Working Paper Series 006

MARKETING STRATEGY OF
ISLAMIC BANKS:
A LESSON FROM MALAYSIA

By

Professor Sudin Haron

Dr Wan Nursofiza Wan Azmi

May 2005

Creating Dynamic Leaders

This paper was presented at the International Seminar on Enhancing Competitive Advantage on Islamic
Financial Institutions, Jakarta, 7-8 May 2005 and has been accepted for publication in the Journal of Is-
lamic Banking and Finance, Jan-March 2006.
Marketing Strategy of Islamic Banks: A Lesson from
Malaysia
TABLE OF CONTENTS

Abstract 2 Abstract

Introduction 3 Marketing strategy is one the most impor-

Public Acceptance Towards
Islamic Banking System
Research Method
Findings
Conclusion & Recommendations
tant areas that needs to be carefully exam-
ined by the policy makers of Islamic banks.
4
This stems from the need to improve the
4 performance and ensure sustainable growth
of Islamic banks as competition in the bank-
5 ing industry intensifies. A sound market-
ing strategy becomes imperative as Islamic
10 banks not only operate in an environment
where service quality and financial returns
are perceived as the essential criteria from
customers’ viewpoint, but they must also
compete with conventional banks which are
known to have better experience and exper-
tise in the banking business. Religious ele-
ment, which was once thought as the ma-
jor factor that drives Muslims to use Islamic
banking facilities offered by Islamic banks,
has now become irrelevant to Muslim cus-
tomers. Coupled with an increasing competi-
tive environment from both Islamic and con-
ventional banks and changes in customers’
perception; it is of paramount importance
for Islamic banks to assess the effectiveness
of their marketing strategy. This paper re-
views the current marketing strategy of Is-
lamic banks in Malaysia. Among the topics
highlighted are strategies related to prod-
uct, pricing, promotion, distribution chan-
nel, and human resources. The study finds
that the newest Islamic bank and Islamic
banking department of conventional banks
have more aggressive marketing objectives
than the pioneering Islamic bank.

