marketing strategy for islamic

MARKETING STRATEGY OF ISLAMIC BANKS: A LESSON FROM MALAYSIA

Creating Dynamic Leaders

Working Paper Series 006

By

Professor Sudin HaronDr Wan Nursofiza Wan Azmi

May 2005

This paper was presented at the International Seminar on Enhancing Competitive Advantage on Islamic Financial Institutions, Jakarta, 7-8 May 2005 and has been accepted for publication in the Journal of Is-lamic Banking and Finance, Jan-March 2006.

TABLE OF CONTENTS

Marketing Strategy of Islamic Banks: A Lesson from Malaysia

Abstract 2

Introduction 3

Public Acceptance Towards Islamic Banking System 4

Research Method 4 Findings 5

Conclusion & Recommendations 10

Abstract

Marketing strategy is one the most impor-tant areas that needs to be carefully exam-ined by the policy makers of Islamic banks. This stems from the need to improve the performance and ensure sustainable growth of Islamic banks as competition in the bank-ing industry intensifies. A sound market-ing strategy becomes imperative as Islamic banks not only operate in an environment where service quality and financial returns are perceived as the essential criteria from customers’ viewpoint, but they must also compete with conventional banks which are known to have better experience and exper-tise in the banking business. Religious ele-ment, which was once thought as the ma-jor factor that drives Muslims to use Islamic banking facilities offered by Islamic banks, has now become irrelevant to Muslim cus-tomers. Coupled with an increasing competi-tive environment from both Islamic and con-ventional banks and changes in customers’ perception; it is of paramount importance for Islamic banks to assess the effectiveness of their marketing strategy. This paper re-views the current marketing strategy of Is-lamic banks in Malaysia. Among the topics highlighted are strategies related to prod-uct, pricing, promotion, distribution chan-nel, and human resources. The study finds that the newest Islamic bank and Islamic banking department of conventional banks have more aggressive marketing objectives than the pioneering Islamic bank.



Introduction

Malaysia was one of the pioneering countries to have introduced Islamic banking and is highly com-mitted in not only developing an Islamic banking system but also a complete Islamic financial sys-tem. The Islamic banking system in Malaysia start-ed in 1983 when the first Islamic bank, Bank Islam Malaysia Berhad (BIMB) commenced its operations. It was the objective of the Malaysian government to develop the Islamic banking system parallel to the conventional system. Instead of establishing many new Islamic banks, the government introduced a concept of ‘Islamic window’, which allows the exist-ing conventional banks to introduce Islamic banking products to customers.

The concept of Islamic window started in March 1993 when the Central Bank of Malaysia or Bank Negara Malaysia (BNM) introduced the “Interest-Free Bank-ing Scheme”. Twenty-one Islamic financial products were developed to cater for this scheme with initial participation from only three major banks. By July of the same year, this scheme was extended to all financial institutions in Malaysia.

As at end of 2004, BNM had introduced a total of 22 banking products and services for Islamic banking system in Malaysia (www.bnm.gov.my). Currently, the system is represented by three Islamic banks, 7 domestic commercial banks, five merchant banks, seven discount houses and four foreign- owned banks.

As a result of the financial turmoil in 1997 and lib-eralization of the world banking system, Malaysia developed a blue print for the development of the financial sector in the country and this ten-year plan is known as the ‘Financial Sector Masterplan’. The aim of this plan is to create a more efficient and competitive, innovative, technology-driven, and strategically focused financial system. The plan includes further developing the Islamic financial system as the key player in the Malaysian and in-

ternational banking sector.

In view of this, the Malaysian government’s target is for the Islamic banking and takaful industry to achieve 20 percent share of the total banking sys-tem by 2010. Currently, Islamic banking assets ac-counts for about 10 percent of the market share of the total banking assets in Malaysia which amounts to RM90 billion, registering an average growth of about 42 percent over the last 10 years.

