Islamic Banking Systems

Islamic banking has been around for a long time, at least since the 1970s in its modern form, but as the Muslim population of western countries has grown and the wealth of the Gulf Cooperation Council (GCC) & ASEAN countries has advanced, overtaking its original Egyptian base, its prominence in global banking and investment has grown, aided by oil wealth and growing economies of course.

The Islamic core banking technology marketplace is in many ways similar to the one for conventional core banking systems, with the same gradual move away from bespoke systems, demand for mobile services and 24×7 support evident in advanced GCC countries as you’d see in the West, although culturally a branch manager meeting is still desirable for certain older customers and some slower to develop countries do lag behind in their infrastructure.

Some Islamic banks are aping the conventional market in that they want to move to newer core banking digital platforms or cloud-based solutions that can more easily meet mobile 24×7 demands, data delivery demands and future desires for real-time payments, AI or perhaps blockchain functionality. A refreshed core is necessary for this to happen. Newer Islamic banks may not have the technology legacy traps of older western banks, making such migrations easier, but equally they sometimes struggle with poorer telecoms, credit checking, central bank and other supporting market infrastructures, particularly in less developed markets in sub-Saharan Africa or elsewhere, so technological flexibility is important to them too, depending upon the markets they operate in.

An ability to ‘switch’ between sharia-compliant systems that adhere to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) rules, or the SE Asian Islamic Financial Services Board (IFSB) recommendations, and conventional banking protocols is also increasingly important for the bigger Islamic banks that want to target non-muslim customers or expand abroad. Multinational banks with Islamic offshoots may also want to consolidate operations and move to wrappers on shared back-ends that link with their conventional cores. Established technology vendors need to be able to offer this kind of flexible functionality if they want to win customers, cut bespoke usage, and prevent specialist vendors gaining traction.

In our Islamic banking systems Feature Focus:

Keep the faith

Customer demand for speed, convenience, mobility, data and 24×7 support in retail and commercial banking, allied to internal demands for flexibility, lower running costs and better oversight, do not stop at the religious border between Islamic and conventional banking, finds Neil Ainger

Making the right choice

Chetan Parekh, a Partner at Cedar Management Consulting International, looks at the case for co-existing conventional and Islamic systems

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