Post on 06-May-2015
1Powering Financial Markets
The Role of IT in Islamic Banking
Prepared by: Nasre Nasser Eddien, Business Development Manager
Path Solutions08 June , 2010
3Powering Financial Markets
One of the fastest growing sectors in the global financial services
Started 1963 In Mit Ghamr; Egypt
Now more than 75 countries allow Islamic Financial Institutions
More than 626 Islamic Financial Institutions worldwide. (As of October 09)
Including 435 IFIs, 191 conventional banks with Islamic windows
(source: The Banker third annual survey of the world’s Top 500 Islamic Financial Institutions)
More than 50 Islamic Financial Service Institutions have been launched within the past 2 to 3 years
More than 20% average growth of the Islamic Financial Institutions
More than US$ 840 billion total volume of Sharia-Compliant assets
The volume of Islamic transactions globally reached a total value of US$ 8 billion
(as of June 2009) (Source : Bloomberg)
THE GROWTH OF ISLAMIC FINANCING INSTITUTIONS
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145216 248
315
442
600
847
0
100
200
300
400
500
600
700
800
900
US
D B
illio
n
2002 2003 2004 2005 2006 2007 2008
Years
IFIs Total Assets
THE GROWTH OF ISLAMIC FINANCING INSTITUTIONS
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Global Sukuk Market
Global Sukuk Issuance Trend –
2004 : USD7.2 billion, 2005 : USD12.1 billion, 2006 : USD26.8bil,
2007 : USD47.1billion, 2008 : USD15.52 billion, 2009F: USD15bln-USD18bln
2008 local & USD-denominated Sukuk issuances were dominated by Malaysia 40.7%, UAE 34.2%, Saudi Arabia 12.1%, Indonesia 4.3% and Pakistan 3.2%
2008 Sukuk issuances of USD15.52bln, down significantly from USD47.1bln in 2007
Example of Growth of Islamic Compliant Instruments
Source: Zawya, IFIS, Central Banks, Bloomberg
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Is Islamic finance simply renaming conventional financial terms?
Islamic finance is different in terms of:
Processes: Trading & Risk-profit participation: more sophisticated
Based on the concepts of trading and participation in risks and profits
Need of effective and efficient management system is becoming a necessity to Islamic Banking in order to handle huge transactions volumes and to provide instant and wide availability of information.
Islamic banking is different from conventional banking
Products: Equity based
Versus Loan based Financing
Islam aims at building a socio-economic order based on justice
7Powering Financial Markets
Importance of IT for Islamic banking
The business is different
The product is different
The process is different
The mechanism is different
The financial and fiscal implications are different
The IT solution should be different
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IT Solutions for Islamic finance
Capability to accommodate Innovative instruments & evolving
industry
IFIs searching for dynamic models within the Islamic Sharia & compliant to the AAOIFI Accounting Standards
Enabling offering a range of products and services that meet customers’ evolving needs
IFIs streamlining their procedures, improving their operations, and enhancing their services
Accommodate Different Sharia interpretations
Between regions, sometimes countries
Depending on IFIs Sharia advisors and Sharia board interpretations
Ability of the bank to abide by to the Islamic beliefs and values and the
authenticity of the products to be Sharia-compliant wins customers.
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These ambitious yet realistic targets can only be achieved through partnerships with leading Islamic banking IT solutions providers.
IT solution built for Islamic banking
Currently Islamic banks are taking giant strides in technology, attempting to equal and surpass the IT based customer services offered by conventional banks.
Modular architecture is the key –
Building Blocks approach is what suits most established as well as new banks. The ability to plug and play will surely emerge as the key. In this task, acquisition of ready-made modern pluggable components that can integrate smoothly will be an important consideration
Leading Islamic banking IT solutions providers should provide modular component based solution.
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An IT solution built for Islamic banking
Built on the Shari’ah rules & regulations (imbedded the related information capturing features)
Facilitate the set-up & ease of tracking RIAs across the system & provide information on timely basis
Support proper recording, tracking & management of URIAs, the pools of funds; & compute Profit in efficient timely manner
Produce the industry related standard accounting entries & allow the related booking methods of the transactions
Allow producing legal documents & confirmations according to the industry standards & the Sharia Rules and regulations; matching with the transaction type
Support Sharia Audit procedures (transaction processing log and maintenance of legal documentation)
Support customer centricity & CRM & Zakat computation
Easily integrate with other applications for data mining
Support regulations and Risk Management procedures
Support multiple delivery channels
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IT Challenges resulting from industry’s globalization
Flexibility to cater for the distinguishing aspects of a geographical area or specific country in timely manner: quick time-to-market and ROI
Income tax and VAT computations
Produce consolidated financial statements & compliance to AAOIFI Standards
Flexible profit distribution to cover the different approved policies and procedures by the Sharia Board
Cover regulatory reporting requirements by country
Open architecture that allows interfacing with local central banks or regulatory institutions
Engage Islamic Banking subject-matter experts with strong and deep industry knowledge and enough exposure to the industry’s specific operations
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Thank You
CENTER OF ISLAMIC BANKING & ECNOMICS
Head Office: 192- Ahmad Block, New Garden Town , Lahore, Pakistan
Ph: +92-42-35913096-8, 35858990, 38407850 Fax: +92 -42-35913056
E-mail : info@alhudacibe.comWeb: http://www.alhudacibe.com