Taisys’ Mobisphere to establish Mobile eID joint venture with Nahdlatul Ulama

Source: Taisys. From left: Ho, Pituduh, and Azhan Muhammad, Director of Mobisphere. The signing ceremony took place on March 13, at Taisys Technologies' headquarters in Taipei City, Taiwan.

Taisys' Mobisphere and Nusantara Digital Inovasi (NDI), the digital transformation arm for Nahdlatul Ulama (NU), plan to set up a joint venture that will develop, implement and operate a mobile eID platform.

With over 110 million members, Indonesia's NU is set to bring about digital transformation for the largest autonomous Islamic organisation in the world based on a secured mobile ecosystem. Services provided via this mobile eID platform include, and not limited to, mobile identification and authentication, international telco services based on remote SIM provisioning technology, cross-border remittance, mobile banking and payment services.

"Taisys has long been a trusted mobile ID solution provider for banking services since the 2G/feature phone era. Now that smartphones and APPs manage our daily work and lives, the need to use the phone as a form of identity authentication and transaction authorisation is increasing ever more.

"The beauty of our mobile ID solution, which sets it apart from others, is that it can accommodate beyond authentication services for banking and fintech, to include digital SIM services where mobile subscriptions are downloaded onto the phone. This is the perfect example where the use case can be supported by the right technology, elevating the comprehensiveness and industry/device/telco agnostic nature of the Taisys mobile ID solution," stated Taisys Chairman Jason Ho.

"This mobile eID shall create the next level of digital ID security in addition to the services to be offered by NU to its communities such as mobile payments/ wallets, telco services, fintech and banking services. NU has worldwide members, and in upholding NU digital sovereignty objective and creating service layers within a secured environment, NU members in particular and Indonesian nationals in general will be benefitted most.

"NU has significant number of its members residing in Taiwan, Malaysia, Middle East and other parts of the world. For example, over 1 million NU members in Malaysia are regularly (sending remittances) to their loved ones, and through this JV initiative, it will create the digital security eco-system for NU communities in Indonesia and beyond. Not to mentioned their mobile daily usage for work and lives. This augurs well with NU's objective in digital transformation," said Imam Pituduh, Chairman of NU Digital Transformation Services.

Ady Seto Bremono, Mobisphere Indonesia Director, said that the partnership will add to the existing Mobisphere ecosystem which already involves banks, remittance providers and social media players.

"Mobisphere Flex in Malaysia is backed by an Islamic bank, while in Indonesia and other 20 corridor countries, it has cooperation with banks, financial institution non-bank, switching operator and social media players; therefore, through a mobile ID platform with services on top, it is truly is a working example of a complete ecosystem for NU communities," he said.

NU was established in 1926 in Surabaya, Indonesia. It is the largest independent Islamic organisation in the world, and exists to spread Islamic teaching. It also owns 44 universities, and is involved in economic and agricultural studies, and social activities including family planning.

Mobisphere is an ASEAN regional provider of mobile payment platforms and remittance switching services. It is a joint venture of Taiwan-headquartered Taisys, which provides mobile interconnectivity and vertical integration solutions.

KSA Ministry of Hajj and Umrah boosts training to upgrade quality of pilgrim services

The KSA Ministry of Hajj and Umrah has boosted activity programmes in the Serving Pilgrims is an Honor, Trust and Responsibility initiative. The theme for 2017 (1438) is How to be a Model Example

The initiative includes a training programme directed at teachers and scouts, ensuring that they have accurate information to impart to pilgrims and promoting a culture of volunteerism in the service of pilgrims.

The initiative is aligned with the National Transformation Program 2020 in developing services to Hajj and umrah pilgrims and also raises awareness about how to deal with the technology infrastructure, such as dedicated mobile apps, digital maps, as well as using the websites of the authorities related to Hajj and umrah.

IFSB shares Islamic Financial Services Industry Stability Report for 2017

The Islamic Financial Services Board (IFSB) has released the 5th edition of its annual Islamic Financial Services Industry Stability Report highlighting developments in the growth, stability and other aspects of the Islamic financial services industry (IFSI).

The 2017 report finds that despite subdued economic growth conditions and the impact of new geopolitical developments, the global IFSI has been able to sustain its total assets value at approximately US$1.9 trillion in 2016. While the overall performance of Islamic finance in 2016 has been satisfactory, the IFSB says that the industry needs to build long-term resilience amidst the prevailing era of weak growth and uncertainties.

Acting Secretary-General of the IFSB Zahid ur Rehman Khokher, said, “The issuance of the Islamic Financial Services Industry Stability Report 2017 comes during a time of growing external challenges for the financial system, including lower economic growth outlooks and global political uncertainties. While the Islamic financial services industry has, in many respects, withstood the challenging operating environment, it has however moved away from the double-digit growth trajectory witnessed in previous years. This slowdown underscores the importance, more than ever, of strengthening the resilience of the Islamic financial system and addressing internal weaknesses and vulnerabilities through appropriate policy responses.”

