Khan Kamranur Rahman Shovon:
Although Islamic banking is finding it challenging to cope with the evolving global banking environment while still remaining competitive with the conventional counterparts, it is outgrowing conventional banking in many of the world’s predominantly Islamic countries. The globally-growing Islamic Finance as well as Islamic Banking is also making paces in Bangladesh. Islamic Banking started in Bangladesh with the establishment of Islami Bank Bangladesh Ltd. in 1983. Since then a moderate growth of Islamic Banking is found; eight full fledged Islamic Banks and a number of Islamic Banking Windows/Cells owned by some conventional banks are functioning at present in Bangladesh.
Study on strategic management of Islamic Banks has greater importance to find the new scope in the Booming Banking Industry. The contemporary strategies practiced by an Islamic Bank have to be analyzed to formulate and implement the required strategic changes with a view to overcome the current hindrances for outrival and reach a position that will make the shareholders and all concerned stakeholders satisfied.
Now, what is strategic management? Simply, it is the management to reach your goals. Strategy is how to achieve an objective in the most convenient, effective and economic way. It is a thoughtfully constructed plan or method or action that will be employed to achieve the result. In all aspects of our lives, we have to follow some strategies to reach our targets. Organizations must have strategies to achieve some specific objectives. Without strategy, a man or an organization may lead to the way of wrong destination; and the result is to come back and start again or be ruined. However, Strategic Management involves formulation and implementation of the major goals of the organization by the top management on behalf of owners. When strategy of an organization is formed, the elements of strategy become apparent and we should have a vision, a mission, goals & action plans. The systematic situational analysis/study of the factors, associated with customers and competitors (the external environment) and the organization itself (the internal environment) is required to provide the basis for Strategic Management or optimum management practices.
Situational analysis includes Macro Economic Factors (Political, Economic, Social, Technological, Environmental, Legal) influencing Banking Industry (PESTEL), SWOT (Strength, Weakness, Opportunities & Threat) analysis, Porters Five Competitive Forces Model (Threats of New Entrants, Power of Suppliers, Power of buyers, availability of substitutes & Competitive Rivalry), etc.
Basic and complementary strategies
A. Generic Strategies:
At present, banking industry in Bangladesh is very much competitive than ever before. Banking has become stiff challenging with the growth of economy, growing middle class, increase purchase power of people, central bank’s supervision, etc. To address the current situation, an Islamic Bank can consider following strategies understanding the relevant market segment and products for its expected growth and long term sustainability.
Best cost provider strategy
The best cost strategy of the bank is based on the following principles:
Deliver superior value of customers’ money by meeting or exceeding expectations on service/product attributes and beating their price expectations.
Be the low-cost provider of a product/service with good-to-excellent product attributes, then use cost advantage to price the product lower than the rivals.
Best cost provider strategy can be followed through engaging wide ranging banking activities that are needed by customer and introducing innovative products and services to satisfy customer needs in the changing socio economic conditions.
Focused low cost strategy
Focused Low Cost Strategy may be followed for penetrating into the market as well as to create a positioning like “Affordable” so that the target group considers the products/services with a positive mindset and treat this as affordable. For example, deposit/investment products may be initiated for lower income people (a focused group) like garments industry workers, farmers, etc. at low costs, affordable by them.
Strategic alliances
Strategic alliances may be formed in time of need to expand the market. For example, strategic alliances may be formed with other banks or organizations to launch ATM/ Debit Card, Credit Card, Mobile Banking, etc.
B. Functional strategies
Outsourcing
Outsourcing lower the cost for some services like cleaning & security service, training purposes, etc. Care should be taken that main functions are not served by outsourcing.
Strategies for entering into international market
Strategic plan may be prepared to get into the international market gradually following the time schedule specified in the plan.
Defensive/offensive strategies
Organization has to decide whether defensive/offensive strategies are to be followed by considering the internal & external situations of the organization.
First/late mover strategies
The organization is to decide whether it will follow First/Late Mover Strategies to launch a new/same type of products existed in the market.
Some recommendations to formulate the strategy
The vision, mission, objectives and commitment
The vision statement must clearly show the ultimate destination, whether the organization will move towards the top position in the Islamic banking industry/ the overall banking industry in the country or the globe. The statement gives direction. It should be graphic, focused and feasible. On the other hand, it is to be noted that the vision statement should not be bland lacking motivational power of the employees. A time period may be mentioned in the statement to reach the long term goal of the organization. The statement should have some phrases that can motivate the employees and make them believe that they are an integral part of the organization. Some phrases of the statement should regard the retention of its market position or progressing continuously indicating some strategic intent.
A well formulated mission statement(s) should convey the answers like who we are, what we do (what the company does for its customers, what it does for its employees, and what it does for its owners) and why we are here. It should be clearly mentioned in the statement that which group of people is being satisfied, how their needs are being satisfied and what is being satisfied. A mission statement should say whether the company will spread Islamic Banking in the local/regional/global areas among a group of people. The mission of the organization must be supported by its objectives.
