Time for change in Islamic finance

Reading the article Why are we seeing so many corporate scandals?  
By Prof. Dr. Amit S. Mukherjee  I liked the questions that Prof. Amit raises.
The queries resonated with the planner in me and I found them to be interesting. I say interesting because, whilst the erosion of trust has impacted quite heavily on the financial sector and probably enabled the growth of technology based financial solutions or FinTech, these questions are very valid across all industries including the Islamic finance industry.

Here are the questions Prof. Dr. Amit raises:

  1. Have we rethought how we work in a digital age when work increasingly requires large doses of unseen discretionary effort?
  2. Have we redesigned processes and structures to surface problems before these become crises?
  3. Have we allowed the free flow of key information to distributed decision makers?
  4. Have we created collaborative, learning-focused cultures?

Looking at the environment, in which the Islamic finance industry is operating, currently makes these questions quite critical, from an organizational perspective, with regards to sustainability of the various business models
in operation.

There are three key issues that get highlighted when one runs the above mentioned questions through business continuity thinking.

Starting with talent management & development and its allied areas of
learning & development, given the necessity of managing increasing numbers of Millennials, entering the workforce, along with providing gender diversity and equality coupled with ensuring professional development of the existing employees, the need to develop and incorporate digital and its various usages in work and its processes assume significant importance.

This leads into the second key issue of leadership competency.

On one hand erosion of trust, in financial institutions is at an all-time high, on the other technology in the form of social media has made the world a very small place where real-time personal engagement and word-of-mouth recommendation is given preference over any corporate statement or communication. This has created a need for a different type of leadership competency requirement. The control & command leadership style of yesteryear simply does not work in a world where knowledge and technology are driving the comparative advantage for an organization. There is a serious need for industry leadership to be empathetic and transparent in order to create engagement with society and employees simultaneously in order to develop social capital for the organization, from a business continuity perspective.

Thirdly is the issue of technology and its impact.

FinTech, in its various forms, has already impacted the conventional financial sector greatly by disrupting the historical business models. The driving force behind this technology usage and acceptance is the development of the smart phone technology and the need for the layman to have direct and quick access to finances. Add to this the developments taking place in the Islamic economy industry verticals, such as the increasing demand for innovative financing by the start-ups and entrepreneurial ventures, and you have a potential scenario of the Islamic finance industry losing out on big-time growth opportunities as these opportunities will get fulfilled by new financial start-ups who are agile and able to collaborate faster, as maybe required, with the changes in the regulatory landscape.

Whilst asset growth, increase in Islamic social responsible investment and convergence of ESG and Islamic finance are occurring  we, the individual organizations of the  industry, need to create strong sustainability and continuity plans to protect ourselves from further economic upheavals which are still bound to happen. 

Quoting Dave Ulrich‘Wars are won through organisation and you have victory by being in it together.’

This can only happen when we focus on people—employees, customers and partners—and look at the experience we deliver to them and the social issues we solve in order to create and retain engagement and build social capital in our mission for business sustainability.

 

 

 

Does Islamic finance have an economic and societal value?

Visual Courtesy: www.quotes.lifehack.org
Visual Courtesy: http://www.quotes.lifehack.org

As the world reels from a continuous series of financial, economic, humanitarian and natural crisis’s, the world of Islamic finance is growing. In the past decade the various projected global industry growth figures show this industry sector to be going up, up and away. Yet if one were to co-relate this growth with social development a direct correlation is, as yet, hard to find.

Is there an anomaly?

Within the global Islamic finance industry the strain of growth is starting to tell on the business models in use as issues of talent, technology and socially responsible investments are now the topics of discussion in industry conferences. Couple this with the developments occurring in the mainstream finance industry where areas like social responsible investment, alternative currency  and crowdfunding are drawing the organizations to view the disruptions taking place and review their business strategies and models.

On ground, technology has empowered people to be able to seek intellectual, financial and managerial collaborations, generating entrepreneurship and a mushrooming of small businesses. The financial industry, as a whole, is looking at the way investment is changing and the way finance is being run.

Against such a backdrop Islamic finance is beginning to look isolated and bereft of a clearly defined economic and societal value.

Decades ago as Islamic finance came in, as an alternative financial system, organizations took the system for use within the regulatory environment that existed. Regulations changed over time to accommodate market sentiments and with those changes organizations seemed to focus on compliance and not on the purpose of their business.

Therein is the anomaly!

The global industry undertook Islamic finance activities based on their then business models and processes. Models that focused on shareholder return of dollar value as primary objective not social or community development and, thus, it was business-as-usual.

Is there light at the end of the tunnel?

