Aafaq Islamic Finance implemented Infosys Finacle’s digital banking suite to transform its technology infrastructure

Backed by an eminent and respected group of shareholders, Aafaq Islamic Finance was established in 2006 to provide innovative Islamic financial services and products that comply with Islamic Sharia, across the UAE and the Region. Aafaq appears on the lists of many major financial institutions that offer a variety of high-quality financial services for a diverse range of Institutions. The full autonomy enjoyed by the company gives it a unique standing among finance companies in the UAE.

Today, Islamic banking is developing rapidly and it can no longer be ignored by banks that want to stay competitive. A growing number of banks are already responding to the opportunities presented by this new customer segment with a range of Shariah-compliant products. Over the past decade, assets of financial institutions offering Islamic products and services have soared by almost 25% year-on-year. Islamic financial services have surpassed USD 1 trillion in reported managed assets.

Islamic banking is the largest sector in the Islamic finance industry, contributing to 71%, or USD 1.72 trillion, of the industry’s assets. The sector is supported by an array of commercial, wholesale, and other types of banks. Yet commercial banking remains the main contributor to the sector’s growth. There were 505 Islamic banks in 2017, including 207 Islamic Banking windows. However, the number of players is not necessarily indicative of the size of the industry, in terms of assets. Governments and central banks have taken a lead in supervising Islamic banks, encouraging their growth, and have passed Islamic banking and insurance laws in their countries.

Aafaq Islamic Finance’s strategic focus is on exploring and discovering available opportunities within various business sectors to achieve the highest return for shareholders and the most benefits for the community. Strong Strategic partnerships are held with the Ministry of Finance, the Ministry of Labor, Dubai Economy, DMCC, Nasdaq and Tas’heel Centres. Aafaq Islamic realized that it had to relook at technology infrastructure to not just power its growth aspirations but to also overhaul its technology infrastructure to drive greater innovation and keep pace with the changing times.

After assessing various technology solutions in the market Aafaq Islamic Finance chose Infosys Finacle’s digital suite of solutions that included Finacle Core Banking, Finacle Islamic Banking, and the Finacle Payments platforms.

Implementation Process

The objective of overhauling their technology platform was to transform into a new customer-centric business model while continuing to tap emerging business opportunities. The new platform has given Aafaq Islamic Finance the ability to operate at a lower TCO, manage risk and credit exposure better and at the same time deliver superior customer service and returns.

Building on the successful digital transformation with Infosys Finacle, Aafaq aims to strengthen its presence in the UAE market as a leading Islamic financial institution and work towards making Dubai the center of global Islamic Banking.

Finacle Islamic banking solution offers an integrated and comprehensive approach for banks to define and present Shariah-compliant products to customers. The solution is completely self-contained and differentiated because of its strong product definition and audit features can provide comprehensive control and support Islamic accounting. It is replete with the accounting backbone to support back-office functionalities and provides Straight Through Processing (STP) capabilities on a Service-Oriented Architecture (SOA) platform. A modular solution built on the standard technology infrastructure; Finacle Islamic banking solution addresses current requirements while factoring in flexibility to change the structure with scaling business needs. This means Islamic banking can be initiated as an add-on product offering in a branch of choice, and eventually converted to an independent Islamic banking unit, if required. Finacle Islamic banking solution is developed from incisive insight into the Middle East, Far East, and European markets, and is truly geared to address region-specific Islamic banking requirements.

This comprehensive solution provided best-of-the-breed functionality including:

• Products and solutions that cater to the Islamic part of retail, corporate, and trade banking space
• Customer-centric capabilities to display unified customer information enterprise-wide
• Extensive parameterization for business rules definition of multi-currency Islamic products
• A robust framework for automated as well as the manual application of charges
• A comprehensive description of an underlying asset such as a commodity, real estate, vehicles, consumer durables
• Multi-currency, multi-branch enabled accounting backbone
• Pool management and profit-sharing principles
• Validations on pool restrictions and commodity linkages to accounts

Finacle Islamic banking offers a range of Shariah-compliant financial products that conform to Islamic ethics and the contractual mechanisms that bind them. While helping address the current needs of the burgeoning Islamic banking segment, the solution is flexible to change with scaling business needs and offers end-to-end banking functionalities. Some of the key features are as mentioned below.