A key feature of the 2017 report is that data from the IFSB’s Prudential and Structural Islamic Financial Indicators (PSIFIs) database has been utilised for the first time in the report’s Islamic banking sector analysis. The use of this data has enriched the report by providing:

• Strengthened reliability of data as it is sourced directly from regulatory and supervisory authorities;
  wider geographical coverage, with data covering 18 countries in comparison to 10 countries analysed in the 2016 report;
• Holistic coverage of each jurisdiction as the PSIFIs data covers the aggregated domestic Islamic banking sector including data of Islamic banking windows. Previous reports had used sample data from selected full-fledged Islamic banks; and
• Additional financial indicators, e.g. value of shari'ah-compliant financing by economic sectors, that are included in the PSIFIs database.

Amidst a challenging external environment brought on by the changing policy directions and uncertainties in the global economic landscape, institutions offering Islamic financial services (IIFS) have continued to grow and gain market share, particularly in their home jurisdictions, the report said. However, the previously observed double-digit growth rate of the global IFSI has slowed down to single-digit growth.

The report shares the findings of an IFSB study on stress testing of Islamic banks conducted in early 2017 to identify the connections between macroeconomic and financial variables of Islamic banks to provide a preliminary idea of plausible quantitative dimensions that can be used for stress testing of Islamic banks. The empirical findings provide an indication of important linkages between four macroeconomic variables; interest rates, unemployment, real estate prices and oil prices – and Islamic banks’ non-performing financing (NPF) ratio, deposits, financing and assets.

The report also provides an insight into fintech in the Islamic finance space, the development of which poses a number of legal, regulatory and shari'ah issues. Discussions on fintech focus on two areas that have attracted much attention: the distributed ledger technology, which is at the core of cryptocurrencies (e.g. Bitcoin) and smart contracts, and multi-sided Internet platforms, which are the basis of crowdfunding.

The IFSI Stability Report 2017 provides an in-depth analysis of the performance and stability of the IFSI in 2016, focusing on the three main sectors, banking, capital market and takāful:

Growing market shares of Islamic banks

The developments in the Islamic banking sector in 2016 were more dynamic than implied by the moderate growth rate observed in total banking sector assets, illustrated by a shift in the regional composition of global assets and reasonable levels of growth in assets, financing and deposits of Islamic banks in most jurisdictions. More notably, the market shares of Islamic banks increased in 18 jurisdictions, providing a strong indication of a growing acceptance of Islamic finance in jurisdictions with dual financial systems. Jurisdictions where Islamic finance has achieved domestic systemic importance also increased to 12 in the past year.

Sustained returns in most jurisdictions

The Islamic banking sector has generally sustained its return on assets and return on equity as a whole in the last two years, but there are considerable differences on jurisdictional levels as some markets have witnessed declines in returns. With respect to asset quality, while the non-performing financing (NPF) ratios of the IFSI globally and for most jurisdictions have decreased, a few jurisdictions exhibited higher NPF rates.

The capitalisation in the industry at a Tier-1 level was 9.71% in 1H16, remaining above the Basel III/ IFSB-15 minimum regulatory requirements of 6%. However, an area of continued concern is the short-term liquidity health of Islamic banks. Overall, conditions varied significantly between countries, with each jurisdiction exposed to its unique set of domestic conditions.

The Islamic capital market performed better in 2016 than in 2015

2016 saw an increase in sukūk issuances, while Islamic stocks continued to generate profit. The volume of annual ṣukūk issuances reached US$75 billion in 2016, bringing the volume of outstanding ṣukūk close to US$320 billion, with 79% of the issuances originated from sovereigns, including government-related entities (GREs) and multilateral organisations, while only 21% were corporate issuances.

Shari'ah-compliant equities and Islamic funds

In contrast to previous years, shari'ah-compliant equities generated lower returns in comparison to conventional equities. The equity markets suffered in 2015 and during most of 2016 due to political uncertainties, slow growth, depressed oil prices and volatile commodity prices. While the unexpected election outcome in the US triggered a stock market rally in the latter part of 2016, Islamic equity and fixed income funds benefited from the good performance of the Islamic equity indices and the improved ṣukūk yields. Positive results of Islamic commodity funds are mainly due to an increase of the oil price at the end of the year.

High growth in the takāful sector

The global takāful industry recorded a growth in contributions of 12% while conventional insurance premiums only grew by 4%. Despite the high growth rate, takāful is by volume still a small industry with total contributions of US$25 billion and 305 takāful and retakāful operators plus windows. The GCC accounts for 47% of the contributions and 31% of the takāful operators, followed by MENA (excluding GCC) with 33% of contributions and 22% of the operators, and Asia with 18% of contributions and 15% of the operators. The insurance/takāful penetration in most Organization of Islamic Cooperation (OIC) countries is relatively low. While this indicates untapped market potential, there is strong competition for market shares. As many takāful undertakings lack scale for efficient operations, it is expected that the consolidation of the industry through mergers and acquisitions will continue in Southeast Asia and the GCC.