The many financial, environmental, economic and sociopolitical crises, coupled with the advancement and adoption of technology, over the past 20 odd years has brought about seismic shifts in the common man’s buying behaviour. Trust in organizations has eroded given the many scandals. A clearly recorded increase on the dependency of word-of-mouth reference, with regards to engaging with organizations, has come about. Resulting in organizations needing to have specific competencies that simply weren’t in existence 20 years ago. Social media usage has resulted in organizations having to depict simply and authentically their business purpose.

Institutional business has come to the realization that it’s people who make the deals. People who want to work with credible, honest and trustworthy counterparts. Trust has come a full circle and is now at a premium. At the same time, Boards are driving organizations to be more socially responsible and to ensure that the eco-system where a concerned business operates benefits from the services of the organization.

This provides an ideal setting for Islamic finance which, inherently, has economic and societal benefit in-built in its ethical use. Let me clarify through an example—a conventional bank would evaluate various parameters when opening a new branch, in a remote area, including cost-recovery and present a cost-benefit analysis to its board when recommending opening a new branch. The decision would be based on the return its investment would earn and the period in which it would occur. Currently an Islamic bank or financial institution would be doing the same.

But therein is the opportunity!

For an Islamic financial institution the purpose of business is not profit but providing, ethical, financial service to the community. Profit is a secondary objective coming after the benefit to the community has been established. Thus an Islamic finance institution opening a new branch in a remote area should be driven by the societal responsibility of providing services in an area where no such service is available. This involves disrupting the current business models and thinking fresh on the purpose of an Islamic financial institutions business and developing strategy from it to generate required financial gains.

Such gains will encompass developing the eco-system in which the business operates bringing about economic and societal benefit that would not only benefit Muslims but the society at large and enable Islamic finance to show a tangible and distinctive value-benefit.

 

I’d be delighted to learn of your views on the opportunity that the global Islamic finance industry has and how organizations could capitalize on the same. Please feel free to share your observations.

 

 

Islamic Finance: Employee Engagement, Brand Advocacy and Social Media

Visual Courtesy: www.loyalty360.org
Visual Courtesy: http://www.loyalty360.org

 

Is there a need for employee engagement, brand advocacy and social media in Islamic finance?

The overwhelming consensus in business is that it is about people and about providing value to people. Over the last decade the business world has changed drastically; the deterioration of trust in the financial sector coupled with organizational practices that demonstrate detached leadership and an ever-increasing preference of people to trust referrals and word-of-mouth more than paid advertising – in many ways, thanks to social media – has resulted in employee engagement and savvy social media utilization.

For the Islamic finance industry the task is more than having a few social media accounts and putting up a corporate message now and then. The challenge is to engage the man-on-the street and have a conversation that leads to business.

Demystification

For decades Islamic finance has been shrouded in its technical complexities. As trust becomes more and more critical in business relationships, the industry needs to demystify it’s technicalities in order to be able to present simple value propositions that ‘mainstreet’ understands. Similarities with financial sectors like responsible finance from the conventional world need to be explained in simple terms. Such alignment will open a greater opportunity area for the industry.

Employee Engagement

At an organizational level to achieve social demystification the premise begins with employee engagement.

Today employee engagement is a critical strategic organizational requirement for any company interested in achieving their goals successfully. There are many experts available online on how employee engagement can be done. Needless to say for each organization the needs would be different and a prescribed and formatted approach would not work. But that is a topic for another day.

For Islamic finance organizations a good starting point for getting employees on board is with its business objectives. Involving the employees in developing the business strategy and its initiatives creates ownership and trust as the employees themselves have recommended the actions and would be executing them.

With some strategic human resource planning, in the area of both functional and behavioural competencies, the departmental results can be tied back to employee performance and thus provide the employee a direct line-of-sight to results of performance and non-performance. While most do have this, the question to ask is: what is the impact and how is it measured, if at all?

For an employee, having contributed to the business strategy and understanding how self-performance would affect the achievement of the goal, the performance comes in the form of brand advocacy.

Brand Advocacy

Research shows that when an employee pitches for the organization, as its brand advocate, it’s the strongest form of recommendation that works. Whether it’s the CEO presenting to the board or it’s a front-line executive answering customer queries, the interaction creates an experience for the recipient. An experience based on which critical decisions are made.

Effective brand advocacy is only possible when there is complete trust, ownership and understanding of the business objectives. It’s tough to build such brand advocacy but not impossible. Based on the emotional intelligence of the organization, adequate time has to be given to build this up.

The process of building up effective brand advocacy involves use of social media by employees and the organization.