In terms of market share of deposits and financing, Islamic banking held 11.2 percent of total deposits and 11.3 percent of total financing as at end-2004. In line with its objective to increase the number of players in the Islamic banking system, BNM encour-ages local banks to convert their Islamic banking department into subsidiaries and allows foreign Is-lamic banks to establish their subsidiaries in Malay-sia. The second Islamic bank, Bank Muamalat Ma-laysia Berhad (BMMB), was established on October 1, 1999 and it had an initial shareholders’ fund of RM300 million, assets of RM2.5 billion, a network of 40 branches and a workforce of 1,000 personnel (Bank Muamalat Annual Report, 2000).

An important milestone taken by BNM in positioning Malaysia as an international Islamic financial hub was to bring forward the liberalisation of its Islamic banking sector to 2004, three years ahead of the World Trade organisation’s deadline, by granting three new Islamic bank licenses to foreign parties. These three Islamic financial institutions are from the Middle East, namely the Kuwait Finance House, Al-Rajhi Banking & Investment Corporation and a consortium of Islamic financial institutions repre-sented by Qatar Islamic Bank, RUSD Investment Bank Inc, and Global Investment House.

BNM also issued five new licences for domestic banks to create Islamic subsidiaries. The RHB Bank is the first local bank to have a full fledge Islamic bank subsidiary. This subsidiary, named RHB Is-lamic Bank commenced its operation on the 16th


March 2005. It is intended that the presence of for-eign and new players would promote healthy com-petition that is necessary to lift the industry to new levels of dynamism. As a result of these develop-ments, local Islamic banks are now facing competi-tion emanating from several sources: competition among themselves, foreign conventional banks that have Islamic banking department and foreign banks that have established subsidiaries in Malaysia. Nonetheless, opening the market to foreign and new players is without its consequences. More players in the system means more systematic and dynamic strategies need to be developed by the local play-ers. They can no longer rely on BNM to continuously implement protective policy. In light of this, it is imperative for Islamic banks to focus their market-ing strategy on gaining competitive advantage and mobilise their resources towards this purpose.

The objective of this paper is to review the current position of the local Islamic banks and Islamic bank-ing department of local commercial banks in terms of marketing strategy. It comprises eight sections. Section two briefs issues, which indicate whether Islamic banks gain competitive advantages over the conventional counterpart. Section three to section seven highlights the current marketing strategy ad-opted by Islamic banks and section eight provides concluding remarks.

Public Acceptance Towards Islamic Banking System

Since its introduction, Islamic banking products have been well accepted by Malaysians. This is re-flected by the increasing amounts of total deposits and total loans that are based on Islamic principles placed by Muslim and non-Muslim customers. In the case of BIMB for example, at the end of June 1984 (the first year of operation), the total deposits and total loans were RM241 million and RM162 mil-lion respectively.

At the end of 1994 (the 10th year of its operations), total deposits increased to RM2,548 million whilst total loans increased to RM977 million. The cor-responding figures for the financial year 2004 were RM11,269 million and RM7,640 respectively.

Public support and acceptance towards the Islam-ic banking system is also high as reflected by the usage of Islamic banking products offered by the conventional financial institutions. In 1994, i.e. the first year of which selected commercial banks were allowed to introduce Islamic deposit facilities, a to-tal of RM1,463 million deposits was collected from the customers. This figure comprises of deposits in current account (RM166 million), savings deposit (RM1,146 million) and investment deposit facilities (RM151 million).

Since then, these three types of deposits continue to receive full support from the public. At the end of 2004, total Islamic deposits placed by customers at commercial banks increased to RM53,273.5 million. The figure for current account was RM12,886.9 mil-lion, whereas RM8,072.9 million and RM32,313 mil-lion for savings and investment accounts, respec-tively.

Although figures for total deposits of BIMB and Is-lamic deposit facilities of commercial banks had in-creased significantly for the last five years, we can-not generally imply that that public in Malaysia are all receptive towards Islamic banking products. The comparative growth figures between Islamic and conventional deposits are good indicators for mak-ing few comments for further considerations. The growth for various types of deposit facilities in con-ventional and Islamic system of commercial banks is shown in Table 1.

