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ISLAMIC BANKING TECH TRENDS Keep the faith
Customer demand for speed, convenience, mobility, data and 24x7 support in retail and commercial banking, allied to internal demands for flexibility, lower running costs and better oversight, do not stop at the religious border between Islamic and conventional banking, finds Neil Ainger
time, at least since the 1970s in its modern form. But as the Muslim population of Western countries has grown and the wealth of the Gulf Cooperation Council (GCC) and Association of Southeast Asian Nations (ASEAN) countries has advanced, overtaking its original Egyptian starting base, its prominence in the global landscape has grown.
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The International Monetary Fund (IMF) defines it as the provision of financial services compliant with Sharia law. Sharia does not allow payment or receipt of interest (riba – the equivalent of usury), gambling (maysir) or excessive uncertainty (gharar: See boxout for fuller definition and glossary). In its last report into the entire finance sector in 2014, the IMF estimated it to be worth $1.8 trillion.
EY specifically identifies banking assets only in its 2016 World Islamic Banking Competiveness Report citing a figure of US$801 billion in assets last year for participation banking (its name for Islamic banking) in the key QISMUT countries (Qatar, Indonesia, Saudi Arabia, Malaysia, UAE & Turkey), which account for 80% of the sector. The 40 leading retail/commercial banks it identifies will each speed $15-50 million over the next three years on digital initiatives. The Banker sizes the market at $964 billion of total assets in standalone sharia banks in its latest available 2015 Top Islamic Financial Institutions report.
In terms of the technological future of this market, EY’s Azhar Nazim, one of the authors of its report and head of
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slamic banking has been around for a long
global Islamic banking at EY, says it will be “a smartphone experience that delights”.
He believes that customer expectations of mobility and a better 24x7 service must be met here as elsewhere. “When it comes to technology, the same drivers are present,” says Nazim – namely, a need to digitise to improve service, functionality, flexibility and running costs. Easier compliance, with sharia and general financial regulations such as the Basel stipulations and supranational US FATCA tax rules, are also important drivers for banks improving or overhauling their core banking systems. Regionalisation in Asia as banks try to win business in neighbouring countries is also leading to new investments.
As Tushar Chitra, Product Director at Oracle Financial Services, says: “Islamic banks show the same interest in, and focus on, digital banking transformation as conventional banks.” And for the same reasons.
Aided by oil wealth and growing populations and economies, the Islamic market is large enough to support specialist core banking vendors like ITS and Path Solutions, which ranked first in IBS’ 2016 Islamic Banking Sales League Table, and general vendors like Temenos, TCS and Misys that offer their own Islamic solutions. General vendors are targeting the sector for long-term growth in the belief that emerging markets in central and Southeast Asia, sub-Saharan Africa, GCC, Pakistan and elsewhere which have suffered in recent times from oil price drops and economic slowdowns, will eventually bounce back.
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