‘TIPPING POINT’
Sector may have to choose whether to opt for Islamic or conventional offerings
THE financial market will come to a “McDonald’s Moment” when it has to decide whether to continue having a duplication of Islamic finance and conventional banking products or settle for one type that appeals to Muslims and non-Muslims, says CIMB Islamic Bhd.
THE financial market will eventually reach a tipping point where it would have to choose whether to continue duplicating Islamic finance products and services from conventional banking or settle for one dominant offering that appeals to both Muslim and non-Muslim customers.
This is the sentiment, dubbed the “McDonald’s Moment”, shared by CIMB Islamic Bhd chief executive officer Mohamed Rafe Mohamed Haneef in a recent interview with NST Business.
“The time will come when the market would have to choose whether to continue this duplication or default to one dominant product that appeals to a maximum number of people. This is what I call the ‘McDonald’s Moment’,” he said.
The “McDonald’s Moment”, according to Rafe, was a time when the fast food franchise had to decide whether to operate two separate kitchens or only one that is accessible to all.
To operate two kitchens would cost the company more money, so it would make more business sense to operate one kitchen that is accessible to everyone.
“We saw this happening in McDonald’s Singapore where they defaulted to only one kitchen, which was the halal kitchen, even though only 40 per cent of the customers needed halal food.
“They defaulted to a halal kitchen because operating two kitchens was too complex and there could potentially be compliance issues. I believe this is something that we will eventually see within the financial landscape where there will be an Islamic finance default overall,” said Rafe.
He said Malaysia still has a long way to go in offering full-fledged Islamic banking, but stressed that it is doable.
“We have seen this happening in some countries like Saudi Arabia where there was a huge jump to Islamic finance from conventional finance. Malaysia, is unfortunately not there yet, as Bank Negara Malaysia said that we are only at 27 per cent in terms of total assets,” he said.
“The transition will be easiest from the retail side because it is much simpler to convert conventional products to syariah-compliant offerings. It will be more challenging to convert the commercial banking side because we need some conventional products when we are dealing with firms that are not syariah-compliant.”
Rafe then drew on the popularity of Bursa Malaysia-i, which is the world’s first end-to-end integrated Islamic securities exchange platform.
“You’re already seeing this (transition) when Bursa Malaysia came up with the Bursa Malaysiai, as most of the companies listed are owned by non-Muslims and multinationals. These firms, however, tend to perform more syariah-compliant deals so they can keep their syariah-compliant status and capture a bigger reach of investors. That would give them a boost on the liquidity side and a boost in share price,” he said.
“I believe, in what I see from other markets, that there will be significant growth in Islamic finance. With a clear direction from the regulators, it would hit a tipping point. Banks would realise that by having two systems in the same channel would be complicating. Beyond 2020, banks will have to make choices on whether they want to cater to the maximum or not.”
CIMB Islamic saw its financing business growing 21.2 per cent during the first half ended June 30, versus the conventional group’s loan growth of 8.3 per cent.
Its financing business is mainly focused in Malaysia, accounting for 85.2 per cent in the first half.
Its other key markets, Indonesia and Singapore contributed 7.4 per cent and 5.4 per cent respectively.