As indicated in Table 1, the yearly growth figures for Islamic deposits were greater, in most cases, than the figures for conventional deposits. Looking at individual figures, we can also see that in many



TABLE 1: Annual growth of various deposits facilities at commercial banks (%).

2000 2001 20032002 2004

Source: Bank Negara Malaysia Annual Report (various issues)

TABLE 2: Funds deposited at various deposits facilities of commercial banks (%).

2000 2001 20032002 2004

Source: Bank Negara Malaysia Annual Report (various issues)

instances, the growth for various types of Islamic deposit facilities were greater than the growth of deposits of the conventional system. This statistics implies that Islamic banking products have now be-come more popular among Malaysians. Neverthe-less, these growth figures alone cannot answer sev-eral pertinent questions related to the development of Islamic banking in Malaysia.

Such issues include whether all economic units in

Malaysia are really keen with the idea of the supe-riority of Islamic banking against the conventional banking; whether commercial banks in Malaysia are really committed to adhere to the directive of BNM in promoting Islamic banking products; and whether Islamic banking system has a bright future in Malaysia. Answers to some of these issues can be found by looking at the percentage of the depos-its placed by Malaysians in Islamic system against the deposits with the conventional system. The per-


centage of funds placed in various types of deposit facilities available at commercial banks in Malaysia is shown in Table 2.

Looking at Table 2, notwithstanding with the fact that there is a sign towards positive development of Islamic banking system in Malaysia, it is inevi-table to conclude that much work is still needed to make this system more attractive to the public. Furthermore, Malaysia is a country whereby Mus-lims represent half of the country’s population and is governed by a coalition government that is led by UMNO (a Muslim-based party).

Therefore, when total funds deposited in an Islamic system remains not more than 15 percent of total deposits in commercial banks, remedial actions are necessary in order to ensure this system share a greater deposit figure in the future. In such in-stances, BNM being a governing body of Malaysia banking system not only must introduce directives which can lead to the progressive development of Islamic banking system but must impose penalty those who are not serious in promoting this alterna-tive system.

In a study conducted by Haron et al. (1994), the authors reported that almost 100 percent of Mus-lims and 75 percent of non-Muslims in their study were aware of the existence of Islamic bank. Most of them expressed their desire to have a relation-ship with Islamic bank only if they have a complete understanding of this system. Furthermore, they presented evidence, which suggests that the public believed that Islamic bank is not meant for Muslim customers only.

Therefore, issues regarding public acceptance does not arise. On the contrary, the major issue here seems to rest on those providing these services. Although Islamic financial institutions claimed that their marketing programs are extensive in promot-ing Islamic banking products and services, the re-sults are far from satisfactory. In another study on

the perceptions of corporate customers toward Is-lamic banks in Malaysia, Ahmad and Haron (2002) revealed that Islamic banks had not done enough in marketing their products to corporate sector.

General Marketing Strategy Practices

Marketing strategy is commonly defined as a strat-egy employed by a firm to attain its marketing ob-jectives, which in turn is related to the achievement of the firm’s business objectives. In other words, marketing strategy refers to the marketing goals and action plans that address matters of product/service price, distribution, communication, and the process of new product development.

The adaptation of any strategy depends much on factors such as management style and experience of the top management, age of the institution, eco-nomic environment, and regulations. Generally, we can safely identify whether a particular bank is a market leader, challenger, follower and nicher by identifying its vision, mission, objectives, and mar-keting strategies.

The market leader strategy is for those banks that occupy a dominating position in the market and have established their reputation as a leader. By virtue of having a leadership in the market, it is natural that the market share of the concerned bank is the biggest. Banks belonging to the chal-lenger group are those occupying second, third and lower rank and are always formulating and pursu-ing strategies to expand their market share by tar-geting the territory of the market leader. Whereas, strategies adopted by the followers would normally be to maintain its current customers base and win a fair share of new customers by bringing distinctive advantageous to their target market.

