International Turnkey Systems on securing compliance solutions

Islamic banking is a pillar of economic development in the Middle East. As the sector continues to progress and expand, International Turnkey Systems explores the tools on offer to facilitate this advancement


Beginning with the first Islamic Bank in Egypt in 1963 (see Fig. 1), Islamic finance has evolved over the past decades to become a vital sector in the banking industry and an economic driving force in the Middle East. The Islamic Development Bank (IDB) was founded in 1975 in order to encourage the economic development of member states and Muslim communities in accordance with sharia law. The IDB began participating in equity capital loans and grants to fund crucial infrastructure projects across the region, and now has 56 countries as members.

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) was created in 1990 to monitor and advise on the standards for Islamic banks and institutions around the world. While in 2002 in Malaysia, the Islamic Financial Services Board was established to further enhance stability in the industry and introduced regulations for compliance with Basel II for Islamic institutions in 2005.

Islamic banking continues to go from strength to strength around the world and is expected to experience further growth in the coming years. The Islamic Finance Advisory and Assurance Services (IFAAS) forecast the asset value of the sector to reach $3.24trn by 2020. World Finance had the opportunity to speak with Nasr Albikawi, CEO of International Turnkey Systems (ITS), about the new age in Islamic banking, and what role his company has to play its progression.

Information technology plays a very important role in the financial sector due to the volume of transactions and processes, which is large enough that organisations cannot handle it manually

Technological progress
Information technology plays a very important role in the financial sector due to the volume of transactions and processes, which is large enough that organisations cannot handle it manually – and Islamic finance is no exception. The evolution and development of technology has established new standards regarding the quality and availability of services at all levels, from banking internal processes to delivery channels, and from automating daily operations to tactical and strategic decision support. Ignoring such standards may cause organisations to lose tremendous amounts of money and resources. “Successful institutions know this fact all too well and pay great attention to empowering their business models through modern technology, which in turn yields more focus on business value”, said Albikawi.

Islamic finance is based on the principles established by sharia law, as well as rulings and interpretations issued by qualified Muslim scholars on sharia boards. Accordingly, financial institutions are faced with several challenges related to the implementation of these interpretations in day-to-day banking operations, as well as in product development and commercialisation. Moreover, global banks operating in multiple territories must contend with different interpretations of sharia, which means that they must comply with a wide set of regulations and maintain adaptable operations across subsidiaries and branches.

To help manage this challenge, ITS has created ETHIX Finance, a quick and easy configuration of Islamic finance products that can meet constantly changing market demand. “It also responds to the diverse sharia rulings that vary in regards to the geographical and ideological disparity of Muslim populations, as it was designed with high agility in mind”, said Albikawi. “Financial institutions can structure sharia-compliant products using our product definition engine, which can customise their operational-based transactions, user-defined and sharia-based steps through a ‘Workflow Engine’”, Albikawi explained. ETHIX Finance also enables clients to utilise a varied set of flexible parameters, which allows smooth implementation and the on-going maintenance of sharia interpretations. In addition, the engine provides information about policies and procedures, annual releases and conformance to new regulations in sharia.

Faced with the challenge of reducing cost, improving customer service and enhancing profitability, financial service providers need to implement strategies that achieve operational excellence and provide maximum value. “At ITS, we believe that technological operations can act as a business enabler for the financial services industry to maximise return on investment, while minimising operating costs and optimising the service provided”, said Albikawi. With these goals in mind, ETHIX Finance provides the groundwork for financial services through the utilisation of SOA-based architecture, business mechanisms and STP, together with the high configurability of a workflow engine.

ETHIX technology
ITS has a number of other modules that also assist Islamic institutions to meet changing consumer demands, while still complying with sharia law. The company’s ETHIX Core Banking system is at the heart of their proposed solutions. ETHIX client managers oversee the customer’s comprehensive information records and provide a platform for relationship management, while in ETHIX Accounts managers sort the customer’s deposit, checking, saving, and financing accounts, as well as fixed deposits.