Global outlook for the IFSI

The outlook for the global IFSI is generally positive, with concerns that fiscal deficits will contain spending by governments, which could have an adverse impact on Islamic banks. While the industry has shown resilience and satisfactory performance in 2016, the era of weak growth and external uncertainties facing the industry indicates the growing need for the global IFSI to build long-term resilience.

Interested?

The IFSI Stability Report 2017 is available for download

Pakistan prepares for next Hajj

The Office of Pilgrim’s Affairs (OPAP), Consulate General of Pakistan, in Jeddah KSA has invited building owners who are interested in renting out their buildings in Makkah, KSA during Hajj 2017 (1438) to submit expressions of interest (EOIs) or bids.

The buildings will be used to accommodate Pakistani pilgrims in line with regulations issued by KSA for this year's Hajj. Only Saudi nationals who are owners or legally authorised Saudi representatives may submit applications in Jeddah on working days from 9am to 4pm.

The OPAP also invites EOIs for the  provision of services to OPAP for Pakistani hujjaj (Hajj pilgrims) over the same period directly from companies duly experienced, authorised, and registered in KSA and with relevant Saudi agencies which meet all requirements for:

• Catering services (supply of food) at residences of hujjaj in Makkah.
• Inter-city and salawat transportation services for hujjaj as well as OPAP officials on duty (for this service, only Naqabat as-Sayyarat member transport companies are eligible to apply directly).

The Ministry of Religious Affairs in Pakistan has also set out eligibility criteria for welfare officers to support Hajj 2017.

Interested?

Read the detailed guidelines for provision of services (PDF)

BNM governor lays out success factors for investment accounts

The Islamic Financial Services Board (IFSB) has built a solid global reputation as a prudential standard-setting body for Islamic finance, said Bank Negara Malaysia Governor Tan Sri Dato' Sri Dr Zeti Akhtar Aziz in opening remarks at the IFSB's Meet the Members & Industry Engagement Session in Kuala Lumpur in late January. "The initiatives and milestones achieved by the IFSB have indeed paved the way for jurisdictions across the globe to build a solid foundation for the progressive growth of Islamic finance that is underpinned with stability," she said.

Dr Zeti also observed that the IFSB has made significant advancements in taking forward the recommendations made in the Islamic Finance and Global Financial Stability Report 2010 towards achieving financial stability in the national and the international Islamic financial system. "The effective implementation of the standards issued by the IFSB is key towards promoting the soundness and stability of Islamic financial institution. To enhance this prospect, the IFSB has strengthened its role in facilitating greater jurisdictional preparedness in the adoption of these standards through the provision of technical assistance to its members," she said.

"Malaysia is one of the jurisdictions that has adopted and operationalised the prudential standards and the guiding principles that have been issued for the industry. The implementation of these standards and guiding principles support the regulatory framework that we now have in place in our Islamic financial system."

Dr Zeti said that Islamic banks in Malaysia now have the potential to be better able to pursue their role as investment intermediaries through the offering of investment accounts in addition to the entrenched deposit products. The legal recognition of investment accounts in the Islamic Financial Services Act 2013 (IFSA) differentiates between deposit accounts and investment accounts while offering a new investment avenue, one that is being channelled to finance entrepreneurship, she pointed out.

Dr Zeti highlighted the Investment Account Platform (IAP) that is currently being developed for its growing popularity. The IAP will provide a centralised multi-bank platform as a new financing option for entrepreneurs with viable projects as well as an opportunity for the investing public to finance these projects, she noted.

"It is encouraging that to date, eight Islamic banks are offering investment accounts to their customers. More are expected to follow when the value proposition of such investment accounts, with its unique features and the different target market become better understood. The industry-led communication by the Association of Islamic Banking Institutions Malaysia will contribute towards increasing the awareness of customers on the concept and on the key features of investment account. The latest establishment of a consortium developed by four Islamic banks to develop and operate the IAP which is to be launched next month is also another initiative to advance this new offering," she revealed.

Dr Zeti also listed some of the prerequisites for a successful introduction to the investment account. "In the development of the investment account, it will be essential for Islamic banks, investors and entrepreneurs to embrace the different approaches in the management of the risk and return relationships that are embedded in the variations of the shari'ah contracts used in such investment accounts. These relationships need to be well understood by the parties involved and which are aligned with clear contractual and operational requirements.

"The IFSB has an important role in not only providing guidance but also in initiating the convergence of the different practices between IFSB members with regard to the treatment of the investment account - also referred to as profit sharing investment account (PSIA) - in the IFSB standards. More in-depth work can also be explored by the IFSB on the prudential requirements for the investment account to further ensure a conducive environment for such risk-sharing offerings," she said.