Objectives of an organization should be specific, measurable, attainable and realistic to attain the mission. Suppose, if the following is mentioned in the objectives “To spread Islamic Shariah based products among people”; the objective is not specific to indicate which group of people (local/regional/global) is to be served. To take care that the objectives should be time framed and target oriented to achieve the mission of the company.
The commitments reflect the values of the organization. The practical services of the bank will reveal whether the commitments are maintained or neglected.
The premises of an organization must contain boards containing the vision, mission and corporate philosophies so that those can easily be seen by the employees. This will help to take those in their beliefs.
Notifying Customers vigorously about Shariah Banking
Bankers must know the details of Shariah Banking. If they are not confident about Shariah Banking, neither Shariah Principles can be implemented nor the customers may be informed about this banking. The customers as well as the people should be informed about the Shariah Banking in such a way, so that, the meaning, process & procedures of shariah banking is clearly understood by them. Customer Awareness and Education Program for customers can be arranged for providing customers with the knowledge and understanding of the shariah banking products and services. Circulation through electronic & printing media, arranging meeting, seminar, training, etc. may help in this regard. Displaying the customer charters (customers’ rights & obligations, features of different products/services, etc.) in the office premises is a right of the customer and a good tool to inform him about shariah banking.
Marketing Strategy & Brand Image
Marketing strategy should not be conservative, counterproductive and backdated. As the industry becomes increasingly competitive, so should be the Islamic Bank. To be the market leader, an Islamic Bank has to be proactive in its marketing approach, obviously not sacrificing risk and shareholders’ interest. In some cases, the organization is to be the first mover to be the market leader.
Strong brand image creation is absolutely necessary, if an Islamic Bank wants to achieve its long standing goal to be the market leader. Brand loyalty programs should be introduced. Brand loyalty is the integral part of corporate organization in today’s fast moving business. Marketing efforts are to be increased to a large degree. Sound brand image & smooth business operation help to create customer loyalty. Unless there is strong brand image, organization suffers from identity problem and become a threat for long term sustainability.
Research & Development: Diversification of Products
There should be concerted effort on research and development. More product diversification, creation of new products, upgrading the features of existing products and services that outperform the rivals are required. Analyze the success of rivals and tune strategy accordingly. At present, Islamic Banks are doing their business mostly in Trading or Bai mode (Bai-Muazzal, Bai-Murabaha, Bai-Salam, Bai Istisna’a) without any investment in Partnership/Participating mode (Mudaraba & Musharaka). Participating business can be initiated in favor of the customers of high integrity & excellent profile. A bank can finance some innovative projects in the partnership mode for diversification of its business.
Talent Attraction and Retention
Human resource is the most valuable asset as well as the heart of any business. For banking industry, it is the core of all operations. So, develop policy to attract top talent in Islamic Banking, ensure career development program, and retain top talent.
Expansion of Islamic Banking to the Root
For the expansion of Islamic banking in rural areas, take help of the rural branches, agent banking outlets, Nongovernment Organizations and various Self Help Groups to make different types of Islamic Banking Investment/Deposit products available to the rural people. Specially, small installment based deposit schemes and micro financing can play a great role to the well being of rural people and help in building a good image & reputation of the Bank in the rural areas over and above the business.
Technology & IT Based Internal Environment
Invest on top quality technology. Since the inception of globalization in Bangladesh, banking sector has undergone various changes. Banking is becoming more dependent on technology than ever before. The idea of old conventional banking is diminishing gradually. A centralized country wide branch network and payment network keep a bank’s position in line with the customer expectation. IT based internal banking & all modes of E-banking (internet banking, mobile banking, etc.) should be provided to keep pace with the rivals of the industry. Islamic Banking softwares are to be provided to calculate the profit/loss most accurately according to the guidelines of Islamic Shariah to protect the interest of the customers.
Ethical Role:
A bank is not only for business. It should be an ethical player in business and a good corporate citizen. CSR activities are to reach wider segment of the society and contribute in the socioeconomic development of the country. An Islamic Bank may take wider range of activities to help the people, the country and the globe by complying the instructions of Islamic Shariah; these activities enhance the image of the bank consequently.
The banking sector is still the most promising and structured sector of the economy. It is also the most preferred sector for the investors as increased remittance flow; good export performance and steady industrial growth, accelerated performance in SME and consumer loan, implementation of risk management and corporate governance are likely to have positive impact in the performance of the banking sector. As the Islamic Banking is seeing impressive growth in Bangladesh, strategies of an Islamic Bank should be designed to overcome the current hindrances for outrival and reach a position that will make the shareholders and all concerned stakeholders satisfied. If an Islamic Bank can attain the level of strategic excellence, the continuous success is a must.
(The writer is a banker).
