be scored and weighted, as should other desired attributes, and the findings should drive the eventual selection. Relevant reference sites should also be found, which show the required capabilities in real life. Despite the complexities, Islamic banks clearly need all of the infrastructure of conventional ones. As with their counterparts, they also need to be efficient, provide competitive and attractive products, support multiple delivery channels, manage their risk, be strong in sales and marketing, be innovative and flexible, and do all of this within a culture of strong customer service. However, the fact that the basis on which they offer banking is different has a significant impact on their ethics and products. Not all banks will need full functionality. For instance, in mid-2010, Silkbank in Pakistan expected to open a Shari’ah window at some point. It had already implemented Temenos’ T24 for conventional banking. The bank’s COO, Aneeq Khawar, had relevant experience as he was involved as a consultant for an Islamic bank in Syria in 2007. He felt the basic Islamic functionality of T24 was in place but was not as evolved as Path’s iMAL. However, he also said that Pakistan was not a very sophisticated Islamic banking market, so the T24 support might be suitable. For those banks that span both Islamic and conventional banking, the funds need to be kept completely separate, so this often brings the need for parallel infrastructures, albeit with the need to be able to see across both for requirements such as risk management and regulatory reporting. It is not uncommon for a bank that is setting up a Shari’ah window to go out and select a new core banking system. While there are down-sides and additional levels of complexity, the start-up nature of many of the Shari’ah banks or windows has allow these banks to build from scratch, unhampered by legacy. They have been able to turn straight to newer systems, have not had to undergo tasks such as data migration, and have often been able to move relatively swiftly and embrace new technologies faster than their established rivals. The construction of a separate infrastructure for Islamic banking can be seen at Europe Arab Bank in London, for instance, where it had a broad core system (Temenos’ T24) for its traditional business but set up a separate infrastructure for its Islamic window, selecting iMAL, which it implemented during 2007 and 2008. This report seeks to guide banks through the technology choices. Those choices are limited to a degree because it is only a subset of banking applications that have been built or tailored for Shari’ah banking. This has been a booming sector, at least until recently, so a fair number of suppliers have sought to move in, often working with first clients to modify their solutions. This applies to mainstream
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core banking system suppliers such as Temenos and Oracle Financial Services Software (Oracle FSS), as well as to suppliers of niche solutions (for areas such as investment management and trading) and smaller suppliers focusing on particular geographies and/or market segments. Misys with Bankfusion (now known as Fusionbanking), has Shari’ah banking is in its sights, with an interim release of Bankfusion in December 2011 which included initial Islamic banking support (mudarabah and ijara – profit sharing and leasing, respectively), with other Shari’ah instruments promised in a major release scheduled for May 2012. The supplier was making similar noises in early 2014, with plans to release Fusionbanking Islamic Banking. Misys vice-president of banking, Erin Smith, said at the time: ‘The only way core banking vendors are going to make huge money in the next ten years is in Islamic banking. That’s where the growth is.’ Local or regional suppliers have an important role to play and a couple of would-be additions to the international market are from Iran. Presumably also seeing the potential that Misys’ Smith had spoken about, at around this time Albaraka Turk Participation Bank and its core banking solution provider, Intertech, were planning to launch a dedicated company to market the Islamic version of the latter’s core banking solution. This type of activity looked as though it would only increase the level of choice for Islamic banks. As well as the grey areas around definition of Shari’ah banking, suppliers have often been hampered by a lack of expertise. In fact, Shari’ah banking per se has this issue. Moreover, for whatever reasons, some banks view Shari’ah banking as an area that should command lower budgets than others. An observation a few years ago from Anil Kumar at Dubai-based Futech Software was that: ‘It’s ironic that banks that have spent more than $4 million or $5 million already on more-than-required computing prowess in their conventional systems, are looking at budgets lower than $500,000 for their Islamic systems.’ Yet for a supplier, an Islamic banking system is not a shrunken version of a conventional one but has all of the same basic moving parts (accounting, settlement, reporting etc).
Selection criteria to focus on are likely to be as follows: Is the infrastructure of the product suitable to support Shari’ah- compliant products and has this been demonstrated anywhere? •
•
Does the system have support for specific Islamic products, which can then be modified or further developed depending on the requirements of an individual bank?
Can the segregation of funds be maintained when the product is used in a mixed Shari’ah-compliant and conventional banking
Islamic Report
www.ibsintelligence.com
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