The global Islamic financial system is now operating at a time when the international economic and financial environment has become immensely more challenging. New risks that are more complex, with more profound systemic implications are emanating with the increasing forces of financial liberalisation, globalisation, technological advancement, intensified competition, financial innovation and the internationalisation of Islamic finance. Cumulatively, these developments necessitate greater prudential regulation and supervisory oversight to ensure a resilient and sustainable financial system.

Dr Zeti said the role of the IFSB remains instrumental to the industry, especially internationally, and called for members to continue their support for the IFSB. "Greater concerted efforts by members to consistently adopt and implement the prudential standards issued by the IFSB will not only contribute towards preserving financial stability but it will also enhance regulatory harmonisation across jurisdictions," she said.

"Malaysia, as the host of the IFSB will continue to be committed to support its development and its potential as a prudential standard-setting body in the international financial system."

Interested?

Read the full speech

IFSB to hold roundtable on retakaful in January 2016

The Islamic Financial Services Board (IFSB) is organising a roundtable about retakaful on 10 January 2016 in Manama, Bahrain. The Roundtable Discussion on Retakāful (Islamic Reinsurance) aims to discuss the issues contained in the recently-issued IFSB Exposure Draft on Guiding Principles for Retakāful (Islamic Reinsurance) (ED-18). The event is hosted by the Central Bank of Bahrain. 

ED-18 aims to provide the regulatory and supervisory authorities (RSAs) and takāful industry stakeholders with guidance relating to retakāful. The draft document was issued by the IFSB on 5 November 2015 for a two-month public consultation period.

ED-18 highlights the distinguishing features of the various retakāful models used for inward and outward retakāful arrangements. It also identifies the challenges that require attention of regulatory and supervisory authorities pertaining to the regulation and supervision of retakāful activities. The objectives of ED-18 include: 

• To provide a basis for RSAs to set rules and guidance on the operational framework of entities undertaking inward retakāful activities; 
• To outline a basis for RSAs to supervise takāful and retakāful undertakings’ use of outward retakāful arrangements; and 
• To suggest recommended best practices for retakāful and takāful operators and their RSAs to help address regulatory issues concerning retakāful. 

The Roundtable Discussion on ED-18 aims to invite greater engagement, and garner feedback, from key industry stakeholders on the Exposure Draft prior to its final submission to the IFSB Council in April 2016 for adoption. It is the second such session to allow feedback on the draft ED-18 document. The first was a Public Hearing held in Kuala Lumpur, on 30 November 2015.

Confirmed speakers from Malaysia include Dr Mohamed Rafick Khan Abdul Rahman, Chief Executive Officer, Munich Re Retakāful; Dr Hamim Syahrum Ahmad Mokhtar, Deputy Director, Financial Surveillance Department, Bank Negara Malaysia; and Dr Sami Guellouz, General Manager, B.E.S.T Re Family. Other speakers include Scott Lim, Associate Director, Dubai Financial Services Authority; Moch Mochlasin, Directorate of Sharia NBFI, Financial Services Authority, Indonesia; and Naveed Shahid, Head of Life & Health, Hannover Re, Bahrain. 

Interested?

Participation is open to all RSAs as well as players in the takāful and retakāful industries. Register

IFSB shares second Strategic Performance Plan

The Islamic Financial Services Board (IFSB) Council has approved the second Strategic Performance Plan (SPP), for the years 2016 to 2018. The new plan builds on the previous SPP and the lessons learnt in executing it, along with the recognition of the need for the IFSB to evolve in response to changes in its operating environment.

The four strategic key results areas identified in the SPP 2016-2018 are:

• Formulation and issuance of prudential standards and studies for the regulation of the Islamic financial services industry
• Facilitating the implementation of prudential standards and capacity development
• Increasing awareness and knowledge sharing
• Enhancing cooperation with Islamic finance stakeholders

The SPP 2016-2018 aims to continue the IFSB’s focus on its core mandate, the formulation and facilitation of prudential standards for the banking, takāful, and Islamic capital Market sectors with an overarching objective of ensuring the stability and resilience of the Islamic financial services industry (IFSI).

These prudential standards are benchmarked against those issued by global standards bodies such as the Basel Committee on Banking Supervision (BCBS), International Association of Insurance Supervisors (IAIS) and International Organization of Securities Commissions (IOSCO), but also include standards that are unique to Islamic finance. The SPP 2016-2018 also focuses on the development of the Islamic financial services industry and its growing interconnectedness with global finance.

Interested?

More information on the SPP 2016-2018 will be available on the IFSB website in due course.

IFSB announces new members

The Council of the Islamic Financial Services Board (IFSB) has approved the admission of six organisations into the IFSB membership. These include one supervisory authority as an Associate Member, and two supervisory authorities as well as three financial institutions as Observer Members.

