Millennials are expected to play a crucial role in the evolution of Islamic finance and help expand its customer base in the future.
The global Islamic economy is growing apace, driven by an expanding, young Muslim population, which is expected to reach 2.2 billion in 2030, up from 1.7 billion in 2014, according to the State of the Global Islamic Economy Report 2016-17.
In the UAE, it is estimated Islamic financing assets constitute about 30 per cent of the local banking sector, a figure that has increased rapidly in recent years.
“Islamic banking has been growing at roughly double the pace of conventional banking in this part of the world in the past five years,” says Dr Saeeda Jaffar, Managing Director of global consultancy Alvarez and Marsal Middle East.
“Islamic finance has reached the point where banks have tapped out a lot of what we call the native Islamic segment, which includes a lot conservative Muslims who want to bank and abide by Sharia principles.”
To sustain the pace of growth, Islamic banks will have to be far more competitive in targeting new customers, she says. “That segment is millennials; no question about that,” says Dr Jaffar.
Millennials, who were born between 1980 and 2000, have grown up using technology and expect it to be integrated into every aspect of their daily lives. In fact, in a survey by Neilsen, millennials said technology was the most defining characteristic of their generation.
“Today’s millennials are heavily geared towards ease, functionality, tech-savvy and always on social media, and capturing their share of wallet is more than vital for Islamic banks in order to sustain their customer bases in the future,” says Aladdin Al Deesi (pictured right), CEO of Mashreq Al Islami.
A report by EY in September 2015 said Islamic banks are failing in technology, with lower numbers of customers using mobile banking compared to conventional banks. The same report suggests that over the next five years, profits at banks that remain digital laggards could drop significantly compared to competitors who invest in technology.
Mashreq, which is celebrating its 50th anniversary this year, is one of the most active lenders in the UAE. Its Sharia-compliant subsidiary, Mashreq Al Islami sees technology as a key area of innovation and is making huge investments in the field to differentiate itself. Attracting non-Muslims is a key part of this strategy. Currently, about 30-40 per cent of its customers are non-Muslims in various product lines, says Al Deesi.
The bank expects millennials to be the key catalyst for the digital future, says Al Deesi. “Millennials are a big population and most of the banks are targeting them. Since technology is a big driver for this segment, Mashreq Al Islami is riding on the huge platform of digitisation and innovation that is there in the Mashreq Group.
“We have chosen to invest heavily in Snapp, which is our mobile application to target millennials.”
Snapp allows customers to look through all Mashreq Al Islami’s products, view the benefits, choose the product they want, apply for it and receive it at their home, all without stepping into a branch.
UAE banks like Mashreq expect millennials to be the key catalyst of the digital future
The bank is also reaching out to millennials via social media. “The most important thing is being part of their daily life,” says Al Deesi. “Being easily accessible to them is key.”
A study by Visa last year showed that millennials not only make up the fastest-growing segment in the region but they also tend to be big spenders in the UAE and Saudi Arabia. Visa estimates millennials in the UAE will receive an annual gross average income of $40,000 (about Dh147,000) by 2019.
As an emerging affluent segment, choices made by millennials are expected to shape product development and invigorate innovation within Islamic finance for years to come.
“The role of millennials will be critical in supporting the long-term growth and development of the international Islamic economy,” says Mobasher Zein Kazmi, Head of Islamic Banking Research at RFi Group.