Page 2
Creating Dynamic Leaders
 Introduction
Malaysia was one of the pioneering countries to
have introduced Islamic banking and is highly com-
mitted in not only developing an Islamic banking
system but also a complete Islamic financial sys-
tem. The Islamic banking system in Malaysia start-
ed in 1983 when the first Islamic bank, Bank Islam
Malaysia Berhad (BIMB) commenced its operations.
It was the objective of the Malaysian government to
develop the Islamic banking system parallel to the
conventional system. Instead of establishing many
new Islamic banks, the government introduced a
concept of ‘Islamic window’, which allows the exist-
ing conventional banks to introduce Islamic banking
products to customers.
The concept of Islamic window started in March 1993
when the Central Bank of Malaysia or Bank Negara
Malaysia (BNM) introduced the “Interest-Free Bank-
ing Scheme”. Twenty-one Islamic financial products
were developed to cater for this scheme with initial
participation from only three major banks. By July
of the same year, this scheme was extended to all
financial institutions in Malaysia.
As at end of 2004, BNM had introduced a total of 22
banking products and services for Islamic banking
system in Malaysia (www.bnm.gov.my). Currently,
the system is represented by three Islamic banks, 7
domestic commercial banks, five merchant banks,
seven discount houses and four foreign- owned
banks.
As a result of the financial turmoil in 1997 and lib-
eralization of the world banking system, Malaysia
developed a blue print for the development of the
financial sector in the country and this ten-year
plan is known as the ‘Financial Sector Masterplan’.
The aim of this plan is to create a more efficient
and competitive, innovative, technology-driven,
and strategically focused financial system. The plan
includes further developing the Islamic financial
system as the key player in the Malaysian and in-
Page 3
ternational banking sector.
In view of this, the Malaysian government’s target
is for the Islamic banking and takaful industry to
achieve 20 percent share of the total banking sys-
tem by 2010. Currently, Islamic banking assets ac-
counts for about 10 percent of the market share of
the total banking assets in Malaysia which amounts
to RM90 billion, registering an average growth of
about 42 percent over the last 10 years.
In terms of market share of deposits and financing,
Islamic banking held 11.2 percent of total deposits
and 11.3 percent of total financing as at end-2004.
In line with its objective to increase the number of
players in the Islamic banking system, BNM encour-
ages local banks to convert their Islamic banking
department into subsidiaries and allows foreign Is-
lamic banks to establish their subsidiaries in Malay-
sia. The second Islamic bank, Bank Muamalat Ma-
laysia Berhad (BMMB), was established on October
1, 1999 and it had an initial shareholders’ fund of
RM300 million, assets of RM2.5 billion, a network
of 40 branches and a workforce of 1,000 personnel
(Bank Muamalat Annual Report, 2000).
An important milestone taken by BNM in positioning
Malaysia as an international Islamic financial hub
was to bring forward the liberalisation of its Islamic
banking sector to 2004, three years ahead of the
World Trade organisation’s deadline, by granting
three new Islamic bank licenses to foreign parties.
These three Islamic financial institutions are from
the Middle East, namely the Kuwait Finance House,
Al-Rajhi Banking & Investment Corporation and a
consortium of Islamic financial institutions repre-
sented by Qatar Islamic Bank, RUSD Investment
Bank Inc, and Global Investment House.
BNM also issued five new licences for domestic
banks to create Islamic subsidiaries. The RHB Bank
is the first local bank to have a full fledge Islamic
bank subsidiary. This subsidiary, named RHB Is-
lamic Bank commenced its operation on the 16th
Creating Dynamic Leaders
