Category Archives: Islamic Fintech

Making Islamic Banking Resilient

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Recently, I was invited to be part of a panel to present our views at the International Islamic University of Malaysia (IIUM) on how to make Islamic Financial Markets resilient. With great excitement I prepared my slides (panelists are given 20 minutes to present) and tried to figure out the best approach to present it in such a short time. However, when the session came, due to time overshoots and constraint, me as the last speaker was only left with 10 minutes. I had to make it count, so I talked fast.

Afterwards, however, I do not feel as if it was mission accomplished. Time was too short for me to put my argument properly and I had to drop many points in fear of cramming too much information into that 10 minutes. So I decided to post my slides up, and make a proper short commentary on what I meant to be communicated. Bear with me.

The Financial Industry Must be Resilient

  • STABILITY : The public must be confident on the resilience of the financial markets where the public is assured that there is not misconduct of public funds in the day to day operations of the banking industry. BNM has put in great lengths to ensure stability via sufficient capital, liquidity and funding. The operations of the bank must always meet the statutory requirement on financial stability with the introduction of the Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), Rate of Return Framework (ROR), and Risk Informed Pricing.
  • SUSTAINABILITY : Any business, must intend to survive in the long run. Selecting your customers are important, and risk mitigation mechanisms must be available to defend the business. But at the same time, re-investment of profits must also be made for future growth, so it is a balance to be maintained.
  • INTEGRITY : As Bankers, integrity always plays an important, and fundamental, part.  But Islamic Bankers, another layer of integrity is also imposed which is Shariah. Banks are expected to be more and more of a moral champion in support of the various SDGs and ESGs where the idea of being good will eventually lead to better profits and prosperity. BNM’s Value Based Intermediation aims to expand the role of banks to be more than just profit driven, but more inclusive to embrace a wider range of customers and cater for their needs.

The Challenges are manifold.

Being resilient is always a challenge for the Banks, especially with so many moving parts in the financial world. New regulations, new competition, new structures, new products and new models continue to plague the banking industry. To change our mindset to make Banking and Financial Market more better requires a lot of soul searching and will power to make the change. I summarised the challenges into 3 broad categories:

  1. Consumer Market. Any major change in the banking model is not taken well by the consumer market. Customers come to the Bank mostly for advise on their banking services. The Banks struggle to introduce differentiating products, from the debt structures and into the thought of creating value through investments. I am not sure how successful introducing the VBI into the consumer market, but the has been a lack of awareness programmes to introduce to the public.
  2. Corporate Market. Corporates are driven by profits and benefits. It is their core function ie to increase shareholder value.
  3. Financial Markets. We lack sufficient financial instruments in the market. That is why the industry can only grow organically. It needs the strong-will to pump more capital into the market and creation of structures that do not mirror the conventional books.

The Reality is that Traditional Banks need to keep up.

  • Traditional Banks. Heavily regulated to ensure financial stability. But the speed of adaptation to new thinking and new technologies are too slow. It is high cost to make the change, but also it is high cost just staying where you are. Ask Nokia. If all Islamic Banks do is replicate, they are in danger of becoming obsolete in the near future.
  • Challenger Banks. Provides alternative banking structures or arrangement, with little or no hassle, with or without the use of technology. A lot of customers now by-pass banks to opt for the most convenient and fast banking products. With very minimal regulatory requirements.
  • Digital Banks. This new breed of banks are definitely very interesting. There are two differentiators i.e. 1) Banks that only digitalise their processes and paperwork and speed, but the fundamental bricks are the same, and 2) Banks that try to be different and offer a totally new proposition with a new set of bricks. Yet, Islamic Banks are expected to do all and adopt more stringent requirements when entering into the Digital space, while dealing with old issues such as constructive ownership and Aqad. More importantly, these issues can probably be resolved by NON-BANKS, offering the same terms and conditions, sometimes with slightly better proposition such as speed, accuracy and low cost. For example, big data companies such as Facebook and Grab intend to open their own “bank”. Facebook just launched its Libra bank trading in cryptocurrencies. Grab is rumoured to enter as well and these Big Data companies already have their database of ready customers for them to roll out their Digital Banks.

Stop Looking at Your Feet. Stretch out your hand and move to touch new Horizons.