The market nicher is for the smaller banks, which have limited resources and generally focused on se-lected customers. Banks that falls under this cat-



egory often concentrates on only one market seg-ment of the market. Usually, only one marketing strategy, which is well, tailored to meet the needs of a specific target-market group is developed.

As the pioneer Islamic bank in Malaysia, it is in-evitable for us to label Bank Islam Malaysia Berhad (BIMB) as a leader in the Islamic banking market. However, rather than portraying itself as the lead-er in the industry, BIMB adapted a more universal motto called ‘The Bank for All’ and has the following mission (www.bankislam.com.my):

“To seek to operate as a commercial bank func-tioning on the basis of Islamic principles, provid-ing banking facilities and services to Muslim and the whole population of this country, with viability and capability to sustain itself and grow in the pro-cess.”

To meet the above mission, BIMB formulated six corporate objectives where one of the objectives is to provide customers with Islamic banking facilities and services of the highest possible quality. BIMB personify itself to the public as a progressive, pro-fessional and friendly bank. In the case of Bank Muamalat Malaysia Berhad (BMMB), being the sec-ond Islamic bank in Malaysia, we would naturally consider the bank as a follower. However, BMMB should strive to become a challenger to BIMB. BBMB currently adopts the following vision and mis-sion (www.muamalat.com.my):

Vision:To be a Strong, Progressive and Modern Islamic Bank offering innovative, quality and competitive products and services.

Mission:To build the Bank into a modern, dynamic and strong Islamic Bank that would play a role in providing a viable alternative to the conventional system and contribute to the development of modern Malaysia.

RHB Islamic Bank is the third Islamic bank in Malay-sia and commenced its business operations on 16th March 2005. Upon the launching of this new Islamic bank, RHB Islamic bank had a full-scale advertising campaign by putting an advertisement in all major newspapers in Malaysia of their presence and their commitment towards excellence in customer ser-vice by embracing three basic principles which is of trust, understanding and partnership. Based from the advertisement and vision statement given by this new bank, we can generally conclude that RHB Islamic bank wants to become a market leader and not a follower or nicher in the industry.

Contrary to the strategy espoused by Islamic banks, conventional banks do not explicitly inform the public the vision and mission of their Islamic banking division. For example, Maybank Bhd. only highlights the general statement of its aspiration to become an institution that plays an important role in the development and promotion of Islamic bank-ing and takaful in Malaysia and afar. The Public Bank Islamic Banking Division also adopts similar approach. Based from the statement published in the bank’s website, it is clear to us that the Islamic banking products offered by this bank are just an alternative to their conventional products.

Even though BIMB has been operating for more than 20 years and had in many occasions become the pioneering institution in introducing new prod-ucts and services, this leading role has been dimin-ishing in recent years. For example, while the total Islamic deposit at commercial banks was enjoying a 34.8 percent growth in 2004, a negative growth of 8.86 percent was recorded by BIMB.

Similarly, the negative growth rate of profits also serves as an indicator that BIMB needs to re-ex-amine their position as the leading Islamic bank in Malaysia. This further emphasizes the need for BIMB to formulate a more effective marketing strat-egy to attract more users and depositors. In fact, to coupe with the new challenges in the market and


in line with the bank’s aggressive moves to expand services rapidly, BIMB has embarked on a major restructuring of its organization. The six strategic objectives to be implemented are, to aggressively grow consumer-banking business, strengthen com-mercial banking, develop debt market capabilities, develop risk management capabilities, enhance IT infrastructure and staff competencies.

As for the consumer banking business, BIMB over-all strategy is to focus on home financing, vehicle financing and credit card business. Since it was launched in July 2002, Bank Islam has currently 60,000 credit card holders and is targeting an annual growth of 50,000 new users for its Syariah-compli-ant credit card. The credit card, unlike conventional cards that charge interests and compounded inter-est, states the maximum profit that the bank can make over three-year tenure.

