Partnership model

By Charlie Hamdan, Director of Product Management, Commercial Banking

Islamic banking has become a potent force for innovation in the banking industry across Asia and Europe. Not just for those of the Islamic faith, the partnership model of banking is being recognized as a socially responsible, inclusive alternative to the conventional banking model.

Islamic banking includes many of the same challenges and requirements as conventional banking. Both use the same customer channels and offer functional equivalents for just about every product in the banking mix. The difference in Islamic banking is that a partnership element turns the customers and bankers into ‘partners’. In a competitive banking environment, where the element of trust between customers and bankers has often been eroded, the ability to offer a true partnership has become a fundamental advantage for Islamic banks.

Taking interest in customers

Unlike conventional bank accounts, deposits into an Islamic bank account do not receive interest. Instead, they are allocated shares in a “revenue pool” to be split between the bank and its depositors proportionately. In this way, the bank acts as the depositors’ agent, dispersing funds on their behalf to worthy borrowers.

On the other side of the ledger, borrowers in Islamic finance do not pay interest. Consider a car purchase. The bank purchases a car from the auto dealer, and then turns around and resells it to the borrower at a markup. The borrower then repays the loan, interest-free. Any fees for late payments are collected and turned over to charity. Similarly, for commercial financing activities, the bank shares both the risk and return with the entrepreneur for the term of the loan.
Because of the nature of the banker-borrower relationship, banks that offer Islamic financing have to be exceptionally skilled at customer relationship management, in order to capture and act upon the level of information required to maintain relationships at such a high level. To be sure, even conventional banks should have equally close relationships with their customers – but in Islamic banking, it’s a necessity.

TCS BαNCS provides a real solution

TCS BαNCS Islamic Banking, an integrated Core Banking and Channels solution, supports multiple deployment models: Islamic banking-only, for institutions that focus solely on the Islamic customer; as well as an approach that uses a single technology infrastructure to manage both conventional and Islamic banking products, while maintaining complete separation between accounts.

The technology architecture supports the need for Islamic banks to maintain separation of accounts, while still allowing organizations to remain flexible and agile. TCS BαNCS uses an N-tier architecture separating business logic from data access logic. Layered on that are message-based services, of which there are over 1300 application services available, including adaptors for WebSphere, WebLogic and BizTalk platforms which are commonly used by legacy enterprise systems. The bottom line for Islamic banks: It’s the same cutting-edge technology for channel and customer management as used by leading conventional banks, while still ensuring Sharai’ah compliance for Islamic banking.

With experience ranging from the United Arab Emirates to Saudi Arabia, Iran, Indonesia and beyond, TCS Financial Solutions can help financial institutions to offer a full range of banking services that appeal to customers both inside and outside the Islamic community.

Based on the TCS BαNCS Core Banking platform, which has received top accolades and awards by analysts and leading trade publications such as IBS Publishing and IDC, TCS BαNCS Islamic Banking provides true Islamic banking capability and support for multiple Islamic law interpretations. Furthermore, in keeping with the need for Islamic finance organizations to maintain strong customer relationships, TCS BαNCS provides bankers with a total view of the

customer, along with the ability to craft new products that best meet customer needs.
TCS BαNCS also meets the needs of the global financial institution with multilingual, multicurrency capabilities as well as customers around the world. As we gather insights from our global customer base about commercial banking, capital markets, anti-money laundering, compliance and risk management, we feed those insights back into our solution roadmaps to the benefit of our financial services customers.

With TCS Financial Solutions’ global aspiration to become the core banking system of choice to Islamic financial institutions, our roadmap for 2008 includes solutions for Takaful insurance, Sukuk financial certificates and Islamic trade financing. We are also helping “Greenfield” startup banks to achieve rapid launch, by providing end-to-end integrated universal banking services for Islamic banking, and by evolving to meet emerging trends such as direct banking, multibranding and microfinancing. We typically launch one major release every 12 to 18 months, and our next production release (TCS BαNCS Islamic Banking Release 10) is scheduled for the second quarter of 2008.

TCS BαNCS Islamic banking case studies

Mr. Taha Husseini, Chief Information Officer, National Commercial Bank

National Commercial Bank, based in Jeddah, Saudi Arabia, announced in January that it would upgrade its Core Banking system. NCB will use TCS BαNCS latest releases for Core Banking, Deposits, Loans, Islamic Banking and Origination software.