Marketing Strategy of Islamic Banks: A Lesson from
Malaysia
March 2005. It is intended that the presence of for-
eign and new players would promote healthy com-
petition that is necessary to lift the industry to new
levels of dynamism. As a result of these develop-
ments, local Islamic banks are now facing competi-
tion emanating from several sources: competition
among themselves, foreign conventional banks that
have Islamic banking department and foreign banks
that have established subsidiaries in Malaysia.
Nonetheless, opening the market to foreign and new
players is without its consequences. More players in
the system means more systematic and dynamic
strategies need to be developed by the local play-
ers. They can no longer rely on BNM to continuously
implement protective policy. In light of this, it is
imperative for Islamic banks to focus their market-
ing strategy on gaining competitive advantage and
mobilise their resources towards this purpose.
The objective of this paper is to review the current
position of the local Islamic banks and Islamic bank-
ing department of local commercial banks in terms
of marketing strategy. It comprises eight sections.
Section two briefs issues, which indicate whether
Islamic banks gain competitive advantages over the
conventional counterpart. Section three to section
seven highlights the current marketing strategy ad-
opted by Islamic banks and section eight provides
concluding remarks.
Public Acceptance Towards Islamic
Banking System
Since its introduction, Islamic banking products
have been well accepted by Malaysians. This is re-
flected by the increasing amounts of total deposits
and total loans that are based on Islamic principles
placed by Muslim and non-Muslim customers. In
the case of BIMB for example, at the end of June
1984 (the first year of operation), the total deposits
and total loans were RM241 million and RM162 mil-
lion respectively.
Page 4
At the end of 1994 (the 10th year of its operations),
total deposits increased to RM2,548 million whilst
total loans increased to RM977 million. The cor-
responding figures for the financial year 2004 were
RM11,269 million and RM7,640 respectively.
Public support and acceptance towards the Islam-
ic banking system is also high as reflected by the
usage of Islamic banking products offered by the
conventional financial institutions. In 1994, i.e. the
first year of which selected commercial banks were
allowed to introduce Islamic deposit facilities, a to-
tal of RM1,463 million deposits was collected from
the customers. This figure comprises of deposits in
current account (RM166 million), savings deposit
(RM1,146 million) and investment deposit facilities
(RM151 million).
Since then, these three types of deposits continue
to receive full support from the public. At the end of
2004, total Islamic deposits placed by customers at
commercial banks increased to RM53,273.5 million.
The figure for current account was RM12,886.9 mil-
lion, whereas RM8,072.9 million and RM32,313 mil-
lion for savings and investment accounts, respec-
tively.
Although figures for total deposits of BIMB and Is-
lamic deposit facilities of commercial banks had in-
creased significantly for the last five years, we can-
not generally imply that that public in Malaysia are
all receptive towards Islamic banking products. The
comparative growth figures between Islamic and
conventional deposits are good indicators for mak-
ing few comments for further considerations. The
growth for various types of deposit facilities in con-
ventional and Islamic system of commercial banks
is shown in Table 1.
As indicated in Table 1, the yearly growth figures
for Islamic deposits were greater, in most cases,
than the figures for conventional deposits. Looking
at individual figures, we can also see that in many
Creating Dynamic Leaders
 TABLE 1: Annual growth of various deposits facilities at commercial banks (%).