A lot of discussions have been held between the academia and practitioners. It seems we are always looking ways to innovate and integrate into the future, but without any real solutions on how to actually do it. As mentioned, the will-power to affect change remains a huge challenge. Instead of “What Is….”  to be turned to “What If…” where solutions are always been discussed and developed for a solution, and “What Next…” clearly implying the shift in banking products from traditional to new developments.

It is no longer sustainable to just replicate. True innovation is on the rise. New solutions are needed to be offered to the customers.

The Next Generation bankers must familiarise themselves with all the blockchain and Internet of Things language and terms currently floating around. More importantly, there should be a look at the whole ecosystem to see where the Shariah elements can be included, and where others must be excluded. Collaborative discussions, between regulators, academicians, practitioners and Shariah scholars must work together for the growth in the industry. It is not just any growth, it involves a total paradigm shift to adopt the new ecosystem.

There is a need to differentiate and upscale the business practices. While we continue to focus on the Traditional Bank in making it more resilient, we might miss this opportunity to join the Industry Revolution 4.0 to revamp Islamic Banking and overlook the threats coming from other financial institutions (NON-BANK). This is the Banking disruption in real life.

No Pork No Lard : The Shariah-Neutral Transactions

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TO COMPLY OR NOT TO COMPLY, BUT THERE IS A THIRD OPTION

Following my earlier writing on the Digital Wallet / ePayments and how such transactions may have not breached Shariah requirements but lacks the validation to ensure all elements do not touch the prohibited elements, I am called to further expand on the topic. In my opinion, there are possibilities that more Shariah-Neutral products and transaction enter into the space of Islamic Banking, but without the validation of Shariah scholars or committees and yet, it will remain acceptable. It is possible, and it is already happening now.

“NO PORK NO LARD”

It is an interesting situation in Malaysia now, when it comes to food. In general, Malaysia as a Muslim country, the expectation is that the food consumed must be Halal and more importantly certified as such. The reason for it is that it gives comfort to the public that certain standards are adhered to according to religious requirements. To walk into a restaurant with the Halal signage gives us Muslims confidence to consume the food till our bellies are filled.

But there are challenges. The desire to ensure the standards are met has resulted in difficulties for restaurants getting certification quickly. The process is detailed and granular, and this is a good thing, but can be disheartening when the certification drags. And in some cases it is impossible to obtain, especially if the eatery has halal standard food but also offers alcoholic drinks to its non-Muslim customers. The Muslims know (or assume) the food is halal if they see there is no pork on the menu, and will ignore the alcoholic drink. This is now a common sight in Malaysia.

And thus the loop-hole or short-cut is discovered. Rather than going for certification of Halal for their restaurant, many owners now deemed it sufficient that the signage “No Pork / No Lard” will result in a Halal understanding. And this may be true; many small roadside businesses do not carry a Halal certification but is nonetheless patronised by Muslims as it does not carry pork on the menu. That cue is taken by the restaurant owners and over a period of time, the “No Pork / No Lard” now is understood to be serving halal food but without Halal certification.

DOES “NO PORK / NO LARD” MEANS IT’S SHARIAH NEUTRAL?

Taking that concept into the banking world, will consumers eventually be accepting Shariah Neutral products and services as the new norm? A product or services with no prohibitive elements that is deemed acceptable by both the producer and consumers but without any Shariah Committee validation. For many years some conventional banks have been offering Shariah compliant third party Takaful or Unit Trust products which was vetted by the Shariah Committee of the providers.There is total reliance on the providers validation for Shariah compliance.

Additionally, there are products and services that is by nature, very close to meeting the Shariah requirements in a contract. For example the leasing products which is perhaps 95% in line with Shariah requirements for Ijarah such as rental arrangements, ownership transfers and roles and responsibilities of lessor / lessee. The contention will always be the penalties and perhaps some operational practices, but in my view, these can be amended.

THEY WALK AMONG US

Believe it or not, there are already efforts on becoming Shariah-neutral where it is deemed acceptable practice for attracting Muslim consumers. Some non-Islamic banks have been aligning some of their products features to be consistent with Islamic banking practices under the guise of responsible financing or sustainable banking. For example, the compounding late payment interest which some non-Islamic banks no longer practice. Another example is that some are considering to remove “Commitment Fees” from unutilised financing balances in overdraft / revolving credit to align it to Islamic banking practices. We are starting to see non-Islamic banks realigning themselves to be on par with Islamic banking practices. Just to regain the competitive edge.

