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Using Analytics to Drive Growth and Improve Customer Experience in Islamic Banking

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Islamic banking and finance has risen rapidly, and today there are nearly 500 Islamic banks operating in 75 countries around the world. The future is very promising as well, with assets projected to grow at 9.80% CAGR over the next 5 years to reach USD 2.61 Trillion. The QISMUT region continues to drive a lot of the growth, accounting for more than 80% of global assets and having a combined profit pool of USD 10.8 Billion. The cluster will continue to lead the way with the profit pool expected to be close to USD 30 Billion by 2020. The following factors are combining to create this positive situation:


  1. The Islamic population of 7 billion is growing at two times the rate of the global population
  2. More than 250 million people in Islamic Countries are underserved by the financial services community
  3. Expanding the range of financial products to markets that are not traditionally Islamic, including SMEs, and agricultural finance
  4. Targeting new regions – East Africa, China etc.

However, while the pace of growth has been impressive, the share of Islamic financial assets still remains a small fraction of the global financial asset size (1.3%). Profitability, which took a hit during the financial crisis, has recovered but is still below 2008 levels. Not only do the Islamic banks have a lower profitability (12% ROE versus 14.5% ROE) and a lower cross selling rate (2.1 products per customer versus 4.9) than the conventional banks, but they are also lagging in customer experience.  Only 14% of Islamic banking customers are satisfied with the speed of their bank’s service versus 20% for the conventional banks, and only 11% of the customers happy with the ease of their bank’s processes versus 21% for the conventional banks. So clearly, there is some room for improvement. As new regulatory requirements take effect, Islamic banks will need to become more risk orientated, customer-centric and data intensive.


Technology could be one of the keys for Islamic banks to increase their levels of competitive intensity. Process optimization through technology could drive a 15-20% rise in the Islamic Banking profit pool and an increase in the asset size to USD 3.42 Trillion. With 98% of their banking customers using smartphones and more than 60% of customers relying on social media as a source of information for their banking decisions, Islamic banks are already undertaking digitization initiatives in the areas of mobility and social media integration. The rapid growth in customer numbers and assets also makes it imperative for them to have a very tight focus on credit risk, controlling them, mitigating them, and proactively monitoring them on a routine basis. The focus is now shifting towards gaining predictive insights using analytics. The more granular the insight, the better Islamic banks will be able to target small groups and even individuals. Along with an improved product offering, data driven decisions can help increase the Islamic Banking market share by nearly 40%.


Some financial institutions have already taken a lead in using analytics to improve their business. A leading bank in UAE had a huge upturn in their overall profitability within 30 months of implementing an analytics solution by gaining insights in acquiring the right-fit customers and identifying cross selling opportunities. One of the largest banks in India implemented an analytics solution for pre-delinquency management, to help identify the payment propensity of their customers. The predictive insights gained by the bank enabled it to increase its collections by more than 50%.


While analytics generally delivers value at each stage of the customer and loan lifecycle ranging from improved customer acquisition to enhance collections; it also enables Islamic Banks to focus and improve their key pain areas:


  • Improved Cross Selling: Analytics helps analyze customer behavior through predictive analytics modelling based on the transactional patterns of the customer. More accurate segmentation of customers in turn helps to identify cross-sell/up-sell opportunities
  • High Customer Satisfaction: Analytics enables improved credit decisioning through credit scoring models. The automated credit scoring engines help reduce approval times which results in the customer being on boarded and serviced faster
  • Increased Profitability: Analyzing customer behavior patterns can help to retain loyal customers through differential pricing or servicing. Analytics can also help increase collections and prevent delinquencies by ensuring that the most appropriate collection strategies are used
  • Enhanced Operational Efficiency: Analytics provides insights into the customer which can be used to improve service delivery. Comprehensive portfolio analysis leads to improvement of overall operational efficiencies

Analytics can be a powerful tool to help Islamic banks make better decisions across the entire life cycle from lead generation to acquisition, from servicing to collections.


Since most modern Islamic banks have rapidly changed and invested in growth programs in the last decade, legacy systems are now struggling to keep up with the pace of product innovation and regulations. However, with the right investment in technology, not only will Islamic banks continue their strong growth but they can increase profitability and customer satisfaction levels.

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About the Author

Megha Dalela, Vice President and Product Head for Lending Analytics

Megha Dalela is the Vice President - Product at Nucleus Software where she heads the product development function for Lending analytics, and is responsible for conceptualizing, designing & development of solutions which delivers value to the clients.

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About Nucleus

At Nucleus Software we are committed to providing efficient, modern yet proven software solutions for the global Banking and Financial Service industry. We have been pioneers in developing Retail Banking Software, Corporate Banking Solutions, Transaction Banking, Cash Management and Internet Banking Software since 1986. Our success spreads across more than 50 countries, and we serve our customers globally through our direct and partner operations across US, Europe, Asia-Pacific, Africa and the Middle East. We are known for our world-class expertise and innovation in lending and transaction banking technology. Our two flagship products, built on the latest technology are: FinnOne™ and FinnAxia™.