IFSB membership is available in three categories: Full Member, Associate Member and Observer Member. The Full Membership, which is the sole membership with voting rights, is available to the financial sector supervisory authorities of each sovereign country.

The new members are the Bank of England as an Associate Member, as well as the following Observer Members:

National Bank of the Kyrgyz Republic
Securities and Exchange Commission of Pakistan
Abu Dhabi Islamic Bank, Egypt
Amana Bank, Sri Lanka
Ziraat Katilim, Turkey

The Council has also upgraded the National Bank of Kazakhstan from an Associate to a Full Member. This brings the membership of the IFSB Council to 23, consisting of central bank Governors from 22 countries, plus the President of the IDB. 

To date, the 189 members of the IFSB consist of 65 supervisory and regulatory authorities from the banking, capital markets and Islamic insurance (takāful) sectors from 47 jurisdictions, as well as eight international intergovernmental organisations, and 116 market players (financial institutions, professional firms and industry associations).

Interested?

The full list of IFSB members is available on the IFSB website 

IFSB fleshes out PSIFI database

The Islamic Financial Services Board (IFSB) has released a second set of its Prudential and Structural Islamic Financial Indicators (PSIFIs) from 16 member countries, dating from December 2013 to December 2014.

Secretary-General of the IFSB Jaseem Ahmed said, “In the context of the heightened awareness of vulnerability of all financial systems to a range of risks, the PSIFI provides a new tool for monitoring the soundness and stability of Islamic finance.

"The support of multilateral organisations – such as the IMF, ADB and IDB – have greatly assisted the progress on this project. It is our aim to continue to expand the scope of the PSIFI to include the participation of new jurisdictions, as well as expansion of data to the Islamic capital market and takāful sectors of the industry.”

PSIFIs aim to provide data on the financial soundness and growth of the Islamic banking systems in participating IFSB member jurisdictions. The first set of data was released on 27 April 2015 covering the period up to December 2013. The second release adds the indicators for the four quarters of 2014, with necessary adjustments and revisions to the earlier data set. It thus provides more complete data than the earlier release as many member jurisdictions have improved their data collection and consolidation framework for the Islamic banking industry in line with the requirements of PSIFI project.

The Task Force on PSIFIs – which includes representatives from 16 member jurisdictions as well as international organisations such as the IMF – updated some indicators after the first release to enhance their clarity and consistency across jurisdictions. In the new release, a number of jurisdictions have also started reporting of the data on macro-prudential indicators such as assets held by domestic systemically important banks, leverage ratio, as well as liquidity coverage ratio (LCR).

The countries participating in this project are: Afghanistan, Bahrain, Bangladesh, Brunei, Egypt, Indonesia, Iran, Jordan, Kuwait, Malaysia, Nigeria, Oman, Pakistan, Saudi Arabia, Sudan, and Turkey.

The IFSB is now collecting data for the first two quarters of 2015 which will be targeted for dissemination in Q1 of 2016.

Interested?

The complete PSIFI Database, including metadata, is available on the PSIFI portal at the IFSB website

Read the IFSB PSIFI Brief for more background \

IFSB plans workshops for banking, takaful and the Islamic capital market

The Islamic Financial Services Board (IFSB) will be organising three FIS workshops for banking, takaful and the Islamic capital market in October and November 2015 in Kuala Lumpur, Malaysia. 

The workshops are designed to enhance participants’ understanding of the respective standards and guiding principles applicable to each sector. The workshops also aim to assist the participants in the practical application of the issues addressed in the particular standard through case studies, group exercises, and other interactive tools; and to promote the sharing of experiences among regulators and market players on the implementation of the respective IFSB standards. The organisation invites all regulatory and supervisory authorities from among IFSB member countries to participate.

FIS workshop for the Islamic capital market sector

19 to 21 October 2015

This workshop covers:

• Introduction to Islamic capital markets 
• Sharing of country experiences on the strategies and policies for developing vibrant Islamic capital markets
• Revised capital adequacy standard for institutions offering Islamic financial services (IIFS) (IFSB-15)
• Guiding principles on shari'ah governance systems for IIFS (IFSB-10) and Guiding principles on governance for Islamic collective investment schemes (ICIS) (IFSB-6)

FIS workshop for the takaful sector 

19 to 21 October 2015
This workshop covers: 

• Introduction to takaful
• Sharing of country experiences on the strategies and policies for developing a robust takaful industry
• Standard on risk management for takaful undertakings (IFSB-14)
• Standard on solvency requirements for takaful undertakings (IFSB-11), 
• Guiding principles on shari'ah governance systems for IIFS (IFSB-10) and 
• Guiding principles on governance for takaful undertakings (IFSB-8).

FIS workshop for the banking sector

16 to 20 November 2015

This workshop covers: 

• Revised guidance on key elements in the supervisory review process (IFSB-16) 
• Guiding principles on shari'ah governance systems for IIFS (IFSB-10) 
• Guidance note on quantitative measures for liquidity risk management (IFSB-6) 
• Recent developments in the supervisory review process framework and liquidity risk management at the global level

Interested?

