continued... - Islamic Finance News

Islamic Finance news Guide 2008
Page 62
Globalization of the Islamic Banking Industry (continued...)
other geographic areas such as Europe. On the other hand,
GCC countries do have the zakat requirement that must be
paid. The IT solution to support the global Islamic banking
industry must be able to cater for both areas (taxes, nontax
and zakat) in a timely manner as well as facilitate the
automation and related computations and accounting
related reporting.
“The globalization of Islamic
fi nancial services with its
opportunities and challenges
naturally lead to potential returns
in innovation and specialized
technology”
At some point, a bank operating on a global level (such as
having operations in both the UK and Kuwait) will need to
develop consolidated fi nancial statements for its global
operations; a task that is expected to be made effi ciently
using the IT system in force.
While the basic operations of Islamic fi nancing products
are the same across all banks, banks operating in a certain
geographic area may have different policies and procedures
(that have been approved by the Shariah boards) than their
counterparts elsewhere.
Policies with respect to profi t structures and repayment terms
are examples. With the globalization of the industry, more
sophisticated Shariah compliant products may be set up
(hybrid/mixed products). This presents another challenge for
the IT system supporting the industry’s globalization drive.
In addition, regulatory reporting requirements differ between
countries in the same geographical area, and the channel
is bigger when the IT system is utilized across continents;
the system should facilitate the extraction of the regulatory
reporting requirements. The system should have open
architecture that allows interfacing with local central banks
or regulatory institutions where required and applicable. An
example is the real-time gross settlements systems available
in KSA (SADAD) and RENTAS (in Malaysia).
And last but not least, with the globalization of the Islamic
banking industry, and since new countries will be working
on new areas of operations, IT related companies may be
required to engage Islamic banking experts with enough
exposure to the industry’s specifi c operations, in addition to
technical staff. The globalization of Islamic fi nancial services
www.islamicfi nancenews.com
with its opportunities and challenges naturally lead to
potential returns in innovation and specialized technology.
Conclusion
With the current rise of Islamic fi nancial services worldwide
and the returns these are generating for banks and clients,
Islamic banking has proven it is not a negligible or merely
a temporary phenomenon. Such institutions are here to
stay and the Islamic banking services are set to expand
more geographically. Even if one does not subscribe to
the prohibition of interest, one may fi nd in Islamic banking
innovative ideas that would add more variety to the existing
fi nancial network.
With the openness and willingness of regulators across
the globe to address and understand such markets, the
willingness of fi nancial institutions to enter the market,
the efforts of regulators at industry level, and the existing
and growing demand, there is signifi cant potential for the
globalization trend we are witnessing. Naturally, this should
be coupled with IT innovations and globalization of the related
software services.
Dourria Mehyo is assistant vice-president,
business consulting at Path Solutions. She
can be contacted via email at Dmehyo@
lb.path-solutions.com