Islamic banking: Barriers hindering product innovation identified

LAHROE: Product innovation has become a hard nut to crack for the Islamic banking sector in Pakistan due to multiple barriers, said banking sector experts.

It may be noted that Shariah-compliant products is the fundamental requirement of Islamic banking, which are duly approved by the Shariah board of any Islamic bank in line with the Islamic rules and principles. Since the board members belong to different school of thoughts, therefore, the process of product innovation becomes slow due to a strong difference of opinion. Ultimately, any such situation blocks a rapid growth in product innovation for Islamic banking sector, said Naveed Iqbal, a banking sector expert.

Similarly, he said, non-compatibility between product design department of a bank and the members of Shariah board also delays early development of new products in Islamic banking sector. He said it is always difficult for the design department to win the consent of the board because of the variety of thinking in it.

Azam Roomi, another banking sector expert said high innovation cost as well as lack of research also plays a role in hindering a smooth growth in product innovation. He said the Islamic banking took start in Pakistan back in 2001 and banks' management thinks twice before bearing the innovation cost. Accordingly, he said, insufficient financial resources are allocated for research purposes, which is the cornerstone of any product innovation.

He has also identified economy uncertainty, shortage of personnel, shortage of knowledge, organizational rigidities, market uncertainty and the regulations as some other barriers in this regard. He said majority of the customers not well-aware of the concept and products of Islamic banks.

Sidra Dar said lack of training regarding a new product, imitation of a new product by competitors; and the limited use of new product development tools are also considered as barriers to product innovation in the Islamic banking sector in Pakistan. Staff dealing with customers is not properly trained about the new product and half-baked information spreads confusion among intended customers. Accordingly, staff performs routine works, she added.

It is worth noting that lack of literature work on problems related to Islamic banks as well as lack of market research is also being realized badly in promotion of new products. Experts are of the view that there is a dearth of sufficient material in the market. They said there is a need of project based writing material in order to promote product innovation in the Islamic banking.

Copyright Business Recorder, 2020