The document outlines the growth and significance of Islamic banking, highlighting the expansion of Islamic financial institutions worldwide, with over 626 entities and significant Sharia-compliant assets. It emphasizes the need for tailored IT solutions that cater to Islamic finance, contrasting it with conventional banking and stressing the importance of compliance with Sharia regulations. Additionally, the document discusses the technological advancements and modular architecture necessary for Islamic banks to meet evolving customer needs and operational efficiency.

1. The Role of IT in Islamic Banking Prepared by: Nasre Nasser Eddien, Business Development Manager Path Solutions 08 June , 2010

2. One of the fastest growing sectors in the global financial services Started 1963 In Mit Ghamr; Egypt Now more than 75 countries allow Islamic Financial Institutions More than 626 Islamic Financial Institutions worldwide. (As of October 09) Including 435 IFIs, 191 conventional banks with Islamic windows (source: The Banker third annual survey of the world’s Top 500 Islamic Financial Institutions) More than 50 Islamic Financial Service Institutions have been launched within the past 2 to 3 years More than 20% average growth of the Islamic Financial Institutions More than US$ 840 billion total volume of Sharia-Compliant assets The volume of Islamic transactions globally reached a total value of US$ 8 billion (as of June 2009) (Source : Bloomberg) THE GROWTH OF ISLAMIC FINANCING INSTITUTIONS

3. THE GROWTH OF ISLAMIC FINANCING INSTITUTIONS

4. Global Sukuk Market Global Sukuk Issuance Trend – 2004 : USD7.2 billion, 2005 : USD12.1 billion, 2006 : USD26.8bil, 2007 : USD47.1billion, 2008 : USD15.52 billion, 2009F : USD15bln-USD18bln 2008 local & USD-denominated Sukuk issuances were dominated by Malaysia 40.7%, UAE 34.2%, Saudi Arabia 12.1%, Indonesia 4.3% and Pakistan 3.2% 2008 Sukuk issuances of USD15.52bln, down significantly from USD47.1bln in 2007 Example of Growth of Islamic Compliant Instruments Source: Zawya, IFIS, Central Banks, Bloomberg

5. Is Islamic finance simply renaming conventional financial terms? Islamic finance is different in terms of: Processes: Trading & Risk-profit participation: more sophisticated Based on the concepts of trading and participation in risks and profits Need of effective and efficient management system is becoming a necessity to Islamic Banking in order to handle huge transactions volumes and to provide instant and wide availability of information. Islamic banking is different from conventional banking Products: Equity based Versus Loan based Financing Islam aims at building a socio-economic order based on justice

6. Importance of IT for Islamic banking The business is different The product is different The process is different The mechanism is different The financial and fiscal implications are different The IT solution should be different

7. IT Solutions for Islamic finance Capability to accommodate Innovative instruments & evolving industry IFIs searching for dynamic models within the Islamic Sharia & compliant to the AAOIFI Accounting Standards Enabling offering a range of products and services that meet customers’ evolving needs IFIs streamlining their procedures, improving their operations, and enhancing their services Accommodate Different Sharia interpretations Between regions, sometimes countries Depending on IFIs Sharia advisors and Sharia board interpretations Ability of the bank to abide by to the Islamic beliefs and values and the authenticity of the products to be Sharia-compliant wins customers.

8. These ambitious yet realistic targets can only be achieved through partnerships with leading Islamic banking IT solutions providers. IT solution built for Islamic banking Currently Islamic banks are taking giant strides in technology, attempting to equal and surpass the IT based customer services offered by conventional banks. Modular architecture is the key – Building Blocks approach is what suits most established as well as new banks. The ability to plug and play will surely emerge as the key. In this task, acquisition of ready-made modern pluggable components that can integrate smoothly will be an important consideration Leading Islamic banking IT solutions providers should provide modular component based solution.

9. An IT solution built for Islamic banking Built on the Shari’ah rules & regulations (imbedded the related information capturing features) Facilitate the set-up & ease of tracking RIAs across the system & provide information on timely basis Support proper recording, tracking & management of URIAs, the pools of funds; & compute Profit in efficient timely manner Produce the industry related standard accounting entries & allow the related booking methods of the transactions Allow producing legal documents & confirmations according to the industry standards & the Sharia Rules and regulations; matching with the transaction type Support Sharia Audit procedures (transaction processing log and maintenance of legal documentation) Support customer centricity & CRM & Zakat computation Easily integrate with other applications for data mining Support regulations and Risk Management procedures Support multiple delivery channels

10. IT Challenges resulting from industry’s globalization Flexibility to cater for the distinguishing aspects of a geographical area or specific country in timely manner: quick time-to-market and ROI Income tax and VAT computations Produce consolidated financial statements & compliance to AAOIFI Standards Flexible profit distribution to cover the different approved policies and procedures by the Sharia Board Cover regulatory reporting requirements by country Open architecture that allows interfacing with local central banks or regulatory institutions Engage Islamic Banking subject-matter experts with strong and deep industry knowledge and enough exposure to the industry’s specific operations

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