Islamic bank: your companion in financial, social, and spiritual — from a thought to an idea
⭐️ This is a fun-collaborative effort with our friends at Sixtytwo and give a huge clap for a similar collaboration article on their site: Website | Medium
The sudden outburst of new technologies has brought about many changes to the way traditional banking has operated and brought forward completely new propositions but also serves a more digital user base — one that is very much dependent on using the internet and mobile technology: generations below 35 years of age, consisting of millennials and generation Z. However, the COVID-19 pandemic, which has not yet ended, forces us to open our eyes about the impact and influence of the pandemic on the development and growth of banking in Indonesia. As a result, there is growing importance in creating a strong digital presence by accelerating the use of the digital platform.
The rapid shift towards digital banking in Indonesia presents opportunities for Islamic banks to accelerate growth. However, to sustain the current pace of growth, Islamic banks will have to be increasingly competitive in targeting new customer segments in new ways. As a country with the largest Muslim population globally (over 87.18 percent from the 232.5 million people), Indonesia has great potential in developing Islamic finance. So far, the Indonesian Islamic banking industry continues to grow at a rate and is a crucial driver in connecting the economic sector, commercial finance, social finance, and a religious sector within the Islamic financial ecosystem, thus building synergy and a communal (jama’ah) spirit.
How might we transform Islamic banking into a competitive industry with a tangible socio-economic contribution?
Islamic bank is more than just a bank; it is beyond that. The development of Islamic banking aims to provide the most significant benefit to the community and optimally contribute to the national economy. However, several strategic issues still hinder Islamic banking growth and compete with the current financial market.
Somia CX and Sixtytwo, together, collaborated to explore ideas and ensure the Islamic finance market continues to offer attractive services; it is important to understand how it is viewed by existing. So we asked several people in our circle to know how the industry can better engage and provide the support they need — where the opportunity areas are, the gaps, and where potentially Islamic banking can win.
Here are what we found through that activity:
The core principle of Islamic Banking is the key factor that made it attractive.
Islamic banking grew and developed based on its projected Islamic values, and people trusted in these values. Sharia values instill in Islamic banks in establishing a code of conduct that defines the ethical rules, procedures, and guidelines that bring peace of mind to the customer.
"Islamic banks will not give funds to companies or activities that are not in accordance with sharia."
- Freelancer"I feel a sense of responsibility to my family. The hope is for the results to be halal, and we can eat it."
- Housewife
- Sharia Contract: giving a sense of security.
Clearly stated contract in Islamic banking intended to help customers feel comfortable to keep their funds safe, without uncertainty (gharar) and interest (riba). - Ethical and transparency based on Islamic philosophy and values.
Gives corporate and regulatory transparency; discloses the risk, challenge, and breakthrough the bank has made which aims to not harm business actors (Mudharib).
In contrast to conventional banks, Islamic banks apply a profit-sharing system where if a loss occurs, it is borne by the capital owner and business actor.
Islamic banks don’t invest in goods and services contrary to Islamic sharia; such as investments in brands of alcohol, pork products, pornography, gambling, military equipment, or weapons. In this way, Islamic banking can be considered a culturally distinct form of ethical investing.
However, to be competitive in the industry, it also reveals barriers that consumers are currently facing when considering the best financial solution for their individual needs, such as:
The consumer still feels the need to have a conventional bank account because it is perceived as superior.
"The number of ATMs is still minimal compared to a conventional bank. Hence I have 2 banks, an Islamic bank is for savings, and a conventional bank is for daily needs and transactional purposes."
- Student"I intend to be safe from what is feared by riba (usury), but since I don't understand Arabic terms in the services, I'm a bit confused."
- Entrepreneur
The gap of absence happened due to barriers that are consumers currently facing:
- Breaking perception of physical inaccessibility, especially in commercial and transactional needs.
The conventional bank account is still popular and a preferable option for most transactional purposes because merchants (online/offline) are widely accepting conventional banks compared to Islamic banks. The limited facilities owned by Islamic banks, such as the number of ATMs, make it less convenient to support their activities. - The lack of significant business model differentiation, low financial literacy, and inclusion indexes make most customers unaware of Islamic finance’s full extent and offerings.
Lack of understanding various terminologies, such as Sharia jargon, confuses them, making it hard to comprehend the bank’s services fully. Interested consumers are motivated by the transparent practices but get discouraged by little information and literacy.