Mr. Taha Husseini, Chief Information Officer, National Commercial Bank, says: “National Commercial Bank selected TCS BαNCS Core Banking solution based on TCS Financial Solutions extensive Islamic banking and technology domain expertise, proven implementation skills and growing commitment to Saudi Arabia’s banking and financial services market. Since 1992, the advanced functionality of TCS BαNCS Core Banking solution has provided National Commercial Bank with outstanding performance; it was a wise decision to upgrade with TCS BαNCS.”

Mr. N. Ganapathy Subramaniam, President, TCS Financial Solutions, adds: “National Commercial Bank in Saudi Arabia is a multi-award-winning bank that is one of the most highly respected financial institutions in the region. Over the years we have developed a strong, long-term partnership with National Commercial Bank that has assisted both companies to continue to drive innovation in Islamic banking. This Shari’ah compliant upgrade will certainly add strength to National Commercial Bank’s Islamic banking market growth strategy.”

Amlak Finance PJSC, Dubai, UAE

Just as the Emirate of Dubai has developed from a minor trading port into a one of the world’s foremost economic powerhouses, so too has Amlak Finance evolved, from the home-finance subsidiary of real-estate developer Emaar Properties into a highly successful, exchange-traded financial institution with a diversified product line and expansive business strategy.

Established in 2000, Amlak Finance quickly became the largest publicly listed Islamic home finance company in the UAE. As a leader in Islamic finance, Amlak provides real estate financing, construction finance and property management services. All of its services are compliant with Sharai’ah Islamic law, dedicated to helping UAE nationals and expatriates alike to share in the ongoing success of Dubai.

Arif Alharmi, CEO of Amlak Finance PJSC, stated: “Amlak Finance is known as a pioneer in the Islamic Home Finance industry, and we are committed to retaining this role; identifying the new areas for growth in the industry, whether it be international expansion, new financial solutions, strategic tie ups with leading developers or innovative products targeted at our core audience, the consumer.”

Amlak Finance was a TCS Financial Solutions customer from the start, and continues to use TCS BαNCS Islamic Banking for its operations.

Bank Negara Indonesia

The oldest commercial bank in the country, Bank Negara Indonesia (BNI) is also recognized as one of the fastest-growing and most innovative banks in the region.
Facing competition from sophisticated foreign banks, BNI upgraded its inflexible legacy IT environment to TCS BαNCS Core Banking. The new system provided solutions for deposit and loan processing and tracking, cards, payments, branch delivery and customer interfaces.
Also, to serve the full needs of the population, TCS Financial Solutions provided a complete solution supporting both conventional banking and Sharai’ah-compliant Islamic banking, with completely separate accounting on the same physical infrastructure.
Following the deployment, BNI achieved a 30 percent reduction in time-to-market for new products while reducing total cost of ownership by over 50 percent. BNI can compete with its foreign competition with 100 percent uptime, increased ability to adapt to new market conditions and product opportunities, all at a low cost and with low risk.

About TCS Financial Solutions
TCS Financial Solutions is a strategic business unit of Tata Consultancy Services. Dedicated to providing business application solutions to financial institutions globally, TCS Financial Solutions has compiled a comprehensive product portfolio under the brand name of TCS BαNCS. Our mission is to provide best of breed solutions that will drive growth, reduce costs, mitigate risk and offer a faster speed to market for our clients. With a global customer base in excess of 200 institutions operating in over 80 countries, TCS Financial Solutions delivers state-of-the-art software solutions for the banking, insurance and capital markets industries worldwide. For more information, visit us at www.tcs.com/bancs

About Tata Consultancy Services Ltd (TCS)
Tata Consultancy Services is an IT services, business solutions and outsourcing organization that delivers real results to global businesses, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled services delivered through its unique Global Network Delivery Model(TM), and recognized as a benchmark of excellence in software development.

A part of the Tata Group, India's largest industrial conglomerate, TCS has over 100,000 of the world's best trained IT consultants in 47 countries. The company generated consolidated revenues of US$4.3 billion for fiscal year ended 31 March 2007 and is listed on the National Stock Exchange and Bombay Stock Exchange in India. For more information, visit us at http://www.tcs.com.