NEEDHAM, Mass., Jul 21, 2008 (BUSINESS WIRE) — The Islamic banking model, which rejects the assessment of interest in favor of structured fees, is gaining momentum around the globe as petrodollars accumulate and developing economies mature. New research from TowerGroup finds that the Islamic credit card market, in existence for slightly more than a decade, has yet to be “stress tested” on a broad scale. However, given that adherents of the Islamic faith represent 24 percent of the world’s population, there is significant opportunity for card issuers to build volume.

A confluence of factors is driving the requirement for a credit card model that serves the Islamic population. These factors include global wealth redistribution, electronic commerce, and population development. TowerGroup estimates that the addressable portion of the global Islamic population for credit card offerings is 250 million consumers. It expects that adoption of these products will grow rapidly from its current base of less 1 million accounts to as many as 6 million accounts by 2012.

The current business model is highly selective in soliciting prospective customers and does not resemble the traditional global model of mass-market credit card solicitation or bank branch cross-selling. Although Islamic credit cards are similar to traditional cards as payment instruments, as lending instruments they must not violate Shariah – the written and interpreted code of Islam, which among other tenets rejects levying interest earned on debt, prohibits speculation, and excludes certain activities. comply with certain prohibitions of Islam according to Shariah. Therefore, Islamic credit cards require a pricing alternative to interest and require scrutiny of transactions to ensure purchases are not prohibited.

Three types of credit card issuers now operate in the Islamic card space: major global banks that set up separate Islamic banking companies; traditional banks converting to the Islamic model; and Islamic startups. As the market emerges, entrants must foster both a sustainable business model and the ability deal with such core issues as interoperability with global card companies, product design, and processing venues.

A graphic illustrating three current Islamic credit card business models accepted as Shariah-compliant can be seen and downloaded here: http://www.towergroup.com/research/content/page.jsp?pageId=3462

The TowerGroup report titled “No Interest in Interest: Islamic ‘Credit’ Card banking Takes Its Place in Global Commerce,” is authored by Brian Riley, research director in the Bank Cards practice at TowerGroup. To request a copy of the research or to arrange an interview with Riley, please contact Jorge Lavina at +1.917.595.3047 or [email protected] Those interested in subscribing to a TowerGroup research service may call +1.781.292.5200 or email [email protected]

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About TowerGroup: TowerGroup is the leading research and advisory services firm focused exclusively on the financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world’s leading financial institutions, technology companies, and professional services firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in North America and Europe, TowerGroup serves a global client base. Visit http://www.towergroup.com for more information.

SOURCE: TowerGroup

For TowerGroup
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