Islamic banks are growing fast. They saw 17.6% annual growth in the past several years, as noted by professional services firm EY. But with growth comes challenges.
EY identified three major challenges faced by Islamic banks as they transition from regional operations to truly global firms:
1. Sustainable growth. To maintain profitability, Islamic banks must quickly expand into key markets but maintain product, service and operational quality as they grow.
2. Increased complexity. Customers are increasingly complex, and Islamic banks must adapt to their changing preferences, which include a desire for online solutions and multiple communication channels. In addition, Islamic banks are growing so fast (some are doubling in size every four years) that they need to scale sensibly to meet customer demands.
3. Need for operational transformation. As Islamic banks expand their footprint, they come under increased regulatory scrutiny from financial regulations like Basel III. They must also adapt to significant digital transformations (such as mobile banking) that customers increasingly expect.
The way forward presents both obstacles and opportunities. But there is one mistake Islamic banks are in danger of making that could undo their profitable growth in light of the above challenges.
Ignoring the need for modern collections and recovery operations.
The relationship between banks and their customers is central to profitable growth. But how banking customers do business has changed. They have multiple payment obligations, use more communication channels than ever and aren’t shy about switching to competitors if their needs go unsatisfied. This is especially true when customers owe payments to their banks. It takes just one bad experience to send them into your competitors’ arms.
Improving and deepening the customer relationship is central to modern collections and recovery. Without it, Islamic banks may still grow, but they risk customer retention.
A robust collections operation leads to sustainable growth, better customer relationships, and operations that stay compliant and adaptable to customer needs. Here’s how.
One advantage of modern collections and recovery is that it generates more revenue from a business you already have. Collection work is a competitive game. Positioning your firm to collect the most and collect first can have dramatic results.
Even an increase of a few percentage points collected on existing business is enough to significantly impact profits. And many firms using collections best practices and tools do far better, doubling or tripling the amount collected.
That leaves more resources to expand and scale responsibly—and that’s progress worth paying attention to.
Several top Islamic banks are doubling in size every four years. And the industry as a whole is growing. Complexity in both customers and operations has followed, leaving many Islamic banks unprepared to scale operations and deeply understand new customers.
Modern collections and recovery operations give banks unprecedented insight into customer behaviour and risk—whether you have 100 customers or 100,000. These data-driven customer insights help banks make the right offer to customers at the right time, increasing revenue while taking the guesswork out of collections.
When Islamic banks do scale and grow, they come under increased regulatory scrutiny thanks to international financial rules. Modern collections and recovery tools can help Islamic banks stay compliant by keeping capital levels adequate by reducing the risk on the books.
Modern collections practices also take a digital-first approach—a must for today’s connected consumer. They allow collections departments to monitor and contact customers across multiple online and offline channels.
The result is two-fold: Happy regulators and customers.
Our free resource, The Collections and Recovery Best Practices Guide, shows you how to improve, streamline and optimize every aspect of your collections operations, and is based on 25 years of expert experience in the industry. Download it today.
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