Will the Islamic boom continue?

The global Islamic banking sector could hit an estimated $500bn within a few years. Yet many Western banks could lose out if they cannot secure Shariah-compliant banking solutions – so-called Islamic windows – for their customers


It’s a funny old world when Western banks attempt to become more Islamic. But that’s increasingly the reality says Haitham Abdou of International Turnkey Solutions (ITS), which should know. ITS has developed an all-new Shariah-based IT solutions approach allowing clients to design their Shariah-based product range from the ground up.

There’s no existing IT template to push clients down avenues they don’t want to go, or which don’t quite fit them says Mr Abdou. “Many Western banks say to their customers, ‘oh, we offer Islamic banking, we can accommodate your needs’. But many of these products are simply models of their Western-based product range. The trouble is, a good Islamic banking product is often much more complex than a Western-based approach because the workflow, how the arrangement is structured, is so very different. And our solution reflects this.”

Why Islamic banking demands new solutions

Islamic banking products are more complex than traditional Western banking solutions. That’s because an Islamic bank is also a partner in any banking deal or arrangement. The Islamic banking model might often, for example, be based on a retail model.

For example, if a client wishes, using the Islamic model, to take a loan for a new car, the Islamic bank will usually buy the car for their client. Some Islamic banks might even have their own vehicle retail operation, with their own car showroom. The impact on the bank, of course, is that such a deal has to be structured in a way that’s profoundly different from the way most Western retail banks operate.

This Islamic banking approach to risk sharing could again be illustrated by a company wished to finance a new office building explains Haitham Abdou. “The company, for example, might visit an Islamic bank to discuss their business plan. If they agree to finance the project, then the Islamic bank plays a major part in the deal. Effectively, they share the risk, 100 percent of the deal together. The bank would pay the contractor; the bank would monitor progress of the building; they would also ensure that the building was built to the exact specification. When the building is finished, there would be a joint agreement as to what percentage of revenue is then returned to the bank. In every aspect, this is a shared venture between the company which takes on the investment, and the bank.”
Transparency attracts new clients

Much of the attractiveness of Islamic banking is built on the fact that Islamic banks way of doing business is highly transparent. And this approach is becoming rapidly appealing to Western consumers says Haitham Abdou, simply because money always changes hands in return for solid, tangible assets. “There are no penalties; you cannot end up in a situation where you are being charged interest on interest. The banks feel more secure in doing business too because they are always loaning on a physical asset, be it a car or property. So their risk exposure is much less. They would never find themselves in a situation like the current US credit crisis, where no-one knows exactly where bank liabilities really lie.”

Plenty of difference – but similarities too

Islamic banks offer a range of services to their clients that mirror Western banks too, such as

Credit cards

Cheque books

ATM access

Internet banking

Mobile ‘phone banking

Flexibility built in from the start

What ITS’ solution was determined to offer from the beginning was genuine flexibility. “We did not want our clients to have to replace their own core banking solutions,” says Mr Abdou. “You’ve got to allow companies to build their own products in their own way. To build it as they see fit. You can’t dictate to other people’s businesses how they should engineer their software. Perhaps previously – but not now.”

That meant creating a software workflow pattern that could sit on top of an existing core system, allowing the business to define freely just how it could interact with a bank’s branches and ATMs. “We spent two years doing R&D to achieve this within our own software house, on the way gaining CMM Level 5 Certification. It was only after we were satisfied with the flexibility of the product that it was launched globally, in Zurich, London, New York and Singapore.”

ITS’ instinct that Islamic banking was growing fast outside its traditional Middle Eastern home ground has since proved highly accurate. “We were sure many banks would want to open up an Islamic banking window in their offering,” says Haitham Abdou. “And we knew what our competitors would find it difficult to offer a product that would work well as an Islamic window in a conventional Western bank. That’s where our own product scores. By engineering it so that it fits, front-ended, means it allows conventional banks to plug in an Islamic Window ‘IT’ Infrastructure without touching their own IT. It shows that many conventional banks can now launch an Islamic window fast – and with very little fuss.”

Islamic banking is evolving fast

Consumers are demanding higher standards from banks, particularly those in the West. The recent rise in ethical banking and socially responsible investing is evidence of this. But Western banks themselves are increasingly realising that a genuinely Islamic approach can also mean a lot less pain across their product range. “An Islamic model,” says Mr Abdou, “manages to avoid all the trouble, for example, of bad debt and collection agencies. It’s a lot less aggravation. Western banks know that Islamic banks don’t go through this, so that’s another reason for adopting an Islamic window for their business.”

Global names such as HSBC and ABN Amro have already pioneered Islamic banking. Islamic banking, to some people however, may have an image issue: the fall-out from 9/11 and great unease about Islamic fundamentalism though is a long way off the reality of mainstream Islamic banking practices says Haitham Abdou. “Islamic banking is really nothing to do with religion for most switched-on Western banks,” he says. “It’s just another way of making a profit. It’s, quite simply, a new business model. I think that in the future the actual phrase ‘Islamic Banking’ is at risk from disappearing, simply because Islamic Banking is just another business – it’s really about the bottom line.”
Added value

ITS launched this innovative Islamic banking solution almost a year ago. The feedback from clients has, so far, been hugely positive says Mr Abdou. “Feedback has been amazing. Business users are realising that that the software is incredibly flexible. It gives them the power to define how and what they want to do. It’s really given us a very strong competitive edge – it really adds a lot of value.” There’s no need for additional software expense or equipment: ITS’ solution sits on top of existing software points out Mr Abdou, simply plugging in immediately.

A rash of awards have subsequently followed, including World Finance Magazine’s prestigious Best Universal Banking Solutions Provider, Islamic Finance as well as “Best Technology Provider for Islamic Banks” in Kuala Lampur from the renowned “Kuala Lampur Islamic Finance Forum”.

The boom has just started

The Middle East economic boom looks likely to continue for some time, thanks to a rocketing oil price and much surplus budget washing around. It means huge projects, new cities as well as new infrastructure being built. It also means, of course, more banks opening up to accommodate this wealth. “Countries like Kuwait, Qatar, U.A.E, Sudan, Saudi Arabia and Bahrain, they’re the ones particularly seeing the effects of high oil prices. Egypt too,” says Mr Abdou.

And while the Middle East booms, Islamic banking can only boom with it. The British government, for example, knows this. It is already determined to make London ‘a global gateway for Islamic Banking’. With 25 percent of the world’s population now estimated to be Muslim, no wonder many traditional banking heavyweights are increasingly taking Islamic banking very, very seriously.

About ITS
ITS solutions span Banking, Telecommunications, and Higher Education sectors. It offers leading ERP, CRM, and e-Commerce products and services for Enterprises in Retail, Government, and Oil sectors. ITS has an expanding user-base of over 170 customers. Cutting edge solutions are developed and implemented through a resource pool of over 1,700 skilled IT professionals in 21 offices across the globe.

For further information:
Tel: +965 240 9100
Email: haitham.abdou@its.ws
Website: www.its.ws