This will eventually lead to offerings that remove the prohibited elements and validated as acceptable by the public themselves, without further validation of Shariah scholars. Can a non-Islamic bank eventually offer products that it deemed as meeting the Shariah expectations? Surely, Shariah Committee will not have jurisdiction over a non-Islamic bank offering Shariah-Neutral offerings.

The more crucial question is perhaps : Will the public eventually become not so demanding for a stricter (or complicated)  Shariah Compliant product, and begin accepting Shariah-Neutral products that is offered by non-Islamic banks? Is that possible?

Such offerings may be offered via the digital world where the contractual lines are not so clear. Rebranding of a product can be done with minimal effort. The terms used can be made Shariah-friendly. How a transaction is handled behind the scenes may be less important  with the convenience of using Apps or Mobile Banking. And without Shariah scholars prohibition or decision on such matters, the public will hold to the opinion that it is deemed compliant and thus acceptable. Eventually, this opinion will become customary and generally accepted.

“No Pork No Lard” may one day become the new acceptable norm in the non-Islamic banking space. And my suspicion, a lot of sceptics of Islamic Banking already hold this view. Maybe it is time to make clear of the colours of the offering; is it white or is it black? Otherwise, the colour of grey will become the new white.

To read the earlier posting, click on the following: https://islamicbankers.me/2019/01/15/e-wallets-did-you-forget-us-again/

E-Wallets : Did You Forget Us Again?

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THE SHARIAH CONSIDERATION FOR E-WALLETS AND PAYMENT APPS.

Apps are everywhere. Everyone has a mobile phone where people start to get used to online banking, e-money, e-wallets and e-payment. All at the touch of the screen. I use it extensively and there are a few very convenient ways to survive a city without the need of actual cash in your wallet. Everything is digital and floating somewhere out in the clouds.

As I no longer use credit cards, I relied heavily on Debit Cards as my main payment medium which is linked to my Islamic Current and Savings Account. So the Debit Card deducts the amount from my account for each purchase for settlement. Technically, it is a Service (Ujr) where the Debit Card serves as a payment instrument, linked to the account based on Wadiah or Qard or Tawarruq or Mudarabah.

But at the same time, I am all-in into the tech-thingy as well. And no doubt, there must be a future in these thingies… For the past few months, I have been using these few apps. Here is a short review of 2 apps that I have to admit as my favourites.

Boost was one of the first eWallet that I downloaded. It requires me to “fund” the wallet, and when you make payment using the money in the eWallet, you can shake your phone to get “digital rewards”. So far, I have only gotten maximum RM2 for my phone shaking, with the promise of random potential rewards. I am motivated to shake, maybe I can win the grand prize (it changes from period to period). What is the Shariah contract here? Boost eWallet is funded from my Islamic bank account, so what is the contract for the eWallet? Is it a Qard (loan), or Wadiah (safekeeping)? We potentially may get a return (profit?) after a purchase by shaking our phone. Is that considered discretionary returns i.e. Hibah? Promised returns? In a way it is a promised returns but the amount is based on luck. And what does Boost do with our money when we are not using it and is it used for Shariah compliant purposes? Is it potentially a Musyarakah (partnership) or Mudarabah (profit-sharing) arrangement as customers are the Rab Ul Mal (Fund Provider) and Boost is the Mudarib (Manager) or Shirkah (Partnership). The Capital is guaranteed so it is maybe a deposit arrangement. The fact that we can transfer it back to our account sound like it is a Qard arrangement where we can ask our cash back on demand. But getting to shake for a guaranteed reward (even though it is RM0.20) may pose Qard as problematic for offering rewards.

 Fave is another app that I use, which is slightly different from Boost. Where Boost is an eWallet, Fave is a Payment Gateway where the cash is taken directly from your Bank account to settle a purchase. And depending on the merchant, you get cash back on your purchases which could be deducted from the your next purchase amount, ranging from 5% to 10% (some don’t offer cashback, but rarely). In Fave’s case, Fave do not retain any cash from you, as your cash still remain in your Bank account. So Fave seems to be more of an Ujrah arrangement, where we presume the service fee is collected from merchants instead of you. To encourage you to use this App so that Fave collects their fees, Fave gives the cash-back based on % of your purchases which seems like Hibah (gift) to me. For example, I pay for RM100 and gets a “cash-back” of RM5 for my next purchase at the merchant, so that sounds like a gift. Or is it a commission that we get for using the App, redeemable for the next purchase? I don’t know.

