Tag Archives: islamic finance

Islamic Finance in the Blue Ocean

6 Apr

by Ng Boon Ka

‘‘We don’t want to go back to the same normalcy that we’re coming from.
We will create a new normalcy which will stay and keep on moving and change the world.’’

Nobel Peace Prize winner Muhammad Yunus,
World Economic Forum 2009, Davos

Inspired by the ‘Blue Ocean Strategy (BOS)-How to Create Uncontested Market Space and Make the Competition Irrelevant’, a book of strategy and management by Prof. W. Chan Kim and Prof. Renee Mauborgne, it is high time to strategise the art of Islamic banking in a nascent ‘box’ altogether. Putting this into perspective, it is both strategically sound and tactically tenable in light of Albert Einstein’s words that, ‘‘we cannot solve our problems with the same thinking we used when we created them’’.

Leveraging on the distinctive and holistic fundamentals of Islamic finance such as the sharing of risk and reward, the prohibition of interest (riba) and gambling (maisir), minimisation of induced uncertainty (gharar), emphasis on real transactions, as well as ethical and charitable activities, a paradigm shift in the thought process of innovation and development is therefore warranted chiefly in vogue with the current age of financial turbulence.

To begin with, the thinking within the conventional box which seeks to benchmark against conventional risk and return profile in order to gain market share is plausibly applicable to underdeveloped and infant markets where Islamic finance is merely a small subset of the whole financial system. However, such thinking works in an accommodative rather than an innovative mode, taking into account the spirit of maslahah.

As Islamic financial markets are maturing with growing market shares, a more robust Shariah compliant approach would necessitate an upward shift towards thinking outside the conventional box. Once Islamic finance has gained dominant market shares at the higher innovation stage, the ideal level of thinking in a distinctive and ever-expansionary ‘Shariah box’ with a Shariah based approach, rather than a superficial realm of ‘outside the box’, shall achieve the higher ideals of Islamic economics and social order.

Having witnessed the unprecedented growth of Islamic banking along the global financial trajectory in recent decades, there is a current and sanguine need for a strategic metamorphosis from a niche ‘green field’ to an uncharted ‘blue ocean’, in lieu of a ‘red ocean’ with conventional banking.



Moving beyond Sun Tzu’s Art of War adage, ‘‘If you know both yourself and your enemy, you can come out of hundreds of battles without danger’’, to a higher ground of defeating an enemy without even fighting, the BOS advocates a better strategy by exploring ‘blue oceans’ – untapped and untargeted markets which hold tremendous growth potential – rather than going head-to-head against rivals for a share of the existing market. The latter scenario is akin to a ‘red ocean’ where competition is based on outperforming the existing competitive benchmark. In other words, the best approach to earn a competitive edge is to gain the first mover advantage over competitors.

While competitors are the ones who set the agenda and rule of the game in red oceans, competition becomes insignificant in blue oceans. At the heart of BOS lies the creation of value innovation which seeks to integrate all the firm’s functional and operational activities. That said, the development of BOS revolves around preference for more risk minimization and less risk taking by reconstructing market boundaries; focusing on big picture, not numbers; reaching beyond existing demand; and getting the strategic sequence right. Being a departure from business-as-usual, the execution of BOS entails the overcoming of organizational hurdles and the embedding of execution into strategy.

The current global economic crisis poses a ‘creative destruction’ whereby ‘out of destruction a new spirit of creativity arises’ for Islamic finance to be the optimistic agent of change. However, given that a full operation of an ‘Islamic institutional scaffolding’ (a platform of Islamic behavioral rules) is currently lacking, there is ‘‘need for the design and development of a comprehensive and dynamic regulatory-prudential-supervisory framework, uniquely designed for an Islamic financial system,’’ as highlighted by Abbas Mirakhor.

For Islamic finance to be the role model for global economy, emphasis should be also given to the formulation of Islamic monetary and fiscal system, banking for the poor and the unbanked, prioritization of inherent corporate social responsibility to create wider appeal for Islamic financial products, acquisition and transformation of conventional banks into Islamic banks, increasing market share as early market entrants particularly in emerging and/or underdeveloped markets such as Central Asia and Xin Jiang of China, among others.

It is worthy to note that, in promoting knowledge-based innovation with practical adherence to the tenets of Shariah, Malaysia has created a market space from her position of strength in advancing innovative drive by the establishment of institutional infrastructures like INCEIF and ISRA.

Viewing Islamic finance with the original spectacle in a new vision rather than a purely conventional glass may be the propeller for the departure of a prescriptive Shariah compliant approach towards a principle-based Shariah system. To conclude in Bank Negara Malaysia Governor Tan Sri Dr. Zeti Akhtar Aziz’s words, ‘‘Islamic banking and finance is a ‘mirror of the sea’ for until and unless we have the courage to explore its depth, we would never be able to uncover the treasures that reside within.’’

The summary of this article was published in The Malaysian Reserve on 6th April 2009.

Click here to find “A Blue Ocean Revolution in Islamic Finance” by Gabor George Burt, who is an internationally recognized expert on Blue Ocean Strategy and Value Innovation; the highly acclaimed, new approach to high-growth strategy formation and implementation conceived by INSEAD professors W. Chan Kim and Renee Mauborgne.