Taking Islamic banking to the next level

With the Shariah compliant banking sector showing no sign of slowing down, Business Managament speaks with a leading voice in the industry – N. Ganapathy Subramaniam.

“There is a need for different countries to put in place the appropriate local regulatory framework to address Islamic banking”
-N. Ganapathy Subramaniam

Islamic banking has exploded into a US$300 million industry. What has fuelled this huge growth, including among non-Muslims?
Islamic banking has been growing at a rate of 15-20 percent every year, spanning most of Asia and the Middle East, and is now beginning to make inroads into the western financial markets. The growth in Islamic banking can be attributed to high revenues from the petrodollar and the trickle effect on affluence in the Middle East and Asia, as well as socio-demographic trends such as the population growth and rising affluence of Muslims worldwide. Most of the products that were traditionally only available in the conventional banking system have an equivalent Shariah compliant product on offer from Islamic banking. This transformation has enabled Islamic financial institutions to broaden their value chain and offer innovative products and services, extending the usual standard products such as savings and home finance to more sophisticated Shariah compliant products ranging from cards, to corporate and project financing, wealth management, Sukuks, stock indices and insurance.

What are the challenges Middle East banks face when wishing to offer Shariah compliant products for their customers, whilst ensuring that they meet international standards and regulations?
International banks face many challenges in setting up Islamic Banking operations. A significant customer segment, a well-established independent Shariah board and a favourable regulatory climate are foremost among the many challenges faced by banks in setting up Islamic banking operations. There is a need for different countries to put in place the appropriate local regulatory framework to address Islamic banking, especially in areas such as tax treatments. The recent concerns raised with Sukuks and, lately, Tawarruq, reflects the need for a global governance body to oversee and mandate issues relating to product compliance and convergence of the various interpretations and standards. Another major challenge is the area of risk management and transparency, both, financial and procedural.

What impact does it have on their core banking systems?
Islamic banking may differ from western-style conventional banking in many respects but the same business, regulatory and technology requirements prevail. Most banks today deploy core banking systems to support their business processes and increase operational efficiencies. This requires enterprise-wide planning, commitment and resources. The major areas of concern that banks need to address are product compliance, profit sharing/ distribution and the requirement to maintain separate entity books for customers and for reporting purposes.

Could you explain how your Islamic banking service and products are benefiting financial institutions today in the Middle East?
TCS BαNCS enables business transformation in Islamic banking in the form of increased market share for our customers, superior service quality, consistent and well-designed product integration, alongside a lower cost infrastructure for transaction processing. This comprehensive solution maintains distinct identities of Islamic financial products and coexists with conventional banking solutions, complying with Islamic principles and Shariah laws. The TCS BαNCS platform encompasses an array of pre-configured, customisable banking product lines, including deposits, investments, retirement accounts, consumer and commercial loans, mortgage loans, equity financing, cards, payments, treasury management and trade finance. In addition, transaction banking services, clearing & settlement functions across the banking value chain can be enabled through the solution's business process configurability and service integrator component.

We also offer Shariah compliant insurance solutions based on Takaful to meet the varied needs of insurance enterprises across multiple lines of business, distribution channels and customer segments. TCS BαNCS, with solutions in core banking, universal banking, payments, regulatory compliance, wealth management, meets the needs of a diverse range of organisations, including microfinance, eurozone powerhouses, and the operators of one of the largest branch networks in the world.

N. Ganapathy Subramaniam is the President of TCS Financial Solutions, a strategic business unit of Tata Consultancy Services Limited. A part of TCS and the Indian IT Industry for the past 25 years, NGS has had numerous opportunities to perform a variety of roles in delivering solutions to customers globally, especially in the banking and financial services sector. As a part of his current role, he is responsible for steering the financial products business (TCS BaNCS) of TCS globally.