Conceptual Model for Developing Islamic Bank Products in Indonesia

Abstract

Most Muslim populations in Indonesia do not consider Islamic banking products essential. There is a public perception that Islamic banking products still need to compete with conventional banking products. Existing Islamic banking products mostly replicate conventional banking products. The lack of product development, innovation, and Sharia-compliant product design has led customers to view Sharia products as similar to conventional products. The slow growth of Islamic banks in Indonesia is evident in their market share, which is only 10.69% of the national banking market by the end of 2022. This study investigates weaknesses in Islamic banking product development in Indonesia and proposes a conceptual model for the development of Islamic banking products. The research approach employed a qualitative methodology utilizing constructivism and pragmatic paradigms, as well as case study strategies. Primary data was collected through focus-group discussions and interviews. The findings indicate that Islamic bank products lack explicit Sharia value chains, and are limited to imitating conventional products. Consequently, these replicated products have low competitiveness and weak market penetration compared with those of traditional banks. Additionally, this study suggests a conceptual model for Islamic banking product development consisting of three layers: platform, construct, and outcome. This model serves as a foundation for developing Islamic banking products that are distinct from conventional banking products. The uniqueness of these products is a critical factor determining their future success in the Islamic banking market.