In the commercial banking side, this bank aims to establish a strong foothold in the trade finance and small and medium enterprises. As a leader, BIMB has continuously stated its aspiration of continu-ing its role in developing, promoting and expanding huge transactions in Islamic finance. In the case of BMMB, it is evident from the 2003 annual report that the bank aspires to become a challenger to BIMB. As depicted in this report, BMMB’s strategy to compete for a share of the Islamic customer base is to increase its consumer and retail financing at 60 percent level in the year 2005 as well as to increase fee-based income through investment banking divi-sion.

Product Strategy

As a service oriented business, image is a central factor in a bank’s effort to differentiate itself from competitors. Generally, the way products or servic-es are made available to customers helps to create the image of the particular institution in the mind of the customers. This image is reflected in the cus-

tomers’ perceptions and feelings about the prod-ucts or services offered. This is important because customers experience with a particular product or services will affect their attitude towards the bank and other product and services as well even if they had never used the other products.

Under product strategy, customer must also be able to link a specific image with a specific Since custom-ers purchase products and services to satisfy their needs and wants, Islamic banks have to understand the nature of these needs and want in order to ap-preciate the kind benefits customers expect to re-ceive. Among the different kinds of benefits that people expect to get when buying goods and ser-vices includes good value for money, novelty, avail-ability, and ease of use.

Benefits enter into the equation when a customer decides to use one product in preference to another. It is the benefits received, which makes a product or services attractive to a customer. In view of this, banks should give more attention to the benefits it creates for the users when marketing a product or a service. Relating this to Islamic banks, they have to be able to communicate these benefits convinc-ingly to public, either directly or indirectly, in order to persuade the public to use the facilities and prod-ucts being offered.

Since Islamic banking is an alternative to conven-tional banking, Islamic banks needs to innovative in terms of products and services. Only through in-novation in products and services can Islamic banks sustain their competitive advantage against other conventional or foreign banks that offer similar Shariah compliance facilities. Table 3 below pres-ents the list of products and services offered by BIMB and BMMB.



TABLE 3: Products and Services offered by BIMB and BBMB


It can be seen from Table 3 that BIMB is much ahead than BMMB in terms of product strategy with more than 40 Islamic banking products and servic-es being offered. Another distinct edge that BIMB has over BMMB is that their facilities cater for all categories of customers including individual, small businesses, commercial and corporate customers. Similarly, product differentiation strategy is also used by BIMB in both its deposit and financing fa-cilities.

On the contrary, Islamic banking facilities available at BMMB are basic banking facilities only. Another important strategy employed by BIMB is the usage of Islamic terminology in promoting its products to customers. For example, Arabic word such as wadi, ijraa, pewani and sakinah are used in labelling various deposit facilities. Again, contrary to BIMB, BMMB uses common terminologies such as wadiah and mudharabah for its deposit facilities. Similar approach is also taken by BIMB when promoting its financing facilities. Instead of categorizing facili-ties based on the types of facilities, BIMB uses the governing Syariah principles for the respective fa-cilities.

It is also evident from Table 3 that BIMB is ahead of the game in the electronic banking (e-banking) services as compared to BMMB. BIMB’s innovative

e-banking products and services are another source of competitive advantage it has over BMMB. The introduction of several e-banking services namely internet baking, corporate desktop banking (e-Banker), MEPS Inter-bank Giro and most recently, short messaging service (SMS) banking has en-abled BIMB to distinguish itself prominently from other players in the market. The SMS banking ser-vice offers about 30 different services and trans-actions, including inquiry funds transfer, financing payments, utility bills payments and mobile phones pre-paid reload. The target customers for this ser-vice are student card users who are more adept to mobile telephony technology changes.

