Opportunity in Muslim market

Credit Cards

Right before the financial crisis/recession hit, many companies were about to launch new products, services and ventures. However, when the economy is in a downturn, it is natural and prudent to focus on the core business and shelve other projects. Now that the worst of the storm is likely over, companies are slowly starting to dust off their ideas and are looking to implement them. One idea caught my eye and appears to have a decent chance for success in certain geographic markets.

According to the religion of Islam, Muslims are not allowed to use the concept of interest when dealing with money. In Canada this type of no-interest set up for mortgages, credit cards, loans and financial instruments do not currently exist. Therefore, Muslims have to use the traditional means like everyone else but only because the Islam compliant methods do not exist which means there is a market that is looking for these types of products. The way these products usually work is instead of giving someone a credit card, for example, and charging them a 10% interest rate on purchases, they actually sell the credit card for a fee, let’s say, $75 for two years and then there is a 0% interest rate on purchases.

This can be beneficial to the companies offering these products because they get paid up front for the product, however, they do limit the amount they can earn due to a 0% interest rate and that amount is less than the maximum amount they can earn on traditional methods. Still, with a strong niche demand for this type of product, a real opportunity exists for someone to make a solid business here. It is quite likely that once a private company does enter this market with Islamic compliant financial products, one of the big banks will also enter and can possibly be serious competition. However, it is possible that they will choose to acquire the private company as they obviously would have been successful and that would be a smaller risk for the bank to take.

This opportunity also exists in the U.S., even though these products exist there to some degree. In the U.S., the potential is there because the demand is not being completely met. Also, in both countries, this type of product can appeal to other people that would like the idea and may not be Muslim at all. I can see many people willing to pay a fee for a credit card or mortgage and then having no interest to worry about. There is definitely some segment of the market that would prefer this structure.

In the U.S. the companies that have offered these products said it took them about 10 years to breakeven which is fairly high, but perhaps their plans were not the best or their execution was not optimal. Regardless, it would definitely need to be an entity that has a substantial financial backing that would be able to offer such products so the time may be less of a concern if the potential is clearly there, which it is. Perhaps these products will eventually be a mainstay in our markets and we will all have the choice of purchasing them over the traditional methods. More options are always a good thing when it comes to financial products.