Does cannibalisation occur in Islamic financing products?

EXPERIENCE is grasped when one can generate a sufficient amount of cogent knowledge and soft skills sourced from previous behaviours, impacting the reinforcement of his theoretical belief for balanced practical accomplishments.

This is sourced from the moulded selection of Islamic financing products. At least three phases can be grown to ensure the experience gained from the act of consumption and spending drawn from the selection is greater for improve well-being.

Three phases are in need of expositions for mutual understanding and appreciation purposes.

The first phase is known as “knowledge principle”. At one point, it is compelling and the discovered recitation obtained when the sharing between the client and the bank staff has met a conclusion and agreement through ideal conversation.

The second phase is called as “interaction principle”. The configuration of an established principle to derive the completion process linked to the financing application, where an agreement is resolved to take up the facility afterwards.

The third phase is best known as the “running principle” once the taking up is attained. At this stage, the monetary facility is credited to the client account. Later, the instalment is then serviced monthly until its doorway out.

These phases can produce varying levels of proficiency for bank customers. Importantly, the first phase is defined as a key before the second and the third can lead the way.

The sharing built through “bank-customer relationship” should be inculcated through the properties of fairness, benevolence and empathy to secure ideal demand for future people and profit.

When the experience is likely shared by old folks to the shaped patronisation of millennials, the latter will come up with a new paradox of consumption and spending and biased hypothesis hypothesised as found in Islamic banks is expected. The selection and the goodness of behaviour for established and matured experience lead to two lessons. These include a balanced decision for peace of mind and improved religious satisfaction.

This abstract leads to the cannibalisation that is sourced from the customer’s vision. As such, two puzzles are acknowledged. Q#1 – What is meant by the term Islamic financing cannibalisation (IFC)? Q#2 – Does it occur practically?

In this post, the IFC is the term that denotes a demand phenomenon in which one financing product from one segment competes with other products sourced from other segments, resulting in a loss of sales. Certainly, the market share does not elevate even when sales are extraordinary for the former, implying it is a migration effect that departs.

If no measure is educated, the expected of reduced sales volume, revenue or market share of one to another are likely becoming a hazard to the industry. In the industry, there are four Islamic financing transactions (IFTs), which formulate an impact to both – be it improved customer base or enhanced market share.

First, one intends to choose vehicle financing when he decides to buy a car, where the convenience is brought into play.

Second, one intends to choose Islamic home financing when purchasing a house – be it complete or under construction.

Third, when one fulfils personal purposes, Islamic personal financing facility provides leeway to meet marriage, pilgrimage, house remodelling and contingency purposes, among others.

Fourth, when one has gold items, the faculty to get instant cash is greater and so do the repayment mode flexibility. The money obtained is utilised for meeting basic needs, repairing a broken car and overhead expenses of a petty trader.

Though these products are in particular offered enhanced market segments of Islamic banks, but the real issue is about the cannibalisation found in the selection and actual demand, occurred when the rationale and experience folks begin to share their philosophy and judgment (PJ) pertinent to the “five rules to become a wise customer”.

These include socialising of experience, digestion and synthesis, option generations and possible adverse outcomes derived from the given options selected, actual feeding and the sharing of mutual experience via offline and online measures.

The IFC two examples found in Islamic financing products invented by the minority group of customers are explained.

First, one prefers Islamic personal financing when buying a house than that of Islamic home financing, where the rate is lower compared with the former. The taking occurs when he is influenced by the low-profit rate drawn from the promotion and the savings is just sufficient as a buffer and considered addition in a paradoxically thought.

Second, one may take up ar-rahnu and personal financing facilities instead of vehicle financing to undergo a vehicle buying decision. In layman’s terms, this transpires when one has a small amount of savings used to make the payment of the car bought though, in reality, it is an ineffective call. One tends to pay off more on profit to the bank at reduced savings.

Checking the demand for the products via cross elasticity of demand approach can provide a clue to improve the “segregation” between product lines.

The learning should be gauged based on the customer responsiveness to the current product and immediate correction is examined via the trend of the sales sourced from the purpose of financing and the amount extended found in the customer database saved and preserved in the bank computerised system.

New product proposal that in particular covering the elements of customisation and personalisation is likely to bring in. If already in, the packages of promotion should be creative enough to impact the demand. In other words, the product introduced to enable the customer to make a wise decision rather than borrowing a manipulative approach from experienced folks to win the ticket. Further research and due diligence are somewhat needed to divulge its merit and potential.

All in all, the idea expressed here occurs when the developed experience folks have begun to share their knowledge and skill on social media platforms with millennials to experience a wise banking involvement – justifying the sharing is impacting the demand and survival of the offered Islamic financing products.

Islamic banks today are sager to hone their banking manoeuvrings via considered customer feedback to make a profitable business. The attainment, however, is still much relied on how good they deal with the IFC in an effective way, where lower-cost product and competitiveness features are first things first in the deliberation of improved decision for the balanced success of the business operation, at least.

*The author is an Associate Professor at the Labuan Faculty of International Finance, Universiti Malaysia Sabah, Labuan International Campus. He has a PhD from the International Islamic University Malaysia (IIUM) in Islamic Banking and Finance (PG310163). He can be contacted at hanudin@ums.edu.my