Social Media

The advent of smartphones and internet technological developments has created a distinct shift in communication habits among all. Key among these habits is the use of social media.

S1

S2(Social media data courtesy: We Are Social)

With the world literally living on social media, it’s necessary to get authentic conversations going through this channel of communication in order to create relationships that lead to business growth.

Brand advocacy enables employees to reach this conversation through personal network of friends and family, while an organisational social media account engages directly with the key stakeholders. What this dual conversation does is provide a transparent and authentic platform for a brand to pitch it’s story. As people engage, feedback flows and a genuine rapport emerges through the message of the organization, the brand has a great opportunity to grow.

As we adapt to more technological advances and as the Islamic digital economy goes from strength to strength, it’s time for the global Islamic finance industry to connect the dots between employee engagement, brand advocacy and social media to give people the service they so badly need.

This Ramadan create your legacy

Ramadan Legacy

Finally it’s here!

In March I had written about a talented group of Muslims who had developed a RAP– Ramadan Action Plan. Read about it here.

Now the group has just launched a fabulous app– Ramadan Legacy app— the world’s first fully featured app for Ramadan that provides an excellent way of planning your Ramadan in the digital format. The app aims to enhance your experience of Ramadan through combining smart technology and beautiful design with spirituality and learning, all to help you organise your worship to make Ramadan easy and enjoyable.  It has launched on the Apple and Android App Store on Friday 12th June 2015.

“Ramadan Legacy is a tool that allows Muslims to create, track and build their Ramadan Legacy. Imagine in five years time looking back to see what you felt and achieved five years ago, in Ramadan. It combines smart technology and beautiful design with spirituality and learning, all to help you organise your worship to make Ramadan easy and enjoyable.”– Ramadan Legacy

Why You Should Undertake a Brand Risk Analysis

As brand marketing professionals we delve into the structural issues of developing a brand and often invest heavily in the brand building process but do not take into account the associated risks or undertake a Brand Risk Analysis on those risks .

As the importance of brand for an organisation has grown over the years, the risks too, have proportionately grown.

The global financial crisis triggered major socio- economic changes and issues of transparency and trust along with growth of social media usage, have been catalysts in moving brand risk to center stage and in the limelight.

Brand risk management should be identified, measured and managed within the enterprise risk management framework of an organisation.

Given that brand risk is multifaceted—strategic, operational, financial, regulatory and are often managed by organisations in individual silos or through departmental based planning– being able to get a true picture of potential brand risk is poor.

Brand risk evaluation and planning doesn’t deserve such silo based approach but a much more strategic and integrated approach.

Let’s start with “What is brand risk?”

Under traditional risk management, which is originally the domain of the finance department, brand risk has no definition. It comes across as an output from other identified risk areas such as lawsuits or adverse regulatory decisions or supply chain issues.

In layman terms we can define brand risk as threats to the brand equity or threats to the brand differentiators that make consumers choose one product or service over the other. Thus brand risk can be defined as anything that threatens:
1. The sustainability of current and future demand for a company’s product or service
2. The company’s commercial freedom

The key internal areas where brand risk is, usually, generated are:
1. Poor manufacturing quality
2. Poor customer service (brought about by dissatisfied or not-in-sync with the brand philosophy employees)

External areas are:

  1. Behaviour by consumers—boycotting the products or services of the company due to change in perception brought about either by a change in the brand differentiator communication or experience OR due to changing social values
  2. Retail space capturing, buying out of stocks, removing stocks on display etc tactics by competition
  3. Political or community opposition to the brand to do business within a geographical region which limits its ability to develop.

The value of approaching brand risk, in a comprehensive manner, by looking at the brand all round from the point of view of answering the question— “what can affect the sustainability of the brand?”– provides a useful framework for risk analysis.

Such an analysis can aid in corporate planning for business growth as well as in being a measurement for brand equity as a value.

Changing Islamic Finance

 

The growth of the global Islamic finance industry has created the need to review and implement change in a few key areas. One of these is the much debated topic of availability of competent talent and jobs for these talents.

Today the industry is in critical need of connecting the dots between itself, academia and students to ensure its long-term sustainability. There is a dire need for globally accepted professional standards that enables development of competent talent keeping the relevancy that industry needs along with strategic talent development and career planning within organisation of the industries.

I had the pleasure to interview two luminaries of the global industry–Mr. Daud Vicary Abdullah, President & CEO of INCEIF- The Global University of Islamic Finance–and Mr. Richard Thomas–Chief Representative of Gatehouse Bank in Kuala Lumpur– to get an understanding of how this can be addressed by academia and industry.

 

This article was first published in the Islamic Finance Today April 2015 issue.