MALAYSIA - OPINION - Lost in translation ?

www.cpifinancial.com - It ought to be the Editor of Islamic Business & Finance’s dream to be sent to Kuala Lumpur, a city whose space-age skyscrapers house the institutions responsible for developing the world’s most sophisticated Islamic finance market. However, as I walked its bustling streets I soon learned that the wonders of Malaysia’s Islamic banking industry have yet to translate down to its banking consumers…
Boasting a 20 per cent market share, which the country’s Central Bank wants to double within the next five years, its Islamic banks are spoiled with a supportive Government, advanced Islamic capital market and a ready-made consumer market from the country’s majority-Muslim population. Malaysia’s population, however, seem a bit nonplussed by the concept. (source)
“Why would I go to an Islamic bank?” chuckled one local, who I met while photographing some Islamic bank branches. “I’m a Muslim, but it is not un-Islamic to use a conventional bank – we all used conventional banks until recently when Islamic banks came along – they can’t say Muslims have to use Islamic banks, I’ve never heard anyone say banks are un-Islamic!”
“Islam is practised differently in every country,” explained another local I met on the same expedition, her statement illustrated beautifully by her free-flowing, uncovered locks. “Malaysia is very relaxed.”
And so how did Malaysia cradle the largest Islamic finance market in the world, when none of its inhabitants seem terribly enamoured with it? “We had to have something,” explained one CEO I interviewed. “Singapore was the financial centre, the Middle East had the oil… We had Islamic finance.” A savvy business decision, given the industry’s much-touted rapid growth. However, the banking CEOs I met didn’t explain it that way. “Islamic banking has none of the greed associated with conventional banking that caused the financial evils of the western world. It is best for the world and its people,” grinned one CEO when I asked how the fees compared to conventional finance, given all the extra processes involved in Shari’ah-compliant products. “It is cheaper, because there is no interest.” But surely you still charge a fee? “Yes, but it is transparent, unlike conventional finance, all the fees are there for them to see.”
This is of no consolation to those not familiar with the complexities of Islamic finance: “I once compared mortgages with an Islamic bank and a conventional one,” said one taxi driver when I asked if he used an Islamic bank. “I couldn’t understand any of the details on the Islamic bank’s form – even though I’m a Muslim – I had never heard these terms before. It was very confusing. All I saw was that the Islamic mortgage would cost more.”
This is perhaps why an Islamic scholar recently told me that although Malaysian Islamic banks boast a 20 per cent market share, only 20 per cent of that comes from the retail side – a statistic which the CEOs I met emphatically denied. “People prefer Islamic banking because it is ethical – if we charge the customers a late payment fee we have to give it to charity,” one CEO insisted. But Islamic banks must have to make a profit somehow? “We are as profitable as conventional banks,” the CEO asserted, refusing to be drawn out any further.
The void which apparently exists between Islamic banks and the average Malaysian on the street does seem to illustrate that Islamic banking means business, not religion. Malaysia’s thriving Islamic finance industry was not driven by consumer demand or built to serve religious needs. What I think we need to remember, is that this could also explain its success.
Malaysia built a watertight regulatory system, developed its Islamic capital market and built institutions to nurture world class talent. It treated Islamic finance as business and gave businesses a reason to choose it, and so they have. If the Middle East wants to enjoy such success, it must learn from Malaysia and not trade on Islamic finance’s name.

Source:  http://www.cpifinancial.net/blog/post/14285/lost-in-translation - June 4, 2012