THE SHARIAH IMPLICATION

When we use these Apps, it is not clear the modus operandi of the operator and it seems obvious that no Shariah consideration took place on the usage as well as the contractual relationship. Should there even be any consideration or is it necessary?

In my view, a lot of products and services in the market fall into the category of “Shariah Neutral” instead of Shariah Compliant / Non-Shariah Compliant. For example a transaction may look like an Ijarah where the payment is based on rental but its documents may not be completed or contain all the tenets of the contract. Without the elements of all the shariah tenets, will it fall into either Shariah-neutral or non-compliant?

The question : If the transaction is Shariah Neutral, is there any requirement to look at by Shariah scholars? How do we decide if it is Shariah Neutral and therefore should be ignored from Shariah oversight?


Have Shariah Scholars considered the digital world or are we still only concerned on the traditional products to see their process validity and documentation? I feel there is a growing gap of what we see developing in the fintech, mobile banking and digital commerce space where Shariah may or may not have an issue on.

For example, the issue of Aqad in the digital space. The questions that I have are the following:

  1. Are the minimum tenets the same between a transaction between people, and a digital transaction? For example the tenets of a Murabahah in the digital space. Buyer / Seller / Price / Asset / Offer Acceptance. Will the tenets in the physical world still apply in a digital world?
  2. I presume the Buyer is the customer. But the Seller is a program that shows a picture of a product and is automated. Will the Seller as an Apps (representing the Seller) qualify as a real seller under the tenet? Generally I would think so but the responsibilities of the Seller must be clear somewhere.
  3. Would an Apps Pop-Up notice sufficient to conclude an Aqad. These are sequential programming that gives notice/remark at certain points and can be timed to meet Shariah requirements. Is this sufficient for Shariah?

Maybe I have been too distracted by work that I have missed these discussions, if it has happened before and concluded.

SHARIAH NEUTRAL : IS THERE A NEED TO VALIDATE?

As far as I understand it, Shariah Neutral means a product or services that is not breaching any Shariah rules or prohibited items in its execution. For example, a remittance service, where the customer gives cash to a remittance company to transfer the amount to another party. The company provides a service and earns a commission for the service. There are no prohibited elements in such service even to the point that generally the tenets of the contract are deemed as embedded in the processes, intention and basic forms and documents. You don’t see the arabic terms or formal contractual relationships mentioned; by virtue that there are no prohibited elements, we deemed it Shariah sufficient.

WHAT IS SHARIAH’S REAL VIEW OF SHARIAH-NEUTRAL?

I may be ignorant in this area, but what is Shariah’s view on Shariah-Neutral transactions? Why is it deemed that certain transactions requires a written / documented contract with all relationships and responsibilities outlined and agreed upon for it to be Shariah-Compliant, while others are okay to remain in a Shariah-Neutral state and still be acceptable? What is the deciding criteria for qualification of Shariah-Compliant?

As we move into the digital world where buying and selling online become a norm, and payment of goods and services are effected via a mobile app, is there a need to see whether there is any presence of prohibited elements in the transactions? Is there a need to decide if there are elements of a Riba (usury), Ghrarar (uncertainty) or Maisir (gambling) in the transactions? How about justice, fairness and trickery in the documents or operations of a mobile commerce? Is it safe to assume at least Shariah-Neutral and therefore Shariah scholars can skip looking into it?

Can I now design a product that on the outset can look and feel consistent with a Shariah-Neutral approach?  With more and more Apps for commercial transaction being introduced, should I start to think about avoiding the prohibitive elements, without the need of complicated documentation and Aqad? As long as it avoids the prohibited elements, I guess it can survive unquestioned.

Does Shariah have a view on Shariah-Neutral transactions? How far do they see to decide if a transaction is Shariah-Neutral and therefore “outside” their jurisdiction.

SUMMARY

As we look forward to living into a progressively digital world, I cannot help but wonder on the necessity to have Shariah oversight online. The Apps developer won’t be going to Shariah scholars to get Shariah endorsements anytime soon, but are they aware of what they developed contains any prohibitive elements from Shariah? Often we are left out of such discussions; perhaps we ourselves feels such development falls into Shariah-Neutral and therefore requires no oversight. But then how do we decide how it falls into Shariah-Neutral territory? Are there checklists we can refer to?

