The growth of online banking has been well documented, with a large proportion of Shariah compliant banks now offering their customers online facilities. The mobile financial services sector is nascent but growing, with a potential market made up of a global contingent of 4.55 billion mobile phone owners.
The significance of the development of mobile financial services is particularly pertinent to Islamic banking given the proportion of mobile traffic generated by the Middle East, Asia and Africa, where a concerted effort is being made to establish a wider network for the Islamic finance industry.
Speaking to Islamic Finance
news, Mohammed Kateeb, the group chairman and CEO of Path Solutions, confirmed that the progress of technology is acting as a driver for the Islamic finance industry: “Digital banking is increasingly the norm for straightforward banking activities, delivery channels and mobile banking in its various forms — payments and transfers — have been evolving lately. Modern Islamic technology needs to play a key role in fueling and supporting this growth.”
There are currently three main offerings within mobile financial services: mobile money transfer, mobile payments and mobile banking. Whilst mobile banking is perhaps the most well-known and mobile payments are gaining in popularity, mobile money transfer is perhaps where the biggest potential for Islamic finance lies, with remittance being big business in many countries with Muslim majority populations. According to World Bank figures, in 2013 Nigeria, Egypt, Pakistan and Bangladesh were in the top 10 countries for remittance in volume, with Tajikistan and Kyrgyzstan the top two in terms of percentage of GDP.
Raja Teh Maimanumah, the managing director and CEO of Hong Leong Islamic Bank, recently claimed that the future of banking will be in mobile banking, not online. Mobile money penetration exceeds banks accounts in a number of emerging countries, with early adoption momentum for mobile financial services coming from emerging markets, according to a report by Ernst & Young (EY).
According to Zadiq Allwati, the head of e-channels at Oman-based Alizz Islamic Bank, banks are seeing mobiles being the platform of choice for many. “Mobile technology has become a focal point for the future; the younger generation of customers has grown up with technology and will choose it over other options.” Somalia, Kenya, Egypt and Nigeria, where Islamic banking is making a concerted effort to break through to the mainstream, are all markets where mobile financial services have found a dedicated market. One example is Kiva Zip, a pilot program of Shariah compliant microfinance provider Kiva, which allows the public to donate directly to micro businesses in Kenya and the US via mobile money transfer.
Governments have acknowledged the potential of mobile financial services, with the UAE Banks Federation officially launching the first phase of its mobile wallet program in June. The initiative is the financial component of the smart government initiative launched by Sheikh Mohammed Bin Rashid Al Maktoum, the prime minister of the UAE, in 2013. More than 90 official services requiring payment will allow remuneration via the mobile payment system, which can also be used across retail outlets in the UAE.
In the EU, where Islamic finance is finding interest in unlikely markets such as Italy, Spain and Malta, the European Central Bank has introduced a Single European Payment Area (SEPA) that is designed to harmonize domestic and cross border mobile payments, acknowledging the growth in usage and implementation of the technology.
While mobile payment adoption is predicted to be slower in more developed markets, The UK Payments Council predicts that by 2022 mobile phone transactions in the UK will rise to GBP1.5 billion (US$2.5 billion) compared with a projected GBP365 million (US$609.8 million) in September 2014. The introduction of an ethically based financial system, associated with a fast, easy and accessible adoption method, could be the winning formula for Islamic finance in any market. — RS