2000 2001 2002 2003 2004

Source: Bank Negara Malaysia Annual Report (various issues)

TABLE 2: Funds deposited at various deposits facilities of commercial banks (%).

2000 2001 2002 2003 2004

Source: Bank Negara Malaysia Annual Report (various issues)

instances, the growth for various types of Islamic
deposit facilities were greater than the growth of
deposits of the conventional system. This statistics
implies that Islamic banking products have now be-
come more popular among Malaysians. Neverthe-
less, these growth figures alone cannot answer sev-
eral pertinent questions related to the development
of Islamic banking in Malaysia.
Such issues include whether all economic units in
Malaysia are really keen with the idea of the supe-
riority of Islamic banking against the conventional
banking; whether commercial banks in Malaysia
are really committed to adhere to the directive of
BNM in promoting Islamic banking products; and
whether Islamic banking system has a bright future
in Malaysia. Answers to some of these issues can
be found by looking at the percentage of the depos-
its placed by Malaysians in Islamic system against
the deposits with the conventional system. The per-

Page 5
Creating Dynamic Leaders
Marketing Strategy of Islamic Banks: A Lesson from
Malaysia
centage of funds placed in various types of deposit
facilities available at commercial banks in Malaysia
is shown in Table 2.
Looking at Table 2, notwithstanding with the fact
that there is a sign towards positive development
of Islamic banking system in Malaysia, it is inevi-
table to conclude that much work is still needed
to make this system more attractive to the public.
Furthermore, Malaysia is a country whereby Mus-
lims represent half of the country’s population and
is governed by a coalition government that is led by
UMNO (a Muslim-based party).
Therefore, when total funds deposited in an Islamic
system remains not more than 15 percent of total
deposits in commercial banks, remedial actions are
necessary in order to ensure this system share a
greater deposit figure in the future. In such in-
stances, BNM being a governing body of Malaysia
banking system not only must introduce directives
which can lead to the progressive development of
Islamic banking system but must impose penalty
those who are not serious in promoting this alterna-
tive system.
In a study conducted by Haron et al. (1994), the
authors reported that almost 100 percent of Mus-
lims and 75 percent of non-Muslims in their study
were aware of the existence of Islamic bank. Most
of them expressed their desire to have a relation-
ship with Islamic bank only if they have a complete
understanding of this system. Furthermore, they
presented evidence, which suggests that the public
believed that Islamic bank is not meant for Muslim
customers only.
Therefore, issues regarding public acceptance does
not arise. On the contrary, the major issue here
seems to rest on those providing these services.
Although Islamic financial institutions claimed that
their marketing programs are extensive in promot-
ing Islamic banking products and services, the re-
sults are far from satisfactory. In another study on
Page 6
the perceptions of corporate customers toward Is-
lamic banks in Malaysia, Ahmad and Haron (2002)
revealed that Islamic banks had not done enough in
marketing their products to corporate sector.
General Marketing Strategy Practices
Marketing strategy is commonly defined as a strat-
egy employed by a firm to attain its marketing ob-
jectives, which in turn is related to the achievement
of the firm’s business objectives. In other words,
marketing strategy refers to the marketing goals
and action plans that address matters of product/
service price, distribution, communication, and the
process of new product development.
The adaptation of any strategy depends much on
factors such as management style and experience
of the top management, age of the institution, eco-
nomic environment, and regulations. Generally, we
can safely identify whether a particular bank is a
market leader, challenger, follower and nicher by
identifying its vision, mission, objectives, and mar-
keting strategies.
The market leader strategy is for those banks that
occupy a dominating position in the market and
have established their reputation as a leader. By
virtue of having a leadership in the market, it is
natural that the market share of the concerned
bank is the biggest. Banks belonging to the chal-
lenger group are those occupying second, third and
lower rank and are always formulating and pursu-
ing strategies to expand their market share by tar-
geting the territory of the market leader. Whereas,
strategies adopted by the followers would normally
be to maintain its current customers base and win a
fair share of new customers by bringing distinctive
advantageous to their target market.
The market nicher is for the smaller banks, which
have limited resources and generally focused on se-
lected customers. Banks that falls under this cat-
Creating Dynamic Leaders
 egory often concentrates on only one market seg-
ment of the market. Usually, only one marketing
strategy, which is well, tailored to meet the needs
of a specific target-market group is developed.
As the pioneer Islamic bank in Malaysia, it is in-
evitable for us to label Bank Islam Malaysia Berhad
(BIMB) as a leader in the Islamic banking market.
However, rather than portraying itself as the lead-
er in the industry, BIMB adapted a more universal
motto called ‘The Bank for All’ and has the following
mission (www.bankislam.com.my):
“To seek to operate as a commercial bank func-
tioning on the basis of Islamic principles, provid-
ing banking facilities and services to Muslim and
the whole population of this country, with viability
and capability to sustain itself and grow in the pro-
cess.”
To meet the above mission, BIMB formulated six
corporate objectives where one of the objectives is
to provide customers with Islamic banking facilities
and services of the highest possible quality. BIMB
personify itself to the public as a progressive, pro-
fessional and friendly bank. In the case of Bank
Muamalat Malaysia Berhad (BMMB), being the sec-
ond Islamic bank in Malaysia, we would naturally
consider the bank as a follower. However, BMMB