These are the things that comes to my mind while I wait in line to purchase my next drink. And wondering how much I will get from shaking my phone for the rewards. I am hoping for something more than RM5 this time. Happy shaking your phone. What a different world we are living in now. Wallahualam.

Sadaqa House : The Crowdfund That Could Circulate Good

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HOW TO CROWDFUND GOOD?

Little by little, we learn there are many ways to spread good. I recently had a sit-down with Umar Munshi (EthisCrowd) and we had a fine chat. About his new project, Sadaqa House with Bank Islam, which aims to collect donations to support good causes, such as funding for a child’s operation (with the National Heart Institute of Malaysia), and other small infrastructure projects. Some of the causes are well funded, but some still fall short. But what it shows is that; if the cause is believably genuine, it may well get to raise the funds it needs.

This initiative is not so much different from the Tabarru’ concept of Takaful, which means mutual assistance using donations, and it can achieve so much more than Takaful.The idea of Takaful is “the many contributors helping the few“. Here, in the EthisCrowd space, the understanding is that it is “the many contributors helping the one“. For example the funding of the operation’s cost of a heart patient (child) where the contributors of funds are asked to fund the cost of getting heart treatment. It is basically a rougher/simpler form of Takaful.

Well I say job well done, and this is testament to the power and innovation of Islamic structures  where it can go further than just collections, finance and banking functions. It espouses the concept of mutual assistance and takes it to the next level of donation-giving. It is purposeful, transparent and convenient. My first experience was that the whole process of donating is seamless and easy. I urge friends to give Global Sadaqa and Sadaqa House a try and maybe spread a little cheer to the needy. The initiatives are simple and it helps spreads goodness in people’s heart (no pun intended!).

I do applaud the efforts by EthisCrowd because it does really provide an alternative platform where there is funding facilities outside the safe confines of a banking institution. With Global Sadaqah, hopefully charity is taken to a new, higher level where donations are hard to come by (as they provide no monetary gain to customers). This is where appealing to someone’s religious or moral consideration play its part in attracting individuals keen on doing good, even from Non-Muslims individuals. At the moment, they have amassed a huge number of followers / community to support their initiative, regardless of race and religion.

But most of all, this platform is easy to use and this is what Islamic fintech should be; to provide easy & mobile access to the unbanked segment while adhering to the requirements of Shariah for solutions that work.

Hopefully we see more spreading good initiatives championed by Islamic Banking entities and Institution that cares about the growth of Islamic finance while helping communities. May we find more ways to see these initiatives become successful in the future. Wallahualam.

Connecting the Dots : Islamic Fintech

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REVOLUTION OR EVOLUTION?

This posting is in the danger of being written too long, but I think it is necessary to close this year with this topic, simply because it looks at the future. The word “Islamic Fintech” has been buzzing for quite some time now and there have been pockets of excitement on what it should mean. Many financial institutions have jumped onto the bandwagon declaring they are also part of this new wave of what a bank could offer.

While all these are still early stages of development, I do notice a lot of effort is built into “digitalisation” and “apps-based application” and “efficiently and convenience” of EXISTING banking processes and relationships. These enhancements are still driven by financial institutions and centred around improving traditional processes for banking services, or short-circuiting the credit processing elements of financing. Although enhancements via technology is an important aspect, these should not be defined as “fintech”. There is an element of fintech in process improvements, but PROCESS IMPROVEMENT itself are not fintech.

DO PEOPLE NEED BANKS?

Traditionally, banks always hold the impression that “People need Banks, one way or another”. It is this understanding that the bank can continue investing into their brick and mortar business model, with customers always coming to them when they need capital, financing funds or products and services. The competition is that who can deliver existing products in the most efficient manner, with technology as the enabler. Money is spent to improve accessibility to the bank’s EXISTING products, services and proposition.

In improving processes, banks just needs to concentrate on all the products and services offered and build the corresponding infrastructure to ensure efficient delivery with technology. It can be “Apps-driven” based on inquiry or transaction-based, with new features attached to existing products. It is just creation of new delivery channels which will deliver existing products to customers faster than before.

But that in my view is NOT what fintech is all about.

IF FINTECH IS NOT PROCESS IMPROVEMENTS THEN WHAT IS IT?