ETHIX Branch is a unifying multi-channel delivery suite composed of reusable software modules, which can be used independently or in combination. The ETHIX Branch suite includes account opening and servicing accounts, teller business stations and safe lockers. “We also offer the ETHIX Finance Islamic Loan module, which provides a comprehensive range of functionalities to undertake retail and corporate based business transactions in a sharia-compliant manner. This includes processing a deal that contains more than one asset, and is financed using several Islamic instruments. Then there is ETHIX Credit, a front-end system for conventional loan creation and servicing, which was the outcome of years of collaborative effort and experience in the field of lending”, Albikawi explained.

Another vital service provided by ITS is the ETHIX-Trade module, which manages trade-related instrument processing, and connects a bank to the SWIFT and Telex networks. This module also provides a crucial link between the bank and its customers, and manages various instruments, such as documentary credits, presentations, standbys, bills of exchange and collections. In addition, ETHIX-Trade deals with guarantees, payments and settlements, financing and sub-instruments. The ETHIX PCD module enables a bank to fully automate the process of calculating and distributing profit to all liability accounts based on sharia rules.

ETHIX Treasury provides leading edge automation of treasury management operations; its integrated multi-user system allows the administration of all treasury financial products. It covers a whole range of modules to address the spectrum of treasury requirements, including a money market module, equity, coupon securities (sukuks), discounted securities, foreign exchange and commodities. Then there is ETHIX Sukuk, a comprehensive and highly adaptable solution that enables a bank to manage the full cycle of issuing and trading bonds. Finally, there is the ETHIX Provisioning module, which is an advanced and fully parameterised module that allows the bank to automate the process of calculating bad debts and posting them against the respective P&L accounts. “Additionally, we are currently developing an a highly customisable and well integrated module with Portfolio Management, Investment Management, Fund Management and Direct Investment”, added Albikawi.

History of Islamic finance

Flexible solutions
Reducing the learning curve helps to encourage employee productivity considerably. “With this in mind, ITS created an IT solution that could meet such challenges. The ETHIX Financial Solution is revolutionary in that it is extremely flexible, easy to use, adaptable and user configurable. It also allows organisations to innovate and focus on creating new products and services that bring them to market very quickly. In fact, ‘short time to market’ and ‘low cost of ownership’ were two primary criteria in the design of ETHIX Financial Solution”, Albikawi said.

The secure and flexible ETHIX suite of financial services was created to form the core of banking technology for financial institutions, boost their operational and growth capabilities and enable them to offer new customer centric solutions in the spirit of sharia-compliance. By investing in a new finance technology solution, banks can significantly reduce their operational costs as ETHIX consolidates all of their services under one unified system.

Moreover, by having more control as well as a more streamlined process across its entire business, banks are able to achieve greater efficiency, speed up product development and create a stronger and more valuable experience for their customers. This sharia-compliant ETHIX solution is therefore designed to help financial institutions reach operational excellence, accommodate growth and achieve cost leadership.

“Over the years, our customers across the globe have come to know ETHIX products as the best sharia-compliant solutions. ETHIX functions paved the way for banks to convert from legacy systems to multi-channelled cutting-edge solutions, and from conventional to Islamic systems”, Albikawi concluded. Examples of institutions that have undergone such drastic transformations include Kuwait International Bank and Libya’s Gomhoria Bank. Further illustrating the position of ITS in the financial industry are the multiple regional and global awards it has received in recent years.

ITS has received the Most Outstanding IT Company for Islamic Finance from KLIFF, the Best Islamic Finance Technology accolade from the Global Islamic Finance Awards and the Best Technology Innovation award, as well as the best Islamic Banking System by the IBS Journal in 2014. ITS is certified with CMMI 5, ISO 9001: 2008, TickIT standards and Information Security (ISO/IEC 27001:2005), and has had references from Garner, Celent and Forrester.