should strive to become a challenger to BIMB.
BBMB currently adopts the following vision and mis-
sion (www.muamalat.com.my):
Vision:
To be a Strong, Progressive and Modern Islamic
Bank offering innovative, quality and competitive
products and services.
Mission:
To build the Bank into a modern, dynamic and strong
Islamic Bank that would play a role in providing a
viable alternative to the conventional system and
contribute to the development of modern Malaysia.
Page 7
RHB Islamic Bank is the third Islamic bank in Malay-
sia and commenced its business operations on 16th
March 2005. Upon the launching of this new Islamic
bank, RHB Islamic bank had a full-scale advertising
campaign by putting an advertisement in all major
newspapers in Malaysia of their presence and their
commitment towards excellence in customer ser-
vice by embracing three basic principles which is of
trust, understanding and partnership. Based from
the advertisement and vision statement given by
this new bank, we can generally conclude that RHB
Islamic bank wants to become a market leader and
not a follower or nicher in the industry.
Contrary to the strategy espoused by Islamic
banks, conventional banks do not explicitly inform
the public the vision and mission of their Islamic
banking division. For example, Maybank Bhd. only
highlights the general statement of its aspiration to
become an institution that plays an important role
in the development and promotion of Islamic bank-
ing and takaful in Malaysia and afar. The Public
Bank Islamic Banking Division also adopts similar
approach. Based from the statement published in
the bank’s website, it is clear to us that the Islamic
banking products offered by this bank are just an
alternative to their conventional products.
Even though BIMB has been operating for more
than 20 years and had in many occasions become
the pioneering institution in introducing new prod-
ucts and services, this leading role has been dimin-
ishing in recent years. For example, while the total
Islamic deposit at commercial banks was enjoying a
34.8 percent growth in 2004, a negative growth of
8.86 percent was recorded by BIMB.
Similarly, the negative growth rate of profits also
serves as an indicator that BIMB needs to re-ex-
amine their position as the leading Islamic bank
in Malaysia. This further emphasizes the need for
BIMB to formulate a more effective marketing strat-
egy to attract more users and depositors. In fact,
to coupe with the new challenges in the market and
Creating Dynamic Leaders
Marketing Strategy of Islamic Banks: A Lesson from
Malaysia
in line with the bank’s aggressive moves to expand
services rapidly, BIMB has embarked on a major
restructuring of its organization. The six strategic
objectives to be implemented are, to aggressively
grow consumer-banking business, strengthen com-
mercial banking, develop debt market capabilities,
develop risk management capabilities, enhance IT
infrastructure and staff competencies.
As for the consumer banking business, BIMB over-
all strategy is to focus on home financing, vehicle
financing and credit card business. Since it was
launched in July 2002, Bank Islam has currently
60,000 credit card holders and is targeting an annual
growth of 50,000 new users for its Syariah-compli-
ant credit card. The credit card, unlike conventional
cards that charge interests and compounded inter-
est, states the maximum profit that the bank can
make over three-year tenure.
In the commercial banking side, this bank aims to
establish a strong foothold in the trade finance and
small and medium enterprises. As a leader, BIMB
has continuously stated its aspiration of continu-
ing its role in developing, promoting and expanding
huge transactions in Islamic finance. In the case of
BMMB, it is evident from the 2003 annual report
that the bank aspires to become a challenger to
BIMB. As depicted in this report, BMMB’s strategy to
compete for a share of the Islamic customer base is
to increase its consumer and retail financing at 60
percent level in the year 2005 as well as to increase
fee-based income through investment banking divi-
sion.
Product Strategy
As a service oriented business, image is a central
factor in a bank’s effort to differentiate itself from
competitors. Generally, the way products or servic-
es are made available to customers helps to create
the image of the particular institution in the mind of
the customers. This image is reflected in the cus-
Page 8
tomers’ perceptions and feelings about the prod-
ucts or services offered. This is important because
customers experience with a particular product or
services will affect their attitude towards the bank
and other product and services as well even if they
had never used the other products.
Under product strategy, customer must also be able
to link a specific image with a specific Since custom-
ers purchase products and services to satisfy their
needs and wants, Islamic banks have to understand
the nature of these needs and want in order to ap-
preciate the kind benefits customers expect to re-
ceive. Among the different kinds of benefits that
people expect to get when buying goods and ser-
vices includes good value for money, novelty, avail-
ability, and ease of use.
Benefits enter into the equation when a customer
decides to use one product in preference to another.
It is the benefits received, which makes a product
or services attractive to a customer. In view of this,
banks should give more attention to the benefits it
creates for the users when marketing a product or
a service. Relating this to Islamic banks, they have
to be able to communicate these benefits convinc-
ingly to public, either directly or indirectly, in order
to persuade the public to use the facilities and prod-
ucts being offered.
Since Islamic banking is an alternative to conven-
tional banking, Islamic banks needs to innovative
in terms of products and services. Only through in-
novation in products and services can Islamic banks
sustain their competitive advantage against other
conventional or foreign banks that offer similar
Shariah compliance facilities. Table 3 below pres-
ents the list of products and services offered by
BIMB and BMMB.
Creating Dynamic Leaders
 TABLE 3: Products and Services offered by BIMB and BBMB

