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Published Papers:

Digital Transformation in Islamic Banking (WP-19/12/2020)


This exploratory working paper investigates the activities relating to the digital transformation process of Islamic banks (IBs). Data elicited via a survey questionnaire from 80 IBs across 21 Islamic Financial Services Board member jurisdictions were subjected to descriptive analysis to investigate the IBs’ rationales for digitalisation, as well as their current status and the technologies they have adopted. The paper also investigates the regulatory approaches, challenges, prudential risks, and financial stability implications of the digitalisation of Islamic banking. The paper found that in most IBs the digitalisation process is still in progress but has gained more traction since the outbreak of the COVID-19 pandemic. Among many other pertinent reasons cited in the paper, strengthening competitiveness, enhancing operational efficiency, and improving customer satisfaction are the main rationales for IBs’ digitalisation drive. The technologies adopted include mobile and digital wallets, biometric authentication, and artificial programming interface. Notwithstanding, IBs’ digitalisation drive has been impeded by legacy infrastructure, and by the lack of both the requisite human resources and open banking infrastructure and architecture. The paper examines the implications of the benefits and the risks of digitalisation for the stability of the Islamic banking industry and makes recommendations on the way forward.

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Extracts from IFSB IFSI Stability Report:

Blockchain Technology and Islamic Finance: Supervisory and Regulatory Concerns

The Bitcoin blockchain is part of a broader FinTech movement that spread rapidly in the years after the Global Financial Crisis (GFC). FinTech evangelists propagated the disruption of financial intermediaries while the incumbent financial institutions started to take a closer look at the underlying technology to understand its disruptive potential. Initially, the focus was on: (a) cryptography for the creation of a trust-less decentralised system for the transfer of digital assets; (b) distributed ledgers for a tamper-resistant networked storage system. Another perspective was added after cryptocurrencies had become an instrument for the financing of FinTech start-ups, and (c) crypto-coins as digital representations of financial and real assets. An understanding of the functioning of these components is a precondition for an assessment of their strengths and weaknesses in the financial industry in general and in Islamic finance in particular. Taking the Bitcoin system as a point of reference, this write-up provides examples that have been selected and that are relevant to Islamic finance.

(See: Emerging Issues in Islamic Finance, IFSB IFSI Stability Report 2019)

Digital Islamic Banking: Trends, Implications, and the Way Forward

Islamic banks today face challenges arising from both market structure dynamics and transformation to digital banking. The adoption of innovative technologies and business models is a prominent emerging trend that is fast changing the ecosystem of the IFSI, and Islamic banks are not immune to these developments. This write-up provides insight into the trends, implications, and way forward for the digital transformation in Islamic banking.

(See: Emerging Issues in Islamic Finance, IFSB IFSI Stability Report 2020)

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