Before the emergence of conventional sharia-based banks, most Muslim and non-Muslim communities were more interested in saving at a conventional bank. Although previously Islamic banks such as Bank Muammalat, people were less familiar and understood their values. The general public understands that the fundamental difference between conventional and Islamic banks is the prohibition of Riba (usury) and speculation. However, there are other distinctive features as compared to their conventional counterpart. Unfortunately, it seems there are still many who don’t know or are aware of its values and benefits. Several strategic issues hinder the acceleration of Islamic banking business growth: the absence of significant business model differentiation, low levels of literacy and inclusion, sub-optimal quality, and quantity of resources.
Somia CX and Sixtytwo huddled together to zoom in and use those insights to explore, create solid solutions, and design ideas.
Accelerating Islamic Banking to digital
The future of Islamic finance is wide open and ripe for disruption, driven by a tech-literate generation. Competitive advantage can be achieved through Islamic banking products that give added value to the customer. We believe that a digital solution is only as great as its values to its users.
An insightful platform that knows you —an adjustment on keeping up with digital users.
Personalization enables you to create on-site experiences that resonate with segments of your audience or even as individuals. Purposeful personalization allows brands to develop a long-term relationship with the users (e.g., knowing personal goals, etc.) Redefined experiences like this are more about the bank showing a different mindset and being responsive to what it can do for the user. Banks have to know enough about their customers to offer the right kind of service and content when users need it.
Digital users have high and ever-increasing expectations of the experience they expect from companies and how they want to be engaged. These users expect timely and relevant engagement. Redefining the relationship between customers and their bank by showing your every activity — not only financially, but will also tell you what is most important. A modular approach to the home page opens up that opportunity to personalize its content to what the user cares about most. The personalized approach would give the users a reason to come back for more and slowly build a relationship with the bank — building trust is essential to gain customer loyalty.
Islamic Bank: your financial, social, and spiritual companion.
Transforming Islamic Social Finance by connecting services to the customer by telling a better story. The opportunity to speed in this vastly changing landscape by first focusing on providing a unique offering that caters to modern Indonesian Muslims that yearns for an experience that puts them first — financially, socially, and their faith. Contextually transform Islamic banking into a competitive industry that will be present during the user’s religious-spiritual milestones and socio-economic financial activity and needs.
Financial snapshot & insights.
Trust is the primary driver to using Islamic Finance, while the accessibility of information is the main barrier. Users highly value transparency and are willing to deeply learn and understand their financial situation. Hence, It can accelerate them to do any necessary action related to economic adjustments and potentially enhance the effectiveness of monetary decisions that will bring socio-economic value to them.
A meaningful & social spiritual celebration with sharing contextual knowledge and literacy.
A strong social component is dedicated to contextualizing spiritual knowledge, such as thematic themes/spiritual activities/celebrations, e.g., Idul Adha. The contextual knowledge will help understand literacy on jargon or specific terms and event that will enrich their knowledge on the subject.
Engage in purposeful transactional and meaningful financial planning
Financial, spiritual, and social aspects aren’t silo’ed features, but instead, the idea is planted throughout the process. We should continuously embed the economic, social, and spiritual companion values where it fits. A concept inspired during Idul Adha is that people will look into the Kurban options and seek partners collectively. We can also plan and make savings to enable our spiritual duties. We extend the idea into a social activity in a digital platform where you can find people within your circle that are interested and looking for partners to do Kurban together.
Conclusion
Through this exploration, we learned that financial products fitting with people’s values and ethics are essential and almost unanimously crucial for those interested in or using Islamic Finance products. Hence public awareness of Islamic banking is a prerequisite to expanding the customer base and building financial literacy. Bringing a new narration to Islamic bank as your financial, social, and spiritual companion may tap in the gap of absence: to be friendly and get familiar with the values and benefits. Moreover, by leveraging the relevance of new digital platforms, more generations will welcome Islamic banks into their life.
Thank you from both teams Somia and Sixtytwo who have contributed: Adelia Pratiwi, Aulia Amanda Santoso, Vilia Ingriany, Agustian Hermanto, Dono Firman, Ketut Sulistyawati, and Andranisa Diastari (me)
⭐️ See more insightful posts from our fellow Somian in Somia CX Thought.
