Banking on Islamic sentiments

NEW DELHI, INDIA: Islamic finance is one of the fastest growing new business models for banks, more so for the financial services companies globally and is growing at a rapid pace of 15-20 per cent per annum.

It is currently estimated to be worth approximately $300 billion. Retail and Investment Banking Shari’ah compliant products are helping to unlock trillions of dollars of funds lying dead with high networked individuals and corporate world globally, who follow Shari’ah principles in their day-to-day business and investment, and thus would not participate in conventional investment transactions.

In brief, Shari’ah business principles do not support interest payments, speculative trade and bars investments in negative industries like smoke products, alcohol, gambling, banned drugs, etc.

Shari’ah principles encourage investment in building industries that can show factual use of money and show sustainable growth.

Although majority of products that are available in conventional banking are now fast getting re-created in Islamic Finance workflow. These include simple activities like savings and current accounts, to complex mortgages, leasing and hire purchase, complex bonds and now even derivatives and private equity, besides insurance products and private wealth management.

Islamic Finance boom time lies in Islamic Wealth Management, Private Equity and Islamic Insurance.

IT moves Islamic Banking

The major growth of Islamic Financial services cannot be served without appropriate technology. Islamic Finance technology is no old wine in new bottle. This requires a completely new generation technology that has ability to quickly adopt to fast changing and emerging complex rules, analytics, policies and processes, workflows to create new Shari’ah Compliant products with changing market needs and also follow dual compliance standards.

The success of an enterprise technology lies in its genes that take care of security needs, scalability and robustness, integration capability and expandability requirements, to meet growing needs of new age organisations.

The technology that will drive Islamic Finance too would be required to work in different currencies, languages and will have to deliver straight thru processing, for meeting high client service levels and for effective use of resources deployed by the financial institutions.

Unlike core banking systems of previous generation, Islamic Finance technology at enterprise level will be structured as a sophisticated Assent Management and Basket Product Solution being supported on a back bone of Open Products Architecture.

Indian Scenario

According of H. Tripathi, managing director of Infrasoft Technologies Limited, Islamic finance is entirely a new business model and hence will be a great attraction to Indian Investors looking for new instruments for expanding their portfolios.

“Besides, India with a large Muslim population (the highest among non-Islamic countries) will soon become an attractive destination for Islamic finance. Given the modern trends and fantastic growth in Islamic Banking sector, it is only a matter of time before Islamic Banking catches up in India. It will bring in greater competition and enhanced and more transparent returns to the investors. Islamic finance may also cause inflow of investments from other countries into India, especially Middle East nearer home,” he said.

Infrasoft has invested in enhancing the company’s OMNIEnterprise products suite, specially targeted at Islamic Banking.

“OMNIEnterprise is a comprehensive financial industry solution which acts as a robust and scalable full function Islamic Finance Solution. This would be probably the first ever Open Architecture Solution for Islamic Finance institutions, modularly available for Retail Banking, Lease and Hire Purchase, Corporate Finance, Wealth Management, Treasury and Trading, and Private Equity Finance. The Islamic Insurance is nearly completion,” Tripathi added.

Infrasoft today serves more than 120 financial industry clients globally and has major presence in UK, India and Middle East, Africa, Malaysia and USA..

“Islamic Finance Solution is a comprehensive Front Office-Mid Office-Back Office Solution. The solution offers easy integration of third party products on to a single technology back bone with STP transaction management and also the market feeds, trading feeds, payment systems and clearing networks. The solution is complete with customer services delivery through Internet, Branches, Relationship Managers, Agents, Phone Banking and Hand Held Devices,” he said.

Some of the features offered by OMNIEnterprise suite, which are applicable for Islamic banking in general, include Murabaha Lending for corporate and retail clients, and Commodity Murabaha and Reverse Murabaha based fund management products. The suite also offers Mudaraba Placements and Acceptances. Ijara Leasing and Ijara Wa-iktina (lease purchase), Sukuks investments and participation arrangements with configurable fee structures, Wakala Placements and Acceptances are some of the added features in the software suite.

On the enterprise and corporate banking suite, Infrasoft Technologies has incorporated import trade finance through Murabaha and Ijara lending, Istisna Riba-free checking accounts, and Musharaka Bank Guarantees Letters of Credit

“The OMNIEnterprise is built on a Service Oriented Architecture offering inherent advantages including capability to operate 24x7, managing workflow across multiple delivery channels and interfaces to payment gateways. The solution is customer-centric offering multi-currency support and a clear identification of returns and expenses enabling clean profit identification and sharing process complying with the Shari’ah laws,” added Tripathi.