The easiest google/cut/paste definition of Fintech is that “fintech is a new financial industry that applies technology to improve financial activities“ and “FinTech is the new applications, processes, products, or business models in the financial services industry, composed of one or more complementary financial services and provided as an end-to-end process via the Internet”. The key words I believe are:

  • New Financial Industry
  • New Application
  • New Processes
  • New Products
  • New Business Model

While “Process Enhancement” can help support the “New Processes” element, but I think it falls short of the idea for fintech i.e to re-think the business model of financial services. The idea of fintech should be this: Understanding what the requirements of the Gen Y customers are and how they work, develop the products and services on platforms that they are most familiar with, and the proposition that the bank can offer on their chosen platform. It is a total re-think of delivering products and propositions to the up-coming Gen Y potential customers.

SHARING OF FINANCIAL WALLET

As much as banks and financial institutions like to believe the financial wallet cannot exist outside the regulated financial system, the evidence is slowly being presented as otherwise. Companies are finding ways to survive, live and thrive outside the banking system with facilities and opportunities in the New Economy, slowly eroding the traditional banks’ share of financial wallet.

Big Data companies have proven that their database is far more powerful (and valuable) than the database an individual bank would have on its existing customers. Bitcoin and other cryptocurrencies goes through thousands of transactions within blockchain and is only realised into banks network when actual physical cash is needed. eWallet lets value resides in tech platforms for purchasing and sales of goods and services (more like barter or exchange of goods and services), and up to a certain extent provides microfinancing. Prepaid and loaded value arrangement provides free seed funding and capital for businesses, without the cost of borrowing incurred via banks. Peer to Peer (P2P) arrangement links crowdfund Investors to Entrepreneur without complicated documentation with speed and transparency levels never seen before. Sharing of risks and profits (including potential pay-offs) are now more understood as compared to traditional financing arrangements. Mudharabah, Musyarakah, and Ijarah may now have a place in an economy where equity participation is expected and sought after.

“FINANCIAL SOLUTIONS” ARE JUST A SINGLE ELEMENT IN THE UNIVERSE

Technology can now provide a single-point possibility of all our needs; goods, services, food, shopping, bills payment, money transfers, investments, borrowing, deliveries, medical, transport, social interaction, travel, holidays, education, careers development, information and even branding. Financial services can be integrated into all these elements, now driven via apps. But for this new infrastructure, the various “relationships” are needed to be identified and re-looked and re-engineered. With the proper Shariah compliance consideration.

This “single point” proposition is where tech companies play a crucial part. Rethinking the financial model must happen with the involvement of tech companies due to the advantage of everything being on the internet (internet of things). There are still a lot of limitations to what a bank can do, understandably due to financial regulations. The space of where banks are continuously competing (or evolving) is the “FINANCIAL SOLUTIONS” box above, and maybe payment gateways linked to service providers. But tech-companies? The revolution of technologies move so quickly that regulations will continue to struggle to catch up.

In the diagram above, I attempt to identify some of the areas of traditional banking where fintech can come in and provide a like-for-like solution or even fully replace the proposition by traditional banks. Certainly a lot of the consumer touch-points can be easily replicated in a technology platform, and crowdfunding and crowdsourcing can replace traditional financing and working capital requirements as well. Some services are still embedded into a banking structure (such as Current Accounts or Treasury product propositions) but over time, such products may be linked to fintech and the banks may eventually become ancillary service providers rather than main bank, earning just fees for services provided.

The landscape of what a bank offers will ultimately change in the next few years, when consumers no longer go to banks for financing, services, remittance and settlement of business transactions. As the new generation grows up with tech and becomes financially affluent, their expectation of how a banking experience should be will also dictate the model a bank adopts.

CONNECTING THE DOTS

So where do I see the banking industry in the next 5 years? Personally, I think a “price-comparison platform” will emerge, as seen nowadays in the travel/hotel/tourism industry. Information from all the financial service providers are flowed into a single platform, and consumers are able to immediately compare products, services and prices on a single platform and choose their solutions. Instead of customers subscribing to multiple banks offering different products and services (at different pricing), they only need to subscribe to a single platform where all information on the products are available to select. This is where the promise of fintech can thrive; accuracy of information, convenience of access, and speed of transaction.