Contact Hamizi Hamzah at hamizi at ifsb.org.

Indonesia's OJK and Islamic Development Bank agree to collaborate on research, training, Islamic financial services

Indonesia’s Financial Services Authority (Otoritas Jasa Keuangan, OJK) have signed a memorandum of understanding (MoU) with the Islamic Development Bank (IDB) to promote cooperation between the two institutions. The MoU was signed between OJK Chairman Dr Muliaman Hadad and IDB Group Chairman, Dr Ahmad Mohamed Ali.

The MoU aims at enhancing existing cooperation between OJK and IDB in the areas of research, training and advisory services, Islamic financial services, and exchange of expertise and knowledge with other Indonesian entities and private sector institutions, as well as establishing a special center of excellence for microfinance under OJK in Jakarta.

Dr Muliaman said the development further consolidates the long standing partnership between OJK and IDB while Dr Ahmad noted that there have been over four decades of extensive cooperation between IDB and the Republic of Indonesia as a founding member. The IDB Group Chairman added that cooperation with OJK will pave the ground towards materialising IDB’s top priority development programmes in Indonesia.

Deloitte, Noor Telecom and DIEDC report identifies opportunities for digital Islamic services

Deloitte and Noor Telecom (Noortel), a Kuwait-based, shari'ah-compliant closed-shareholding company, have collaborated with the Dubai Islamic Economy Development Center (DIEDC) to compile a report that highlights the untapped potential of the digital Islamic services market.

Source: Deloitte website.

The report, The Digital Islamic Services Landscape: Uncovering the Digital Islamic Services opportunity for the Middle East and the World,  offers recommendations for realising Dubai's vision of emerging as the capital of Islamic economy. It points out that a growing global Muslim population with a dominant youth demographic, high consumption and expenditure patterns coupled with a rising level of technology readiness are creating a clear and largely untapped need for digital Islamic services. 

Abdulla Al Awar, CEO, DIEDC said: "The digital Islamic economy is a key pillar and area of focus for DIEDC and the Islamic world. We are pleased to extend out patronage to the study as part of our ongoing commitment to augmenting Dubai's leadership in this area. The report underscores the criticality of building a sound digital infrastructure and ecosystem to foster the development of online services for the Islamic economy."

Ayman Al Bannaw, Chairman and CEO, Noor Telecom said: "Technology is arming us with tools that are far more powerful and effective than anything in the past - the impact of which is fully evident in the Muslim community. By observing and following this trend, we have identified a strong need for digital Islamic services."

The study builds and expands on Deloitte's previous report Defining the Digital Services landscape for the Middle East, which identified digital services under social needs, specifically hobbies, education, health and religion as emerging categories with unique niches for the Arab world. Of these, religion was identified as the category with the greatest prospects that could surge with continued activity and development.

Santino Saguto, Partner and Technology, Media and Telecommunications Leader, Deloitte Middle East, said: "Although the prospects are noteworthy, our findings reveal that very few Islamic Internet platforms have achieved a significant scale. Some verticals are being catered to, but monetisation remains a challenge. Currently there are no venture capital funds in the Middle East that specifically target Islamic needs, signifying a huge gap that could and should be filled."

Dr Hatim El Tahir, Director, Deloitte Islamic Finance Knowledge Center in the Middle East, said: "The report findings indicate that the Islamic online services will continue to proliferate across the Middle East and the world at large over the next few years. In some areas we can expect to see the region following global trends whereas in others we will see a unique, homegrown approach. We expect these developments to create interest for global, regional and local players and stakeholders alike."

The report defines the digital Islamic services landscape under nine key industry verticals and areas:

Halal food

There is increasing demand for healthy halal organic food both in the Muslim as well as non-Muslim segments. A growing need for transparency and tracking mechanisms is driving digital opportunities across the value chain. Most digital examples in halal food are emerging from the diaspora markets (e.g., US, France, UK) to address the difficulties faced by Muslim minorities who may not have easy access to these products, as is often the case for Muslim consumers from traditional OIC countries. However, there is still a large gap in ‘farm-to-fork’ (F2F) tracking as supply chain transparency remains an issue for retailers and Muslim consumers who wish to track the original source of their supplies.

 
Halal travel 

There is a gap in the availability of halal holiday amenities and services as shari'ah-compliant travel is a fairly new concept. The most pervasive digital services seen in this vertical are online bookings, ratings and accreditation platforms and also tourist smartphone applications. In particular, the strongest demand has been seen for travel mobile apps, stemming from their utility and ability to be used on-the-go. Structurally, the digital market is mainly occupied and driven by a small dedicated segment of players. However, global tourism players and online travel giants have started to enter the market through partnerships and alliances.