Table 4 indicates the existing Islamic banking prod-ucts and services available at the Islamic bank-ing division of Public Bank and Maybank Berhad. Looking at Table 4, we can conclude that these two banks belong to either the category of a market fol-lower or nicher. Both banks do not differentiate their products and services to those offered by BIMB and BMMB. As can be seen, the products and services of these two banks are just basic Islamic banking products. This might be due to the fact that both banks are premier banks in Malaysia. Therefore, they are more interested in marketing conventional than Islamic banking products.



TABLE 4: Products and Services offered by Public Bank and Maybank

Pricing Strategy

The second element in the marketing mix is pric-ing. Pricing strategy is another marketing technique that can be used to improve a bank’s overall com-petitiveness. The key to success is to have a well-planned strategy, to establish policies and to con-stantly monitor prices and operating costs to ensure profits. An important part of the pricing strategy is determining how product or service is priced. It has been proven in many previous research that majority of customers do not use religion as the main factor when establishing a relationship with Islamic banks. In the case of corporate customers for example, they believe that it is the cost and

benefit element that is the most important factor when selecting financial institution (Ahmad and Ha-ron, 2002). Most customers still seek the highest return and low

est charges imposed when deciding which bank to place a deposit or obtain funding from. Gener-ally, marketing textbooks recommend three types of pricing strategies: skimming, penetration, and competitive pricing strategy. In the case of depos-its, the returns given to depositors as at 1 Mac 2005 are listed in Table 5 below.

Based from the facts presented in Table 5, it seems that Maybank gives higher returns on its invest-ment deposits comparatively to both BIMB and


BMMB. One possible reason is that being a bigger bank, Maybank is able to mobilize the funds depos-ited by it customers more efficiently and effectively. An interesting observation is the returns given by Maybank to small depositors, especially savings ac-count holders. For savings account with the mini-mum amount of RM2,999 or less, Maybank does not give out any return to the account holders.

As for its wadiah accounts, the returns received by the account holders are much less than those re-ceived by BIMB and BMMB customers of the same account. Another sharp contrast between them is that BIMB and BMMB gives a fixed return on their wadiah savings account whereas Maybank’s return on this account varies according to the amount de-posited. In view of this, both Islamic banks are seen as fulfilling their social obligation in providing bank-ing needs of small customers.

TABLE 5: Returns on Deposits of Selected Banks

Another important pricing strategy in banking is the charge imposed to the borrowers. In most cases we often hear complaints from customers that fi-nancing from Islamic banks is more expensive than loans given by the conventional banks. For exam-ple, a housing loan of RM100, 000-00 for a period of 15 years, costs RM927-00 a month for an Islamic loan in contrast to only RM871.00 for a convention-al loan.

The monthly instalment for an Islamic loan with RHB for the same amount and maturity loan will cost the borrower RM910.68 (after 3 years) whereas the conventional loan costs RM857.00. Bank Muamalat, on the other hand, offers two options of financing to its customers with the monthly instalment af-ter year five of RM911.30 and RM959.78 depending on which financing was opted. For Bank Islam, this amount depends very much on the market value of


the house purchased and it is normally within an average of RM950.00 a month.

Distribution Pricing

This component of the marketing mix is related to the distribution of services to the ultimate custom-ers. Services that require the customer to go to the producer must be as accessible as possible. Hence, an important consideration in the distribution strat-egy for banks is location of their branches. The task before the management is to select the place where the actual sale is to take place and this should be in the face of conveniences and comforts to the cus-tomers.

To the extent it is possible, they should reach to the doorsteps of the customers. Thus it is pertinent that the branches are located at a suitable point. How-ever, a study conducted on Malaysian customers by Haron et al. (1994) found otherwise. For example, the authors reported that the top five factors that are considered as important by Malaysian Muslim when selecting their banks are:

1. Fast and efficient services2. Speed of transactions3. Friendliness of bank personnel4. Confidentiality of bank5. Knowledgeable about the needs of custom-ersNon-Muslim customers ranked the following as im-portant when selecting their banks :

1. Friendliness of bank personnel2. Fast and efficient services3. Reputation and image of bank4. Speed of transactions5. Confidentiality of bank

Although Malaysian customers do not perceive lo-cation as one of the top priorities, nevertheless policy in ensuring the accessibility of banking ser-

vices to customers is regarded an important distri-bution strategy by most banks. Table 6 (see page 14) presents the number of branches and Islamic Banking Scheme (IBS) counters for the year-end 1999 to 2003.

