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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

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