Fintech could solve Sharia contracts' puzzles

Author: Brian Yap | Published: 21 Mar 2017
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Shariah contracts' greater regulatory complexity can be eased by fintech solutions, according to panellists speaking at the two-day Finnovasia 2017 Conference in Kuala Lumpur today. 

Raja Teh Maimunah, chief executive of Aminvestment Bank in Kuala Lumpur, stressed that the complex nature of Sharia instruments requires bankers take a different approach, but that there are opportunities for fintech solutions thrown up by such complexity.

"Regulatory hurdles are the same, but shariah contracts are more complex than others," she said. Raja and her bank had wanted to digitise their banking transaction processes by introducing a new type of contract for current and savings accounts, which was eventually addressed with a fintech solution developed by one of her staff.


"Regulatory hurdles are the same but shariah contracts are of course more complex than others"


The growth of Malaysia’s digital economy, as Dato’ Yasmin Mahmood, chief executive of Malaysia Digital Economy Corporation pointed out at the forum, currently stands at 17.8% of the country’s total GDP of $296.3 billion, and is expected to meet or exceed the 18.2% target set by the government for 2020.

According to Bank Negara Malaysia, the country’s central bank, there are 15 Islamic banks with ten of them locally-owned, including household names such as CIMB Islamic Bank Berhad and Maybank Islamic Berhad. Nine of these have also acted as lenders of leveraged loans to Malaysian-incorporated companies, among them RHB Islamic Bank and Maybank Islamic, accounting for 14 out of 38 deals since the beginning of 2015, according to Dealogic.

KEY TAKEAWAYS
  • Malaysia has scored first with 121 points on the Global Islamic Economy Indicator compiled by Reuters in its 2016/17 State of the Global Islamic Economy Report, which points to country’s continued competitiveness in Islamic Finance;
  • The growth of Malaysia’s digital economy, as Dato’ Yasmin Mahmood, CEO of Malaysia Digital Economy Corporation in Kuala Lumpur pointed out at the forum, currently stands at 17.8% of the country’s total GDP of $296.3 billion and is expected to meet or exceed the 18.2% target set by the government for 2020.
  • Raja argued that it is difficult for these small banks to adopt digital technology in order to grow, as many of them are owned and led by either a local or a foreign parent that is a convention bank.
  • In 2010, the country introduced the world’s first Islamic commodity exchange for murabahah, which is a non-interest-bearing loan.

But Raja argued that it is difficult for these small banks to adopt digital technology in order to grow, as many of them are owned and led by either a local or a foreign parent that is a conventional bank.

"Leaders of these Islamic banks should themselves say 'look I am going to take on a digital approach to my business,’ said Raja. She added that a growing number of Islamic banks are incorporating fintech in their banking strategy in some of parts of the Middle East, especially those in Dubai and Abu Dhabi.

While the digitisation of Islamic financing is hindered by the domination of giant conventional banks, the Southeast Asian Islamic hub has witnessed the introduction of several regulatory and commercially-driven initiatives in recent years. 

In 2010, it introduced the world’s first Islamic commodity exchange for murabahah, which is a non-interest-bearing loan. Previously, Malaysian and overseas traders seeking to engage in commodity murabahah transactions had to do so through brokers on overseas trading platforms such as the London Metal Exchange. 

This has been complemented by efforts by domestic commercial players such as bitcoin-based remittance platform Bitspark Ltd, who in August last year partnered with Malaysia-based Vitaxel Group to develop blockchain-based remittance solutions for businesses.

See also

Unlocking sukuk
Morocco opens up to Islamic banking

 

 


 

 

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