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CASE STUDY
NEWHORIZON July–September 2008
Principal payments
The issue of access to money for pilgrims on the Hajj and Umrah pilgrimages has been addressed
through an Islamic Payments Switch. James Ling, NewHorizon’s contributing editor, reports.
For Muslims the annual pilgrimage to
Mecca, the Hajj, is an obligation that must
be carried out at least once in their lifetime.
Every year Muslims from all over the globe
make the journey to Saudi Arabia and
perform a series of ritual acts. The
pilgrimage takes place in the twelfth month
of the Muslim calendar, and in December
2007 an estimated two million pilgrims
took part.
One of the problems that pilgrims face
when they get to Mecca is getting access to
their money. The solution for many has
often been to take large amounts of cash
with them, but there is a degree of personal
risk to carrying large quantities of money.
The alternative to this has been using
travellers cheques, but money changers
charge a high premium for the service. The
other option was by using cards on
MasterCard’s Cirrus or Visa’s Plus networks
to withdraw money from the local ATMs.
The problem with this is these cards are
usually credit cards that incur a cash
advance fee as well as the ATM withdrawal
fee, this extra charge is deemed un-Islamic.
Pilgrims needed a solution where they could
get access to their money from the local
network whilst not going against their faith.
One possible solution has come out of
Malaysia. It has a strong presence in the
Islamic banking industry, and Prime
Minister Abdullah Ahmad Badawi has
declared that he wants Malaysia to become
a hub for the Islamic finance world. The
country also has a large Muslim population;
around 100,000 Malaysians take part in the
Hajj every year. The combination of these
factors led Malaysian payments company, e-
Kencana, to create an Islamic Payments
Switch (IPS). The company decided ‘it
would be a good idea to start a retail basis
switch in Malaysia that could bridge the
Shazad K. Sultan,
e-Kencana
Islamic world’, says e-Kencana managing
director Shahzad K. Sultan. ‘If e-Kencana
could get involved in that, at least it would
position Malaysia as some sort of hub for
Islamic retail payments.’
Malaysia would seem like a natural choice
for a country to host the IPS as it wants to
position itself as a moderate Muslim country.
‘Malaysia is a very serious country when it
comes to Islamic banking. Creativity within
the world of Islamic banking is always being
tested and refined,’ says Sultan. ‘We are here
to grow Islamic banking from Malaysia, it’s
a national task, we have to build Malaysia
into an Islamic financial hub of the world.
Our Prime Minister wants it, so we aim to
give it to him.’
There was a definite decision made to focus
on the retail side for this switch. ‘As far as
bank-to-bank dealings are concerned, all
banks are Swift members today, so we don’t
need to replicate that,’ says Sultan.
‘Whether or not the monies are deemed to
be Islamic or free from interest, that doesn’t
arise under Swift.’
The switch was designed to segregate retail
money into Shari’ah-compliant funds and
those that do not adhere to Islamic beliefs.
This was done ‘so the everyday depositor
could know whether the monies coming out
of an ATM or POS network would be free
from usury’, says Sultan. It was hoped that
the switch would ‘revolutionise the financial
infrastructure and systems for pilgrims
visiting Mecca’, says Jeremy Wilmot, Asia
Pacific president for ACI Worldwide
(an international provider of payments
technology), and ‘provide efficient payment
channels and encourage economic growth
between Islamic countries’, he continues.
The product idea resulting from this was
the Al Musafir card (musafir means
‘traveller’ in Arabic). Before they travel,
Malaysian pilgrims would be able to load
cash in Saudi Riyals onto the prepaid card,
this could then be used to withdraw money
from the Saudi ATM or POS network, with
the switch facilitating electronic funds
transfer. This prepaid travel card would be
aimed primarily at the mass market annual
pilgrimage of the Hajj, but also the lesser
Hajj, the Umrah pilgrimage, which occurs
throughout the year. ‘There’s enough of a
world market who will be able to buy a
prepaid card or an international deposit
card and use it at ATMs,’ says Sultan.
To make this idea a reality e-Kencana
would need to partner with banks in both
countries. The payments company needed
to work with banks due to ‘issues of audit
trail, money trail and money laundering’,
says Sultan. ‘Going with a bank you can
adhere to KYC (know your customer) and
AML (anti-money laundering) laws.’
16 IIBI www.newhorizon-islamicbanking.com