 
Islamic finance 

The Islamic finance industry has made significant progress over the past decades but the sector has still to mature. This is evident when comparing the total asset size per capita of all Islamic banks globally, US$750 per capita, against conventional banks in key economies, each larger by a factor of 100 or more, a considerable gap. At least two decades will be needed to bridge this gap. 

Given ample room for growth and development, populous OIC countries - most notably Turkey, Pakistan and Indonesia - are also now emerging as high growth Islamic finance markets. But low asset penetration and GDP per capita in these countries is driving the need for access to digital Islamic funding services, especially those that can open up access to financing for the wider rural population (e.g., via micro-financing, crowdfunding, mobile payments).

 
Modest fashion 

The proliferation of modest fashion over the past decade has also coincided with the growth of digital services across the world. This has helped modest fashion designers to set up low-cost shops online, engage with consumers directly through social media, market themselves through online blogs and magazines as well as build their own business network and knowledge base on the Internet. 

 
Islamic art and design 

This market is fragmented but growing. Compared to the overall market, Islamic art and design still makes up a very small segment, with the former accounting for a 0.1-0.2% share of the global art market. However, it has shown tremendous sales growth of 22% per annum since 2001 to reach nearly US$78.9 million in 2011. Global interest in art is reflected in digital platforms, including online sales. Increased online activity is driving a need for more specialised services related to valorisation (Editor's note: to assign a value to an item), online galleries and auctions.

Islamic economy education 

In the digital space, the Islamic economy education vertical is largely underdeveloped. As with the offline market, the main focus is in online Islamic finance courses with limited online platforms dedicated to the education arena. Over the past five years, online Islamic finance curriculums have seen a surge following the rise of academic and professional programmes. Digital services providers include conventional academic institutions, Islamic finance focused universities, certification bodies as well as exclusive online education suppliers.

 
Smart mosques 

The concept of ‘smart mosques’ is still quite novel and in its infancy. The GCC region and countries in Southeast Asia are leading smart mosque initiatives, with very large scale mosque networks and portals. Western economies too have reportedly expressed interest (for instance, the EU and North America). Currently, these initiatives are funded by governments, particularly those that are more affluent. It is likely that this trend will continue, unless significant private sector donations can be generated to develop these initiatives. Special smart mosque initiatives will continue to emerge, but more on an experimental case-by-case basis.

At a global level, there is a gap in the supply of mosques that are growing at a slower rate than the Muslim population. Deloitte estimates there are approximately 3.6 million mosques around the world, which translate to around 500 Muslims for every mosque. With a 1.3% per annum growth, the number of mosques around the world is expected to grow to 3.85 million by 2019. 

  

Islamic media 

Although there is much activity in this space, digital Islamic media as an industry vertical is still very much fragmented. Precise industry estimates vary. For instance, in order to address the rising demand for Islamic media content, there has been a surge in entrepreneurship. Aggregation sites are not leveraging as much traffic as they can from the vast Muslim population compared to mainstream global platforms such as YouTube, which also display popular Islamic content. Islamic content consumption is currently driven by the diaspora and aggregators are generally more active in North America compared to other areas of the Muslim world. Many ventures are being developed – however, there is, till date, no leading global aggregator.

 
Islamic standards and certifications
From a digital perspective, the Islamic standards and certifications area is untapped, with very few online players. The largest and most obvious need is for online platforms that can be used to facilitate accreditation, certification and verification processes. Given the confusion around shari'ah-compliant standards and the lack of online information, the development of a regional and global accreditation and certification guide for Islamic economy professionals is gap that needs to be addressed. 

From a public service value point, the creation of a global portal of information on Islamic standards and a consumer online feedback reporting mechanism can also support the enforcement and integrity of shari'ah-compliant standards. Currently, the focus is on the implementation of technology that ensures halal-compliant food preservation and packaging technologies. The use of technology for halal traceability is still limited. 

Interested?

Download the report from the Deloitte website

IFSB, INCEIF renew cooperation agreement

The Islamic Financial Services Board (IFSB) and INCEIF – The Global University of Islamic Finance have renewed an agreement to facilitate international cooperation between the two organisations to provide relevant activities relating to capacity building and awareness promotion in Islamic finance. The Memorandum of Understanding (MoU) was signed on the sidelines of the 12th IFSB Summit in Almaty, Kazakhstan on 19 May.

This mutual co-operation aims to strengthen the efforts of the two institutions in promoting an exchange of information, undertaking research, development, training and education in the Islamic financial services industry. More specifically, the MoU identifies the following areas of cooperation between the IFSB and INCEIF: 

• Jointly exploring and undertaking various research issues concerning Islamic financial services industry. 
• Providing reciprocal staff development and exchange programmes. 
• Building awareness among the industry players through jointly conducting learning and awareness programmes including among others: conferences, seminars, workshops, roundtables, trainings (including custom-designed learning and training programmes). 
• Cooperating in providing technical assistance to facilitate the implementation of the IFSB standards and to assist in building the necessary financial infrastructure for development of a sound and stable Islamic financial services industry. 

