Islamic finance's entry into western markets

The magazine Islamic Finance News in its edition of 5 December 2012 posed the following question to its forum of experts:

The full responses are only available to readers of the magazine. However I have reproduced my own response below.

Using the phrases “Western markets” and “The Islamic finance industry” confuses rather than enlightens.

Each country where Muslims are a minority of the population is a distinct financial services marketplace which has to be assessed on its merits. Relevant factors will include the total population, levels of affluence, propensity to consume financial services, financial services regulatory rules, level of Muslim population etc. If a business attempts to looks at “Western markets” as a totality, as if Germany and Slovenia (for example) could just be taken together, it is guaranteed to take the wrong strategic decisions.

Similarly, “The Islamic finance industry” does not take strategic business decisions. Such decisions are taken by individual companies seeking to maximise profits by entering those markets where they believe business can be done profitably.

Against this background, there is considerable scope for successful Islamic financial services providers based in Muslim majority countries to expand profitably into countries where Muslims are a minority. Such expansion is probably best carried out one target country at a time, and by concentrating on niche services. Asset management and provision of takaful, especially family takaful, may well be more successful than offering vanilla banking services.

Any market entry strategy needs to minimise costs. In particular customer acquisition costs risk being high as Islamic financial services will not be well understood in most such target markets, so a strategy is needed to keep such costs low.