It is a matter of time the various industries converge. We may think regulatory pressure will halt some of the progress but mostly it have been reactive regulations. And the challenge is that these developments are driven by tech companies which has no loyalties to banking regulations as their scope of business cuts across various industries. It will be a period of “non-regulated” until the market starts to recognise the need to regulate and managing the risks. A regulatory sandbox will be usefull, but if the “New Economy” moves faster than the speed where regulations are being formalised, there will be a lot of speculative and arbitrage opportunities for the market to gain.

This also means the New Economy brings new risks that the consumers are not aware off. While the banks have been fine-tuning its risks that it takes over the past half-century or so, the fintech companies may not see the elements of risks other than technology risks or systemic risks. Almost all the risks faced by banks are also prevalent in fintech companies or non-banks, plus the specific risks by fintech companies. They might be great at integration of technology, but banks are still masters when it comes to understanding financial risks.

WHAT NEEDS TO BE DONE?

As I mentioned, banks understand risks better than a tech company. A tech company understand speed, efficiency and channels better than any banks can have. At the moment, banks are developing “fintech” on their own which is mostly a process improvement project. Tech companies are developing “banking services” on their own as well, where it linked investor’s money and economic entrepreneurs via technology. The question is really, “why not a bank consume or enter into a partnership with tech companies to provide a solution beyond traditional banking?” We have started to see this trend where banks attempt to purchase outright a tech company and use the company as an incubator for new products and services. It should look into having a different operating structure which encourages new ideas, innovation, internet-based solutions, as well as delivering to a larger segment of consumers (including the Unbanked segment).

The end-result might not look like what we recognise as banks we see today. This could be a separate line of business for banks, where the element of technology integrated into the wider economy is more dominant than its traditional banking products and services. You could have Bank A offering the traditional products and services, and Bank A-Tech offering fintech solutions to a new generation. The same bank catering to 2 business lines, employing different delivery channels.

But breaking away from such traditional infrastructure may take time, and the greatest fear is that the market cannot wait. Fintech companies may be able to offer similar proposition in half the time required, and this will not motivate fintech companies to join-venture with a financial institution. In an environment where new opportunities arise at the blink of an eye and regulations have yet to be formalised, the temptation to go on its own will drive innovation by the fintech companies, leaving behind banks. Fintech companies have the capability to look at consumer needs and develop the solutions from the bottom, and flow the linkages to the top. Connect the dots where the solutions provider are linked together in a platform.

Will fintech companies be the next driver in providing financial solution? I know my answer to that question. It is perhaps just a matter of time where future banking is done outside of a bank. Perhaps the model of banking needs to be re-imagined.

Wishing all my readers a Happy New Year in 2018. I appreciate the support I have received so far. But the new world beckons and hopefully we can do enough to ensure the continuation of the banking industry. I hope Islamic Banking can play a bigger role in taking the industry into this exciting online generation.

Report : Islamic Finance Development Report 2017

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Click on picture to go to report

Information on Islamic Banking and Finance performance has always been an interest of many practitioners, myself included. Yearly we scour the best looking and informative reports on the internet that is full of data on the industry, especially when it covers the global markets as well. Sometimes we find an average one, but nowadays there seemed to be an abundance of available reports. Some have “good” contents, but when I come across “great” one, I am tempted to put it on my site. For future reference, off course!

What we always love to find out is the performance of the Islamic Banking industry locally and globally, as it will provide reliable data to management on the latest trends that contributes to the bottom line. And presented in simple and clear infographics will only ensure some of the slides will be “cut and pasted” for speaker presentations, being quoted in many sessions. This reports provide all those opportunities.

More interestingly, this report provides insights on what has been going on in the world. For example, items such as Value Based Intermediation (VBI) espoused by BNM was also mentioned. There is talk about Islamic Fintech, Awqaf Funds and other local going-ons, including CSR initiatives. I would say this report covers many new areas of interest in Islamic Banking and Finance.

It also has a four-slide presentation on the most recent dispute on Sukuk involving Dana Gas. This was a real concern by many many parties over an extendable period of time. Nonetheless, this report make a good job summarising the key issues about the Dana Gas case, until its resolution. What a good write up for layman.

I hope these kind folks don’t mind me posting their report on my site. As mentioned, this website was maintained aimed to be a repository of the many discussions on old and new issues. If you want to download the report yourself, click REPORT : ISLAMIC FINANCE DEVELOPMENT REPORT 2017. Also find other reports and this report in the Knowledge Centre.

Happy Reading