Embracing the New Year, keeping up with technological advancements is inevitable. The Shariah compliant industry particularly the banking sector must employ up-to-date strategies to meet the rising consumer demand. Providing an update on the latest technological developments in the Islamic finance arena, NABILAH ANNUAR writes.
Digital banking
Hong Leong Islamic Bank in January launched its inaugural concept branch, which utilizes sophisticated and state-of-the-art infrastructure and IT systems. Looking to expand its branch network (which currently stands at nine) by only opening concept branches in the future instead of the traditional units, the bank targets to launch a second concept branch within the next three to four months, with plans to completely digitalize its existing branch network eventually. Similarly, the Middle East welcomed its first ever Shariah compliant online retail bank, meem, which is a culmination of a three-year ‘co-creation’ process by parent Gulf International Bank with customers via social media. Dubai Islamic Bank launched ‘Smart Bank’, a revolutionary concept which rides on the bank’s technological prowess to set new benchmarks in the field of customer interaction.
An Accenture report last year found that 25 of the largest retail banks in the US spend in excess of US$50 billion a year on maintaining over 43,000 branches nationwide, with the opening of a new branch costing at least US$2 million on average. According to industry players, the operating costs of a virtual branch is only half that of traditional branches. Virtual or ‘smart’ branches are not only seen as more cost efficient but they are also able to bridge the gap between fragmented Islamic banking markets and gather much-needed critical mass including the currently underbanked population.
In efforts to embrace technological advancements and move towards a truly digital world, Emirates Islamic has also been encouraging its customers to utilize its digital platforms, while Barwa Bank continues to expand its mobile banking platform. Noor Bank plans to expand its retail banking operations via an online medium over the traditional means of branch expansion. Alizz Islamic Bank also announced plans to further grow its digital platform to meet customer demand, and launched its own smartphone application to reach the growing market of tech-savvy consumers — illustrating the growing intertwining dynamics of consumers with mobile and online-based technology. The UAE Banks Federation launched the Mobile Wallet project, the financial component of the country’s Smart Government initiative. To be rolled out in phases across 49 UAE banks, the first stage of the project will see the establishment of mobile payments and a money transfer platform for smartphones and other digital devices.
Software and operating systems
ValuStrat has launched a digital platform that enhances the efficiency of Mandoob services for Murabahah products in Islamic banks. The proprietary processes and technology platform reduces average turnaround time and enhances quality control and affords a wider geographic reach. Kuwait International Bank integrated International Turnkey Systems (ITS)’s Shariah compliant ETHIX financial solution. Barwa Bank also upgraded its technological systems with the adoption of the ITS’s ETHIX suite of financial services. In Saudi Arabia, Solidarity Saudi Takaful Company partnered with insurance software provider ESKADENIA Software to automate the Takaful firm’s operations. In Sudan, Bank of Khartoum upgraded the Islamic core banking software of its 60-strong branch network with Path Solutions’s iMAL 13.2. Financial Investment Bank too implemented the iMAL Islamic core banking system and most recently Somalia’s Premier Bank integrated Path Solutions’s iMAL Islamic Banking & Investment System.
Shariah and regulatory compliance
The iMAL Islamic banking and investment system from Path Solutions completed the AAOIFI compliance engagement on the scope of the review conducted by Deloitte. The Basel Committee also released a guidance note on data aggregation and reporting which will require banks, both Islamic and conventional, to fundamentally upgrade their capabilities in this area by early 2016. Concerns have also been raised as to unfair treatment, as smaller banks are required to adopt the same IT systems as big banks, which can result in a cost and competitive disadvantage.
Outlook
Technological sophistication of a financial institution has become increasingly important as a strategic way forward. The usage of Shariah compliant technologies is not only a viable way of improving the institution’s internal processes and enhancing its operational efficiencies, but also to ensure the compatibility of its activities with Shariah guidelines. The industry is moving towards digital banking, mobile banking, branchless banking or internet-only banking and it is pertinent for the Islamic banking industry to keep up with this trend in order to be able to compete on a level playing field with the rest of the banking fraternity.