• International Accreditation: Certified compliant by Al Futooh Consultancies with Shariah rules & AAOIFI standards
• Islamic Asset Products: Enables the bank to define and offer a range of asset products
• Mudarabah Pool Management: Manage funds by accepting deposits and deploying funds appropriately
• Hijri Calendar: Supports two main versions of the calendar adjusting the number of days per month
• Salam and Parallel Salam: Captures Salam sale and parallel Salam agreement details at account level including commodity and seller details
• Ijarah and Forward Ijarah: Integrates lifecycle workflow and accounting entries applicable for Ijarah and forward Ijarah concepts, from asset procurement to closure of financing account

Some of the additional features include:

• Asset provisioning and monitoring
• Standing instructions
• Statements and reports
• Funds transfers
• Common Customer Information File (CIF) across banking channels
• Loan Origination System (LOS)
• Limit and collateral maintenance
• Check and account number generation
• Signature verification
• Dual language support
• Multi-entity

Benefits Achieved

With a new Islamic Asset Financing module, Aafaq now has greater flexibility in offering tailor-made agreements to customers, while being compliant to Sharia laws and AAOIFI accounting standards, as a value adds to existing lending practices. Moreover, a new Limit and Collaterals module for managing Aafaq’s corporate assets practice is helping to optimize multiple legacy systems and providing significant efficiency improvements. The Finacle systems have enabled significant rationalization and automation of processes, thereby boosting productivity. Some of the key benefits are highlighted below.

• Easier and faster rollout of new Islamic banking products
• Automation of the Profit Distribution module has significantly increased accuracy and speed while allowing for the simulation of profit amounts by configuring profit rates across currencies
• 24X7 accessibility for customers and quicker services response due to automation of branch services
• Simplified account opening with the time taken reduced to less than five minutes
• Further, there has been a 20% reduction in reconciliation time taken by tellers, enabled by the new system’s auto reconciliation capabilities

Additional business benefits achieved by the bank are highlighted below.

• Innovative product spread: Finacle Islamic banking solution offers a flexible and varied feature repertoire for banks to design and deploy products for varying market segments, based on different Islamic concepts including Mudarabah, Murabaha, Ijarah, Istisna, and Tawarruq. The solution also offers a wide range of possibilities for business users at the bank to create products and embellish them with innovative features
• Lowered total cost of ownership: The solution’s custom-definable watertight modules address both international and Islamic banking needs. This empowers banks with the flexibility to define and change the organization structure, offering Islamic banking as an add-on product at a branch of choice, and then converting it to an independent Islamic banking unit if required. Proven scalability and robust performance for both conventional and Islamic banking are assured. All of this results in significantly lowered TCO for the bank
• Process innovation leading to greater productivity and operational efficiency: The solution is powered by the BPEL and BPML compliant workflow engine. This, coupled with high parameterization capabilities, results in greater process efficiency, better risk mitigation, and support for rapid rollout of Shariah-compliant products
• Finacle is helping build tomorrow’s bank: Finacle from Infosys partners with banks, the world over, to accelerate innovation and unlock the value levers of their business. It has never been this convenient for banks to adopt an integrated and comprehensive approach to define and present Shariah-compliant products to customers

Conclusion

Aafaq now has a unified payments platform, with extensive automation, helping achieve a 95% improvement in process efficiency of inward payment messages. Some of the results achieved post successful implementation of Finacle Digital Banking suite are highlighted below.

• Manual to automated: Transformation from a manually managed operation to automated systems. The manual operation involved several risks and disadvantages namely data entry errors, issue of data loss/inconsistencies, process inefficiency, etc. These are now a thing of the past with the automated systems in place
• Disparate systems to core banking solution: Conversion from multiple systems to a unified Core banking solution. Several discrete applications were being used before that was now replaced by a unified Core banking platform. This ensures there is a single solution that is interfaced with all other internal/external systems ensuring a single source of truth, data redundancy, management of multiple applications, etc.
• Process transformation: Overhaul of Workflows and Processes within the organization – from a completely informally managed process, today Aafaq has a well-defined and documented process with responsibilities and turnarounds
• Change management: There were severe challenges in driving the change through the organization as there was no legacy system or a defined process that was established before. With this transformation, both the systems as well as the process went through a complete overhaul. It was very challenging to drive this change and it required a diligent and patient approach in bringing all the stakeholders to the table

KEY FACTS

Bank: Aafaq Islamic
Headquarters: Abu Dhabi, UAE
Supplier: Infosys Finacle
Solution: Finacle Digital Solution suite – Finacle Core Banking, Finacle Islamic Banking, and Finacle Payments Platform
Timeline: NA