Page 9
Creating Dynamic Leaders
Marketing Strategy of Islamic Banks: A Lesson from
Malaysia
It can be seen from Table 3 that BIMB is much
ahead than BMMB in terms of product strategy with
more than 40 Islamic banking products and servic-
es being offered. Another distinct edge that BIMB
has over BMMB is that their facilities cater for all
categories of customers including individual, small
businesses, commercial and corporate customers.
Similarly, product differentiation strategy is also
used by BIMB in both its deposit and financing fa-
cilities.
On the contrary, Islamic banking facilities available
at BMMB are basic banking facilities only. Another
important strategy employed by BIMB is the usage
of Islamic terminology in promoting its products to
customers. For example, Arabic word such as wadi,
ijraa, pewani and sakinah are used in labelling
various deposit facilities. Again, contrary to BIMB,
BMMB uses common terminologies such as wadiah
and mudharabah for its deposit facilities. Similar
approach is also taken by BIMB when promoting
its financing facilities. Instead of categorizing facili-
ties based on the types of facilities, BIMB uses the
governing Syariah principles for the respective fa-
cilities.
It is also evident from Table 3 that BIMB is ahead
of the game in the electronic banking (e-banking)
services as compared to BMMB. BIMB’s innovative
Page 10
e-banking products and services are another source
of competitive advantage it has over BMMB. The
introduction of several e-banking services namely
internet baking, corporate desktop banking (e-
Banker), MEPS Inter-bank Giro and most recently,
short messaging service (SMS) banking has en-
abled BIMB to distinguish itself prominently from
other players in the market. The SMS banking ser-
vice offers about 30 different services and trans-
actions, including inquiry funds transfer, financing
payments, utility bills payments and mobile phones
pre-paid reload. The target customers for this ser-
vice are student card users who are more adept to
mobile telephony technology changes.
Table 4 indicates the existing Islamic banking prod-
ucts and services available at the Islamic bank-
ing division of Public Bank and Maybank Berhad.
Looking at Table 4, we can conclude that these two
banks belong to either the category of a market fol-
lower or nicher. Both banks do not differentiate their
products and services to those offered by BIMB and
BMMB. As can be seen, the products and services
of these two banks are just basic Islamic banking
products. This might be due to the fact that both
banks are premier banks in Malaysia. Therefore,
they are more interested in marketing conventional
than Islamic banking products.
Creating Dynamic Leaders
 TABLE 4: Products and Services offered by Public Bank and Maybank
Pricing Strategy
The second element in the marketing mix is pric-
ing. Pricing strategy is another marketing technique
that can be used to improve a bank’s overall com-
petitiveness. The key to success is to have a well-
planned strategy, to establish policies and to con-
stantly monitor prices and operating costs to ensure
profits. An important part of the pricing strategy
is determining how product or service is priced. It
has been proven in many previous research that
majority of customers do not use religion as the
main factor when establishing a relationship with
Islamic banks. In the case of corporate customers
for example, they believe that it is the cost and
Page 11
benefit element that is the most important factor
when selecting financial institution (Ahmad and Ha-
ron, 2002). Most customers still seek the highest
return and low
est charges imposed when deciding which bank
to place a deposit or obtain funding from. Gener-
ally, marketing textbooks recommend three types
of pricing strategies: skimming, penetration, and
competitive pricing strategy. In the case of depos-
its, the returns given to depositors as at 1 Mac 2005
are listed in Table 5 below.
Based from the facts presented in Table 5, it seems
that Maybank gives higher returns on its invest-
ment deposits comparatively to both BIMB and
Creating Dynamic Leaders
Marketing Strategy of Islamic Banks: A Lesson from
Malaysia
BMMB. One possible reason is that being a bigger
bank, Maybank is able to mobilize the funds depos-
ited by it customers more efficiently and effectively.
An interesting observation is the returns given by
Maybank to small depositors, especially savings ac-
count holders. For savings account with the mini-
mum amount of RM2,999 or less, Maybank does
not give out any return to the account holders.
As for its wadiah accounts, the returns received by
the account holders are much less than those re-
ceived by BIMB and BMMB customers of the same
