The Theory of Product Innovation and Its Application in Islamic Banking

Abstract

The success of banking institution depends on continuous innovation and improvement of the product offering to increase profitability and marketability. Product innovation is also one of the important aspects for Islamic banking institution, but it requires attention in observing Shariah requirements. This article will analyze the principles of innovation and development and its application in Islamic banking product. The analysis is based on qualitative research approach where reference will be made to primary and secondary sources gathered through library research. The discussion will study several literature on the concept of product innovation and analyze the applicable Shariah principles in the aspect of innovation of Islamic banking product. From the study, it is concluded that the general concept of product innovation in conventional banking can be applied in the context of Islamic banking. This is because Islamic banking is still within the framework of banking which is also subject to similar commercial aspects but with the requirement to uphold Shariah principles. Product innovation in Islamic banking involves the role of creativity and the concept of reform in Shariah as well as the approach in the construction of Shariah ruling. Therefore, continuous product innovation is significant for Islamic banking institution to remain competitive with other financial institutions in the industry.