Unique IT Services in Islamic Finance and Key Players

DinarStandard:In the last 25 year, Islamic banking practice has progressed tremendously. The past two and a half decades, serious research done, has established that Islamic banking is a viable and efficient way of financial intermediation. Several Islamic banks have been established during this period under mixed, social and economic settings. Recently, many conventional banks, including some major multinational Western banks, have also started using Islamic banking techniques. All this is encouraging.

Banks moving into Islamic banking require compliance with Sharia’a principles. This compliance has significant effect on bank products, processes and technology systems...Click here for the Whole Article:

Islamic Banking Solution Providers - Georgraphic Location

Islamic banks demand dedicated core systems

By Chris Chong

A study by Asian Banker Research shows that Islamic banks’ consider investing in core banking systems to support product innovation and improve customer service

A dedicated Islamic core banking system is crucial for product development, a top business priority for Islamic banking institutions
Risk management takes a back seat among Islamic banking institutions as business growth takes priority
Interoperability is the most important IT requirement when implementing Islamic core banking systems in a heterogeneous applications environment

Islamic finance is taking Asia by storm. According to Asian Banker Research, the world’s top 100 Islamic banks are growing assets at an average annual rate of 26.7 percent. In Malaysia, Islamic institutions are even beginning to challenge their smaller conventional cousins.

Asian Banker Research recently conducted a study on institutions offering Islamic banking services in the region and found that investing in next-generation core banking systems is a top priority for many.

The study, which drew on insights from senior business line leaders and IT heads of the largest Islamic banking institutions in Asia and the Middle East, showed that 61 percent of surveyed institutions have commenced their Islamic core banking system replacement project, and of these more than 60 percent are currently in the early phases of vendor and systems selection.

When asked about the business imperatives underlying core banking system investments, an overwhelming 75 percent of respondents said that a dedicated Islamic core banking system will be the key enabler of more tailored, sophisticated and innovative offerings. The study found that with a new Islamic core banking system, respondents will most urgently focus new product development for their trade finance, corporate lending and consumer lending businesses.

At present, the availability of Islamic financial products and services in the region is relatively narrow. Most surveyed institutions focus on savings deposits, personal mortgages and SME financing, offering limited capacity for differentiation. Additionally, the majority of players target the SME and retail segments, creating a crowded, competitive marketplace.

Although penetration of Islamic banking is still low in many Asia Pacific countries and growth rates are healthy, it is widely recognised that continued portfolio and services expansion are vital for gaining traction as more offerings enter the market.

While risk management and regulatory compliance are getting more attention than ever in the conventional banking environment, the study revealed that it is not top-of-mind for the region’s Islamic banking institutions, which are relative laggards in utilising technology for risk controls. Banks are instead focusing on issues that have more direct impact on top line growth such as developing customer-centric capabilities that improve client relationships. Only 35 percent of respondents ranked risk management and regulatory compliance as a critical objective of installing a new core banking system, as compared to 65 percent for establishing customer service leadership, and 75 percent for improving product innovation.

However, as governments seek to improve transparency, particularly in more progressive Islamic banking markets such as Malaysia and Indonesia, regulatory compliance will become an increasingly important motivator for banking system upgrades and replacements.

As with many organisations, most of the surveyed institutions struggle with the limitations of legacy IT systems. It is no surprise that close to 65 percent of the banks surveyed ranked ease of integration among the top 3 criteria for system selection.

Standards-based systems that allow existing infrastructure to be leveraged and easily integrated with various other disparate systems are already in high demand and will only become more important as the sector increasingly experiences acquisitions and spin-offs that convert Islamic windows into full-fledged Islamic banking subsidiaries. Organisational changes tend to require new banking systems, or drive the convergence of existing systems towards common computing platforms. Additionally, Islamic banking subsidiaries of conventional banks will also need to ensure that their new Islamic core banking systems are compatible with the parent bank’s existing systems.

This study, commissioned by Infosys, reflects the phenomenal growth of Islamic banking and the associated core banking investments required to support its rapid development. Unfortunately, given the industry’s relative infancy, institutions have faced a dearth of options for IT solutions dedicated to Islamic banking. In recent past, Islamic institutions relied heavily on local and regional vendors for country-specific shariah-compliant IT solutions.

However, Islamic banks are starting to require solutions that are more than just shariah compliant. There is an increasing emphasis on innovation, customer service leadership and risk management capabilities as key drivers going forward. In these aspects, global vendors with shariah-compliant solutions have much to offer with their breadth of point solutions that may better address banks’ increasingly advanced requirements.

IT needs: Middle East banks spend over Dh5b

By Faisal Masudi

Technology upgrades and new customer trends keep banks under non-stop pressure to innovate or loose out, heard a summit at the first Middle East International Banking, Financial Technology and Services Exhibition and Conference (MEFX) here on Sunday.

Organised by the Dubai World Trade Centre (DWTC) and running till June 3, MEFX is being held at the Dubai International Convention and Exhibition Centre.

Middle East banks already spend around Dh5 billion on their information technology (IT) needs, making them the top investors in the sector, according to MEFX organisers.

Data centres and mobile and internet banking are some areas where the only constant is change.

“Innovative measures such as anti-fraud solutions and mobile banking are revolutionizing the industry and complimenting traditional branch banking methods,” said Helal Al Marri, director general of the DWTC.

Among such measures are automatic currency readers that count along the long edge -- rather than the side -- of a note, where new security features against counterfeiting are increasingly being laid down as well.

Meanwhile, customers stepping into banks here may soon be greeted by the QMS300i, an ATM-like machine that guides the visitor to the right personnel after a series of options on a touch-screen window. The system sends bank executives a report on the client’s needs before he or she arrives at the desk or window.

“Every customer can feel like a VIP,” said Mohammad Javeed from the Visitors Management Solutions department at Jacky’s, the UAE agent of the machine.

The three-day MEFX Summit on Future Proofing Your Bank also talks about the thirst for fresh products in the Islamic finance industry, which is growing by an estimated 20 per cent every year.

“This [Summit] will add value to the event, which is expected to draw 1,500 visitors,” said Aleks Duric, the DWTC’s project manager for MEFX.

Financial services in Dubai currently add an estimated Dh12 billion to the emirate’s GDP, according to Dr. Omar Bin Sulaiman, the governor of the Dubai International Financial Centre, which is presenting MEFX.

Over 70 corporations from 20 countries have signed up for MEFX. More information is available through www.mefxevent.com.