account. Another sharp contrast between them is
that BIMB and BMMB gives a fixed return on their
wadiah savings account whereas Maybank’s return
on this account varies according to the amount de-
posited. In view of this, both Islamic banks are seen
as fulfilling their social obligation in providing bank-
ing needs of small customers.
TABLE 5: Returns on Deposits of Selected Banks
Page 12
Another important pricing strategy in banking is the
charge imposed to the borrowers. In most cases
we often hear complaints from customers that fi-
nancing from Islamic banks is more expensive than
loans given by the conventional banks. For exam-
ple, a housing loan of RM100, 000-00 for a period
of 15 years, costs RM927-00 a month for an Islamic
loan in contrast to only RM871.00 for a convention-
al loan.
The monthly instalment for an Islamic loan with RHB
for the same amount and maturity loan will cost
the borrower RM910.68 (after 3 years) whereas the
conventional loan costs RM857.00. Bank Muamalat,
on the other hand, offers two options of financing
to its customers with the monthly instalment af-
ter year five of RM911.30 and RM959.78 depending
on which financing was opted. For Bank Islam, this
amount depends very much on the market value of
Creating Dynamic Leaders
 the house purchased and it is normally within an
average of RM950.00 a month.
Distribution Pricing
This component of the marketing mix is related to
the distribution of services to the ultimate custom-
ers. Services that require the customer to go to the
producer must be as accessible as possible. Hence,
an important consideration in the distribution strat-
egy for banks is location of their branches. The task
before the management is to select the place where
the actual sale is to take place and this should be in
the face of conveniences and comforts to the cus-
tomers.
To the extent it is possible, they should reach to the
doorsteps of the customers. Thus it is pertinent that
the branches are located at a suitable point. How-
ever, a study conducted on Malaysian customers by
Haron et al. (1994) found otherwise. For example,
the authors reported that the top five factors that
are considered as important by Malaysian Muslim
when selecting their banks are:
1. Fast and efficient services
2. Speed of transactions
3. Friendliness of bank personnel
4. Confidentiality of bank
5. Knowledgeable about the needs of custom-
ers
Non-Muslim customers ranked the following as im-
portant when selecting their banks :
1. Friendliness of bank personnel
2. Fast and efficient services
3. Reputation and image of bank
4. Speed of transactions
5. Confidentiality of bank
Although Malaysian customers do not perceive lo-
cation as one of the top priorities, nevertheless
policy in ensuring the accessibility of banking ser-
Page 13
vices to customers is regarded an important distri-
bution strategy by most banks. Table 6 (see page
14) presents the number of branches and Islamic
Banking Scheme (IBS) counters for the year-end
1999 to 2003.
Since sales and market share are contingent upon
distribution (i.e. market coverage and distribution
intensity), products and services must be made
easily accessible to the end-users. Table 6 clear-
ly shows that conventional banks offering Islamic
windows place more importance on their distribu-
tion strategy than their Islamic counterparts. With
1410 IBS counters nationwide compared to only
132 branches opened by Islamic banks, conven-
tional banks have a strong channel network that is
deemed as a crucial way to gain competitive advan-
tage since distribution channel provides access to
market targets.
Recognising the importance of distribution strategy
as one of the key to successful and effective mar-
keting strategy, Islamic banks had recently intro-
duced the concept of mini-branch and kiosk to their
customers in which basic banking facilities are pro-
vided through this new distribution channels. These
mini branches and kiosks are strategically located
at departmental stores and shopping complexes so
as they are accessible to the general public.
Promotion Strategy
Promotion is the function of informing, persuading,
and influencing the customer’s decision process.
Usually the bank’s marketing manager will respond
to the goals and objectives of the bank by formulat-
ing various elements of the promotional strategy
i.e. personal selling, advertising, sales promotion,
publicity and public relations. Promotional strat-
egy is closely related to the process of communi-
cation. A standard definition of communication is
the transmission of a message from a sender to a
receiver. Marketing communication, then are those
Creating Dynamic Leaders
Marketing Strategy of Islamic Banks: A Lesson from
Malaysia

