News: Indian IT cos developing solutions for Islamic banking

(BL 05/05/2007) Mumbai - Pushed to searching for new business segments, Indian information technology companies such as Infosys, i-flex, and Infrasoft are working on core banking solutions for Islamic banking.

The companies will have to invest $7 billion in software writing and technology by 2008, says N.R.K. Raman, CEO and Managing Director, i-flex solutions.

Infosys Technologies is developing an Islamic Banking solution supporting Shariah compliant products and services. Infrasoft Technologies has 35-40 experts working on Shariah projects, while i-flex solutions has created, `Flexcube for Islamic banking'.

Financial float

"While the existing Islamic financial institutions (FIs) are going in for automation, new licences are being issued globally for full-fledged Islamic institutions. Existing banks are looking to add Islamic products to their portfolios," says Hanuman Tripathi, Managing Director, Infrasoft Technologies. Islamic banking, based on the Shariah law, is a variant of traditional banking. Operations of Islamic institutions are marked by the absence of interest-based transactions and speculation. For instance, instead of lending funds to a buyer for purchasing property, an Islamic bank might buy the property itself and sell it to the buyer at a profit. The buyer will pay back the funds in instalments. "As regulators across the globe have opened up, Islamic countries, financial hubs such as UK, Singapore, Malaysia, Indonesia and others are making significant efforts to become major players in this space," said Merwin Fernandes, Vice President and Head of Infosys` core banking solution, Finacle.

Total financial float in the Islamic banking market space is about $300 billion, according to the Council for Islamic Banks.

The impetus is now shifting to Indian IT vendors as less than 10 per cent of Islamic FIs have deployed an enterprise-wide automation solution, says Tripathi.

As Shariah is interpreted differently across regions, dual compliance and effective regionalisation are seen as major hurdles for Indian IT companies, according to Deepak Ghaisas, Vice-Chairman, i-flex solutions. "The challenges are more with the standardisation of specifications. Compared to conventional banking products, Islamic products are evolving and there is a lack of agreement and standardisation across banks and countries," says Fernandes.