Under the first MoU, signed in 2012, the IFSB and INCEIF successfully held a series of six Executive Forums (EF) covering topics in Islamic finance. The IFSB-INCEIF Executive Forums on Islamic Finance aim to provide a platform for industry’s global leaders to discuss emerging issues facing the global Islamic financial services industry with an emphasis on issues related to supervision and prudential regulation at the national and international levels.

The next Executive Forum on Islamic Finance, themed Building Momentum for Islamic Liquidity Management, will be held 3 to 4 June 2015 in Kuala Lumpur, Malaysia.

IFSB core principles for Islamic finance regulation approved by council

The Islamic Financial Services Board (IFSB) has announced that the Council of the IFSB at its 26^th Meeting, held in Jakarta, Indonesia on 2 April, approved the adoption of a new standard on Core Principles for Islamic Finance Regulation (CPIFR) (Banking Segment), known as IFSB-17.

Core Principles for various financial sectors have become a standard tool to guide regulators and supervisors in developing their regulatory regimes and practices. The Standard has been developed with the participation of IFSB member regulatory and supervisory authorities, the Basel Committee on Banking Supervision and multilateral organisations including the International Monetary Fund (IMF)/World Bank in the working group. It aims to complement the Basel Core Principles in assessing the strength and effectiveness of regulation and supervision by the regulatory and supervisory authorities in countries with a significant Islamic banking industry. 

For the conventional sector, such assessment is carried out by the respective regulatory and supervisory authorities, peer reviews and by third parties, including by the IMF/World Bank as a part of their Financial Sector Assessment Programme (FSAP) for the banking, insurance and capital markets sectors to assess the strength and effectiveness of regulation and supervision.

The IMF/World Bank have completed over 84 FSAPs in several MENA and IFSB member countries, which, in certain cases have included an assessment of the Islamic banking, capital market and insurance sectors. However, many FSAP reports have either not reviewed Islamic finance sectors at all, or identified the absence of applicable Core Principles for Islamic finance as a major hurdle for not performing a regular assessment.

The IFSB said that the CPIFR will provide a set of Core Principles – along with the associated assessment methodology – for the regulation and supervision of the Islamic financial services industry (IFSI), taking into consideration the specificities of the institutions offering Islamic financial services (IIFS) in the banking segment, the lessons learned from the financial crisis, and the objective of complementing the existing international standards, principally the Core Principles for Effective Banking Supervision issued by the Basel Committee on Banking Supervision. The differences in the operational and shari`ah characteristics of Islamic finance products in various jurisdictions highlight the need for standardisation of the prudential supervision framework at the international level, the IFSB noted.

“It is envisaged that these Core Principles will be used by jurisdictions as a benchmark for assessing the quality of their regulatory and supervisory systems and for identifying future work to achieve a baseline level of sound regulations and practices for Islamic finance. The CPIFR will promote further integration of Islamic finance with the international architecture for financial stability, while simultaneously providing incentives for improving the prudential framework for Islamic finance across jurisdictions so that it is harmonised and consistently implemented across the globe,” explained Jaseem Ahmed, Secretary-General of the IFSB.


With the IFSB-17 Standard adopted, the IFSB also expects to prepare, in the coming years, Core Principles for the Islamic insurance (takāful) and Islamic capital market sectors. An initiative in which the Core Principles assessment methodology would be pilot tested in specific jurisdictions is also on the books.

Muslim Friendly Hospitality Services standard is voluntary but could help businesses succeed

Islamic tourism is often thought to be about providing halal food, but Malaysia has noted that it also includes the full suite of hospitality services that comply with shari'ah law. This encompasses hotels, resorts, restaurants and airlines that offer food with halal certificates, but also do not serve alcoholic beverages, prayer facilities, provide separate wellness facilities for women, and a generally Muslim-friendly environment.

The Muslim Friendly Hospitality Services (MFHS) standard is Malaysia’s first standard dedicated for the Islamic tourism sector. Initiated and led by International Institute for Halal Research & Training (INHART) of the International Islamic University Malaysia (IIUM), the original submission to develop the standard was made in December 2012 to the Department of Standards Malaysia (DSM). This was followed by the appointment of SIRIM as the standard’s secretariat by DSM and the formation of a draft committee by the Technical Committee (TC) on Management System from Islamic Perspectives.

The draft, released as Draft Malaysian Standard : Muslim Friendly Hospitality Services – Requirements, is available for public feedback from 1 August to 30 September 2014. Find out how to participate here.

An industry review was held on 14 August and reported on 15 August on the ITC website. According to the report, Zulkifly Said, Director General of the ITC, said that implementation of the standard will be on a voluntary basis on the part of industry players, but pointed out that the guidelines will be a powerful marketing tool for businesses.