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Bankers and vendors put their heads together at the World Islamic Banking Conference in Bahrain to discuss top issues in the industry

Digitisation has taken the spot as one of the top priorities in Islamic banks, but the jury is still out on what’s the best way to go about it. At the 25th WIBC held in Bahrain last month, top bankers and industry experts expressed their views about the evolution of technology in Islamic finance. All agreed that a customercentric approach would serve best to define the technological strategy for banks. Meanwhile, stringent regulations by various regional authorities was the most debated topic at the event.

“We shouldn’t overlook customer demands and the customer journey. That is very important,” said Esam Al Kheshnam, chief executive officer at International Turnkey Systems, adding that one also has to look at the full ecosystem in alignment with the assistance of regulators. Also, digitisation without streamlining operations can add to costs and not necessarily reduce it. “So, it is important that we look at ways in which there is profit optimisation and address growing customer demands,” he said.

Rafed Ahmed Al Mannai, head of private banking at Ithmaar Bank, was of the view that Islamic lenders have been very prudent and rigid as institutions. “We never looked at data beyond the financial data. Right now data is key, it’s not a by-product any more. There is no point in having customer experience if you don’t capture it, get that data and understand it,” he said. “See how social media uses the data, how they harness it. We don’t have that capability.”

According to Mohammed Kateeb, group chairman and CEO at Path Solutions, banks have started recreating their value and strategy for customers, though it will take time to filter out the winners and losers. “We are working on both sides – fintech as well as empowering banks to recreate the banks to new reality,” Kateeb said. He added that the challenge is in bringing about a change on an industry level. “The problem I see with the Islamic finance market is that we are too comfortable when it comes to the regulator’s control of the market. Innovation comes from the opportunity of discomfort. We have to create this discomfort that basically pushes every player to do better and play a part in creating that ecosystem,” he said.

Industry experts also spoke at length on the need for standardisation and uniformity in Sharia laws across different countries. Standardsetting bodies such as the Islamic Financial Services Board (IFSB), the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the International Islamic Financial Market (IIFM), all claim to be working towards it (see page 15). These efforts would not only fuel banks’ regional expansions but also pave the way for fintechs to grow exponentially.

In terms of evolving fintech, the idea of smart contracts and crossborder money transfers backed by blockchain has taken root in Islamic finance as well. However, both fintechs and regulators have their part to play in materialising this. Umera Ali, global head of Islamic finance at DWF, said: “Regulators have to adapt to the fact that the market has changed. But technology teams must also understand that the regulators are not necessarily their enemy. So, they both must come to a point to work together.”

Ali added the regulations will have to incorporate the fact that the realtime impact of technology is different from traditional norms and that new technologies can be tailored to serve the betterment of society. “People say we shouldn’t move to cryptocurrency because it enables money laundering. But let’s be honest. It’s the fiat currencies where most of the crime money is moved. It’s not blockchain,” he said. “All we need to do is adapt the regulation to this market. It’s not that the technology is bad.”

by IBS Intelligence