a seminar on its own premises in early July. The seminar on "Product Diversification of Islamic Banks: Prospects and Challenges" was attended by experts having vast banking knowledge. They underscored the need for product diversification by Islamic banks to meet the demand among the customers. According to media reports, the experts who were present at the seminar put forth the importance of product diversification by Islamic banks right now. They also stressed the need for new products that may drew good response from the customers soon after their launch or redesigning.

There is no denying the fact that the Shariah-based banks are playing a significant role in keeping the wheel of the economy in motion. This is resulting in boosting international trade apart from changing the landscape of the rural economy with investments made in potential sectors.

Prior to starting the work on an innovative product, the banks have to understand what kinds of products should be focused on and they also must feel the necessity of the economy in remote areas. Recently the volume of non-performing loans increased due to extension of credit facilities in a high volume. So, the banks should design their new products keeping in mind the necessity of small-scale financial facilities. The experts having sound Islamic and banking knowledge might be invited occasionally to help in designing the products. Otherwise, the banks may face trouble, if the customers do not accept their new products. The central bank, the watchdog for private and public sector banks, may advise both traditional and Islamic banks to set up research wings immediately for gearing up the diversification activities, if possible, as the banks have a lot to do in designing the products.

The paper prepared by the BIBM says that full-fledged Islamic banks alongside conventional banks having Islamic banking branches or Islamic banking windows are going forward in all areas. Up to December 2017, with a total of 1,168 branches and 30,606 employees, the total deposits stood at Tk 2,142.59 billion (2,14,259.42 crore), investments Tk 2,011.01 billion (2,01,101.96 crore) and liquidity surplus Tk 87.19 billion ( 8719.91 crore).

As of December 2016, about 1,050 branches with 28,889 employees contributed an aggregate deposit to the tune of Tk 1,876.94 billion (187694.9 crore), investments Tk 1,689.57 billion (168957.5 crore) and liquidity surplus Tk 108.65 billion (10865.36 crore). The share of Islamic banks in terms of investment was 22.96 per cent, assets 22.96 per cent, deposits 20.39 per cent, equity 15.22 per cent, remittance 36.14 per cent, excess liquidity 7.47 per cent as of 2017.

There is no alternative to diversification of products, if we want to take the economic growth rate to the desired level. In the recent couple of years the banks saw poor presence of customers due to financial scams. Most customers who are connected with Islamic banking do not understand many of the facilities the existing products designed on Shariah principle offer them. The customers must be brought under a consultation programme about various products arranged by the concerned banks. This will help bring more customers under the banking coverage.

All employees in the banks have to have the required level of Islamic knowledge and always remain ready to face any interview on Islamic products. In this regard, training sessions can be arranged for them.

It is hardly seen that attention is given to re-designing the products to cope with the present situation prevailing in the financial world. Unless any fast initiative is taken concerning product diversification in the Islamic banking arena, it is likely to disillusion the customers, as they always look for newer products. So, the priority of customers is a must to keep the industry in motion. At present, there is a need for starting the move towards introducing demand-driven products. There is no alternative to innovating new products to net in more customers. Moreover, the demand from the customers' side is increasing day by day. Their appetite for new flavours is noticed soon after one steps into the business centres of the banks located in both urban and rural areas.

Currently, nearly a dozen banks, operating completely based on the Shariah principle, are in a race against conventional banks to prove them very exceptional in terms of their growing capability in all areas. But, it is scarcely noticed that attention is paid to diversifying the products to attract the customers of all classes. Why? The reason for the negligence in launching new products is nothing but past experience. The fear factor works here. They fear that it will cause a loss, if the customers show a negative attitude towards the newly-launched products.

For minimising the risks apart from reducing the default loan volume, the diversification of products is needed much. If the products related to Islamic banking are changed a little bit, the people, mainly in the coastal belt, having a liking for Shariah banking, will flock to the banks in a large number.

The scope of Islamic banks as players in the money market is limited in the absence of required products. There the lenders doing interest-based banking are doing brisk business. The banks that are adhering to the Shariah principle should introduce more innovative Islamic products to assert their presence in the money market and thus overcome their liquidity problem. The central bank has to come forward to address this crucial issue.         

Md. Mazadul Hoque is currently serving at the Social Islami Bank Ltd.

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