Since sales and market share are contingent upon distribution (i.e. market coverage and distribution intensity), products and services must be made easily accessible to the end-users. Table 6 clear-ly shows that conventional banks offering Islamic windows place more importance on their distribu-tion strategy than their Islamic counterparts. With 1410 IBS counters nationwide compared to only 132 branches opened by Islamic banks, conven-tional banks have a strong channel network that is deemed as a crucial way to gain competitive advan-tage since distribution channel provides access to market targets.

Recognising the importance of distribution strategy as one of the key to successful and effective mar-keting strategy, Islamic banks had recently intro-duced the concept of mini-branch and kiosk to their customers in which basic banking facilities are pro-vided through this new distribution channels. These mini branches and kiosks are strategically located at departmental stores and shopping complexes so as they are accessible to the general public.

Promotion Strategy

Promotion is the function of informing, persuading, and influencing the customer’s decision process. Usually the bank’s marketing manager will respond to the goals and objectives of the bank by formulat-ing various elements of the promotional strategy i.e. personal selling, advertising, sales promotion, publicity and public relations. Promotional strat-egy is closely related to the process of communi-cation. A standard definition of communication is the transmission of a message from a sender to a receiver. Marketing communication, then are those


messages that deal with buyer-seller relationships. Marketing communication is a broader concept than promotional strategy, because it includes word-of-mouth advertising and other forms of unsystematic com-munication. A planned promotional strategy, however, is certainly the most important part of any market-ing communications. Table 7 highlights the existing promotional strategies adopted by selected Islamic banks in Malaysia.

TABLE 6: Number of Branches and IBS Counters

TABLE 7: The Promotional Strategy of Islamic Banks and IBS Banks in Malaysia

Source: Puan Rozi(BIMB), Badrudin Othman(BMMB), Mohd Ali Sharif (Maybank), Mohd Najeeb Abdullah (PBB)



Table 7 indicates that BIMB is ahead than the other institutions in terms of promotional strategy. The latest promotional strategy undertaken by BIMB is to forge a working relationship with higher learn-ing institutions in Malaysia. Under the ‘on the job training scheme’ students of higher institutions will undergo training program provided by BIMB and this training program will be incorporated in their academic program.

The objective of this scheme is to disseminate knowledge of Islamic banking products and services to students and train them to marketing agents for BIMB. BMMB, on the other hand, has a more tailored promotional strategy of targeting entrepreneurs as its potential customers. This is done through various entrepreneur development programmes which are handled by the bank’s Entrepreneur Development Department whereby participants are educated on Islamic banking principles and concepts.

Training programmes that have been previously offered includes seminars on Islamic banking and product financing for entrepreneurs, workshops on business planning, business management and fi-nancial management. As part of the bank’s promo-tion strategy, participants are given detailed expla-nation on the types of products and services offered by BMMB and how their companies can obtain the financing needed from BMMB to start up or expand their businesses.

Both Maybank and Public Bank are not as aggres-sive as the two Islamic banks in terms of promoting their products and services. Part of these conven-tional banks’ marketing strategy is to target their markets and in doing so, they already have specific types of potential customer base. Thus, these banks do not need to have an extensive promotional mar-keting strategy as they only need to extend and pursue marketing to their target customers.

Concluding Remarks

This paper highlights some of the existing market-ing strategies adopted by Islamic banks in Malay-sia. Theoretically, Islamic banks in Malaysia should not face any difficulties in gaining support from cus-tomers as Muslims constitute the majority of the country’s population. However, recent studies have indicated that religious no longer plays an impor-tant factor in bank patronage. Works of Rosly and Abu Bakar (2003) found that religious factor is not conclusive enough to drive Muslims to use Islamic banking facilities.