TABLE 6: Number of Branches and IBS Counters

messages that deal with buyer-seller relationships. Marketing communication is a broader concept than
promotional strategy, because it includes word-of-mouth advertising and other forms of unsystematic com-
munication. A planned promotional strategy, however, is certainly the most important part of any market-
ing communications. Table 7 highlights the existing promotional strategies adopted by selected Islamic
banks in Malaysia.

TABLE 7: The Promotional Strategy of Islamic Banks and IBS Banks in Malaysia

Source: Puan Rozi(BIMB), Badrudin Othman(BMMB), Mohd Ali Sharif (Maybank), Mohd
Najeeb Abdullah (PBB)

Page 14
Creating Dynamic Leaders
 Table 7 indicates that BIMB is ahead than the other
institutions in terms of promotional strategy. The
latest promotional strategy undertaken by BIMB is
to forge a working relationship with higher learn-
ing institutions in Malaysia. Under the ‘on the job
training scheme’ students of higher institutions will
undergo training program provided by BIMB and
this training program will be incorporated in their
academic program.
The objective of this scheme is to disseminate
knowledge of Islamic banking products and services
to students and train them to marketing agents for
BIMB. BMMB, on the other hand, has a more tailored
promotional strategy of targeting entrepreneurs as
its potential customers. This is done through various
entrepreneur development programmes which are
handled by the bank’s Entrepreneur Development
Department whereby participants are educated on
Islamic banking principles and concepts.
Training programmes that have been previously
offered includes seminars on Islamic banking and
product financing for entrepreneurs, workshops on
business planning, business management and fi-
nancial management. As part of the bank’s promo-
tion strategy, participants are given detailed expla-
nation on the types of products and services offered
by BMMB and how their companies can obtain the
financing needed from BMMB to start up or expand
their businesses.
Both Maybank and Public Bank are not as aggres-
sive as the two Islamic banks in terms of promoting
their products and services. Part of these conven-
tional banks’ marketing strategy is to target their
markets and in doing so, they already have specific
types of potential customer base. Thus, these banks
do not need to have an extensive promotional mar-
keting strategy as they only need to extend and
pursue marketing to their target customers.
Page 15
Concluding Remarks
This paper highlights some of the existing market-
ing strategies adopted by Islamic banks in Malay-
sia. Theoretically, Islamic banks in Malaysia should
not face any difficulties in gaining support from cus-
tomers as Muslims constitute the majority of the
country’s population. However, recent studies have
indicated that religious no longer plays an impor-
tant factor in bank patronage. Works of Rosly and
Abu Bakar (2003) found that religious factor is not
conclusive enough to drive Muslims to use Islamic
banking facilities.
In light of this revelation, Islamic banks have to bet-
ter understand the needs, preferences and behav-
iour of their target group customers in order to stay
in the game. Hence, marketing strategy that is tai-
lored to customer acquisition and retention should
be properly addressed. This becomes increasingly
crucial as foreign players enter the market and as
products and services become more undifferentiat-
ed. Hence, Islamic banks have to be innovative and
creative if they wish to establish a strong competi-
tive position and gain competitive advantage.
In the case of Bank Islam Malaysia Berhad (BIMB),
for example, as a market leader in the Islamic
banking industry, this bank should take on the role
of a barometer of the industry and thus, lead the
way in setting price structure for the market mak-
ing price and making other marketing changes. In
reality, however, it is the other Islamic banking pro-
viders that are enjoying these competitive advan-
tages over BIMB.
In terms of product strategy, BIMB is currently ag-
gressively focusing its marketing efforts on e-bank-
ing services. The strategy towards e-banking as an
alternative distribution or delivery channel for its
customers is done with the long-term aim of saving
cost on operating or opening new service outlets or
branches. On the promotional strategy side, both
Islamic banks are pursuing strategies to educate
Creating Dynamic Leaders
Marketing Strategy of Islamic Banks: A Lesson from
Malaysia
the public about Islamic banking products and ser-
vices.
As competition intensifies, Islamic banks have to
design effective performance evaluation system
and understand the changing needs of its custom-
ers. For example, in a recent work by Shafie et al.
(2004), the authors reported that BIMB customers
perceived compliance to Shariah as the most im-
portant factor when dealing with the bank.
This means that customer is concerned s to wheth-
er Islamic bank is observing the Shariah principles
in conducting its activities. From their findings,
they further concluded that Islamic business ethics
are perceived as an essential element that Islamic
banks must conform to. In a different study, Tahir
and Ismail (2004) reported that the service level
of Islamic banks in Malaysia is unacceptable and
less than satisfactory. These findings suggest that
Islamic banks have to give increasing attention to
measuring marketing’s effectiveness and customer
satisfaction.
References
Ahmad, Norafifah and Sudin Haron (2002), ‘Corpo-
rate Customer Perceptions of Islamic Banking Prod-
ucts and Services.’, Proceedings of the Fifth Harvard
University Forum on Islamic Finance, Cambridge,
USA.
Bank Negara Malaysia, Monthly Bulletin, Kuala Lum-
pur, Various issues.
Bank Islam Malaysia Berhad, Annual Report 2004,
Kuala Lumpur.
Bank Muamalat Malaysia Berhad, Annual Report
2003, Kuala Lumpur.
Page 16
Cravens, David W., Bill Merrilees and Rhett H. Walk-
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www.bnm.gov.my
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Creating Dynamic Leaders