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Competitive Pricing of Islamic Financial Products

by Warren Edwardes

May 95, Horizon, Institute of Islamic Banking & Insurance, London   link 


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Islamic Financial Products

Market Segmentation

Margin Erosion

Cost Pricing

The way ahead - Innovation


A common theme at Islamic banking meetings and conferences is the need for greater innovation. Bankers, Islamic and Western, should apply more creativity in the creation of products that meet the genuine needs and demands of Islamic investors and borrowers. Last Friday, during the Prince of Wales Innovation awards for 1995, the winner said: "We were prepared to listen to the marketplace and then look at the things we were good at and then put the two together".
The successful purveyors of Islamic Financial products, they may be Western ones, will be those which are the first to identify the emerging and evolving needs of the Islamic consumer and to offer product improvements which satisfy those needs. Banks should seek out buyers with the most difficult needs - they will become part of the firm's Research and Development programme.
Trends will have to be spotted early. The successful Islamic bank will be the one that leads the market having identified the trend. Even if the bank is on the right track now in providing a range of Islamic products, it will simply get run over if it just sits there. Competition is inevitable and is healthy. It is only when you are pursued that you become swift. And don't worry if a competitor imitates you; if he follows your tracks, he can't pass you - but keep one step ahead.
At a certain point, however, Competitive Pricing becomes unprofitable pricing - that’s when the Islamic Banking Sector has to reduce costs further on the product, look for a government subsidy, tax break or regulatory controls. Certain priority sectors in Pakistan, for example, are allowed favourable rates.
The best way is not to over-focus on defence. Attack the market vigorously through innovation. Understand your customers’ needs and move on to a fresher, more appropriate, more profitable Islamic Financial Product.

Delphi Risk Management: Delphi creativity Delphi communication & Delphi control are the Innovation, Communication & Risk Management arms of Delphi Risk Management Limited 

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