In light of this revelation, Islamic banks have to bet-ter understand the needs, preferences and behav-iour of their target group customers in order to stay in the game. Hence, marketing strategy that is tai-lored to customer acquisition and retention should be properly addressed. This becomes increasingly crucial as foreign players enter the market and as products and services become more undifferentiat-ed. Hence, Islamic banks have to be innovative and creative if they wish to establish a strong competi-tive position and gain competitive advantage.

In the case of Bank Islam Malaysia Berhad (BIMB), for example, as a market leader in the Islamic banking industry, this bank should take on the role of a barometer of the industry and thus, lead the way in setting price structure for the market mak-ing price and making other marketing changes. In reality, however, it is the other Islamic banking pro-viders that are enjoying these competitive advan-tages over BIMB.

In terms of product strategy, BIMB is currently ag-gressively focusing its marketing efforts on e-bank-ing services. The strategy towards e-banking as an alternative distribution or delivery channel for its customers is done with the long-term aim of saving cost on operating or opening new service outlets or branches. On the promotional strategy side, both Islamic banks are pursuing strategies to educate


the public about Islamic banking products and ser-vices.

As competition intensifies, Islamic banks have to design effective performance evaluation system and understand the changing needs of its custom-ers. For example, in a recent work by Shafie et al. (2004), the authors reported that BIMB customers perceived compliance to Shariah as the most im-portant factor when dealing with the bank.

This means that customer is concerned s to wheth-er Islamic bank is observing the Shariah principles in conducting its activities. From their findings, they further concluded that Islamic business ethics are perceived as an essential element that Islamic banks must conform to. In a different study, Tahir and Ismail (2004) reported that the service level of Islamic banks in Malaysia is unacceptable and less than satisfactory. These findings suggest that Islamic banks have to give increasing attention to measuring marketing’s effectiveness and customer satisfaction.

References

Ahmad, Norafifah and Sudin Haron (2002), ‘Corpo-rate Customer Perceptions of Islamic Banking Prod-ucts and Services.’, Proceedings of the Fifth Harvard University Forum on Islamic Finance, Cambridge, USA.

Bank Negara Malaysia, Monthly Bulletin, Kuala Lum-pur, Various issues.

Bank Islam Malaysia Berhad, Annual Report 2004, Kuala Lumpur.

Bank Muamalat Malaysia Berhad, Annual Report 2003, Kuala Lumpur.

Cravens, David W., Bill Merrilees and Rhett H. Walk-er (2000), Strategic Marketing Management for the Pacific Region, McGraw-Hill, Australia.

Haron, Sudin; Norafifah Ahmad and Sandra L. Planisek (1994), ‘Bank Patronage Factors of Muslim and Non-Muslim Customers.’ International Journal of Bank Marketing, Vol 12 No. 1 pp. 32-40.

Proctor, Tony (2000), Strategic Marketing: An Intro-duction, Routledge, London.

Rosly, Saiful Azhar and Mohd Afandi Abu Bakar (2003), ‘Performance of Islamic and Mainstream Banks in Malaysia’ International Journal of Social Economics, Vol 30 No. 12 pp 1249-1265.

Shafie, Shahril; Wan Nursofiza Wan Azmi and Sudin Haron (2004), ‘Adopting and Measuring Customer Service Quality in Islamic Banks: A Case Study of Bank Islam Malaysia Berhad’, Proceedings of the National Seminar in Islamic Banking and Finance, Putrajaya, Malaysia.

Tahir, Mohd Izah and Wan Zulqurnain Wan Ismail (2004), ‘Quality Service in Islamic Banking: The Malaysian Case’, Proceedings of the National Semi-nar in Islamic Banking and Finance, Putrajaya, Ma-laysia.

www.bnm.gov.my

www.bankislam.com.my

www.maybank2u.com

www.rhb.com.my

www.muamalat.com.my



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