Dynamic Discounting Finds a Valuable Niche in Muslim Banks

Dynamic Discounting Finds a Valuable Niche in Muslim Banks

Posted by Pete Loughlin in Dynamic Discounting, Procurement Software 10 Mar 2010



The growth in Islamic banking that has been seen in the Middle East over the last few years has been brought about by a response to the pent up demand for Shariah compliant banking and, as Shaheryar Ali writes in gtnews, combined with trend to converge cash management and trade finance services offered by the Middle Eastern bankers, this is likely to provide a significant boost to technology providers in the Dynamic Discounting space.

Shaheryar Ali: β€œAn Islamic treasury function, like a conventional one, must generate and utilize liquidity in an optimal manner. However, it must also function in accordance with Shariah principles. All practices must fit with the principles of Islamic finance. There can be no interest, no speculation, and no contingent speculative liability in any transaction. Yet as long as these principles are complied with, it is possible for a treasury services function to be Shariah-compliant and for there to be no difference between Islamic and conventional cash and trade. In fact, Islamic principles may help convergence because, in most examples when applied to the true methodology, neither cash nor trade are based on speculation.”

Even specialist Islamic bankers agree with this sentiment, especially with trade. For instance, Ali Akbar Khan, who is vice president of financial institutions at the Dubai Islamic Bank (DIB), states that the principles for Islamic banking fit very well with trade finance.

Ali identifies technology as a major challenge that will need to be addressed: β€œ.. further growth in a converged Islamic cash and trade offering will bring with it a greatly heightened technology need. This is likely to prove a challenge for banks in the Middle East that, in some cases, face challenges in updating their technological capabilities.

The banks’ apparent resistance to technology is in contrast to the corporates in the Middle East, which are generally technologically-savvy. Technology is a driver of cash and trade convergence, and so the advanced state of corporates should encourage local Islamic banks towards convergence.”

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