The worldwide movement of workers is driving a growing market in money transfers and related services, and banks are searching out new ways to cater to customers who require Islamic finance, both at home and abroad. Writer Joseph DiVannaa.
In today’s global economy, people are on the move. An estimated 200 million people regularly transfer money to their families using formal agents such as banks and Western Union, representing about $300bn. Money sent through informal networks using non-regulated agents such as Hawalas is estimated at an additional $150bn. If an economy is flourishing and has good prospects for growth, it will attract workers from elsewhere. For example, the growing economies of the United Arab Emirates (UAE), Bahrain, Qatar and Kuwait offer immigrants a chance to obtain a job, earn money and send the surplus home to support their family.
As national borders become increasingly porous, transferring money and facilitating trade across national borders is rapidly becoming necessary to economic growth. During fiscal 2007, for example, Bangladesh reported that strong remittance inflows were the main driver of private consumption at 24.3% of gross domestic product. Remittance inflows also contributed to a sharp increase in gross national savings to 29.2% of GDP.
Extending services
Islamic banks – recognising that the majority of the capacity for Islamic finance is in the Middle East and the vast majority of Muslims live elsewhere – have raised the priority of expanding operations to previously unserved geographies.
Dubai’s Noor Islamic Bank is capitalising on this trend with the introduction of its 24-hour branch at Terminal 3 of Dubai Airport. This will be the first port of call for many new immigrants to the emirate. Similarly, CIMB Islamic Bank Berhad’s CashLaju is a remittance service for migrants to transfer money to any bank or post office in Indonesia, for collection by the beneficiary.
What is significantly different in the new world of transnational services is the rapid decline in their cost, which has been brought about by advances in technology. But not all providers of these services are reducing their costs to customers, prompting action by central banks. For example, Bangladesh’s central bank has set limits on transaction fees of between Tk10 ($0.15) and Tk50.
In 2005, Doha Bank – under a joint venture with Misr International Bank – introduced a card-based e-remittance service for Egyptian expatriates working in Qatar to allow them access to funds via the ATM network. Elsewhere in African emerging markets, conventional banks and mobile phone operators are achieving record levels of success by using the mobile phone as customers’ preferred channel.
The Next Generation
Products such as mobile phone-based money transfers, virtual branches and services designed to facilitate small and medium-sized enterprise activities across borders are the next big challenges for Islamic banks that are eager to reach a more economically diverse customer base. To date, regulatory bodies have acted favourably by proactively working with financial institutions and mobile phone providers to remove obstacles in implementing these new services.
Joint venture activity will increase as Islamic institutions reach across borders for customers without sufficient resources to expand into multiple geographies simultaneously. A partnership such as Emirates Post and India Post launching the low-cost instant money transfer service called an express money order is just one example of the type of collaboration that can help move more remittances into the formal economy.
What is clear is that as Islamic financial institutions enter the next era of providing sharia-compliant banking services, the depth of their offerings will change dramatically in two ways: what is being offered, and how services will be delivered.
