Ep980: AI, Compliance & the New Age of Islamic Banking

Rajesh Saxena, CEO, Consumer Banking, and Rami Roukoss, product expert, Intellect Design Arena Limited

As Islamic banking gains global momentum amid rising demand for ethical, Shariah-compliant financial services, Puja Sharma speaks with Rajesh Saxena, CEO, Consumer Banking, and Rami Roukoss, Product Expert at Intellect Design Arena Limited, on the evolving role of digital transformation, AI-driven pool management, and how eMACH.ai is helping Islamic banks modernise products, operations, and customer experiences. 

Transcript

SPEAKER_02 0:01

I'm Pooja Sharma of IBS Intelligence, and you're listening to the IBS IViews podcast. With me today is Rajes Saksena, CEO Consumer Banking at Intellect Design Arena. And I have with me Rame Rukh's Vice President, Product Expert, Islamic Banking and Intellect Design Arena. Welcome to the podcast.

SPEAKER_01 0:23

Thank you for having us, Puja.

SPEAKER_02 0:25

Rajesh, I would like to start with you. Why is Islamic banking becoming more relevant across the globe now?

SPEAKER_01 0:32

Islamic banking is the dominant pillar of the Islamic finance industry and roughly represents two-thirds of its total assets. In 2024, these assets reached about 4 trillion and they are expected to increase by a CHGR of about 20%. Some of the tailwinds that we are seeing, which is really helping Islamic bank, are the following. The first is the digital transformation with mobile banking, AI, and cloud platforms becoming prevalent. This is helping customers expand the access. The second key tailwind that we are seeing is really from an ethical finance appeal. The interest-free and the asset back model that we have in Islamic banking is increasingly attracting non-Muslim investors also. And third is really about resilience and stability perception. Since Islamic banking avoids speculative derivatives and requires real underlying assets, it is often seen now in today's volatile world as more stable. These are the three tailwinds that we are seeing. And just to reinforce my point, I'll give you some proof points. For example, in the last 18 months, what we have seen is that 45 conventional banks have launched Islamic windows around the world. So there is demand being generated from an Islamic banking perspective. 15 new digital Islamic bank licenses have been issued worldwide. And for example, in Bahrain, AUB, Ali United Bank, has converted from a conventional bank to a fully fledged Islamic bank. We are seeing this trend even in Africa, where in Djibouti, for example, we have the first Islamic bank which has opened up to serve 14% of that population who are Muslim. So we are seeing a lot of forces coming together, and this is the right time, we feel, from an Islamic banking perspective.

SPEAKER_02 2:33

Dajesh, what are the key challenges Islamic banks face in the current digital banking era?

SPEAKER_01 2:39

What we are seeing from a bank's perspective, the product personalization, the ability of the banks to customize new products and time to market these new products is severely challenged because this has to follow Sharia compliance. We find that there is a lot of manual work required in calculation and accounting. Managing in Islamic investment pools can be a very manual, error-prone process. For example, you have to, unlike fixed interest, which is a simple formula in a conventional banking, in Islamic banking, returns have to be calculated based on actual performances of the assets. And then you have to allocate these profits fairly across different pools. And this can get very complicated. And I think also skills and knowledge of people, trained resources who understand this sharia guardrails are limited.

SPEAKER_02 3:36

So how is Emac AI, that is intellect's product, Emac AI Islamic banking proposition, different from the others in the market?

SPEAKER_01 3:45

It's important to note that we are coming a little late in the market, and therefore we have this advantage that we we had this ability to purpose build our product to address these challenges. The challenges that I talked about in the in your earlier question about you know speed to market and composition, etc. So we had that uh advantage. So what we did was when we really went to design this product, we said we will make Sharia and AAOI5 compliance as an integral part of the system and logic by design. So we build our platform around these principles. So therefore, this platform enforces the right structures, calculations, and the flows from the very beginning. Most of our peers and our competitors actually started with a conventional banking platform and they did some band-aid to make it Sharia compliant. So that's why they've this makes it very difficult and rigid for them to maintain and change. From our perspective, since we started with this design, our platform is really composable by design and has Sharia principles built as a fundamental. So this is a very significant advantage that we bring to the market versus our competitors or peers. For example, pool management, which is composable, transparent, auditable, fully automated profit calculation and distribution engine, is built in as a key component of our platform.

SPEAKER_02 5:16

Could you expand on pool management and why this is a critical feature for banks? Also the role of AI in the process.

SPEAKER_01 5:25

Yeah, so I'm going to request my colleague Rami, who is a product uh Islamic product expert, to answer this question. Rami.

SPEAKER_00 5:34

When we speak about uh pool management, so we are speaking about the base foundation and the fundamental like engine, which any Islamic bank in the market they need to operate. And when we speak about also Islamic pool management, uh transparency has to be there to abide as per the sharia principle and the guidelines. This is why, like uh the imak.ai, Islamic pool management, it has been built uh as a fundamental thing based on the sharia by design and accordingly, for sure, to the IOFI uh regulation and compliance with the architecture of imak.ai. Second of all, when we speak about pool management, we have the component of real-time monitoring and performance, which you have and we have to provide to all the all the customers inside the bank. And this is also where automation of the profit calculation distribution has to be in place and to give like this kind of accuracy to uh to the customer. So it's not only about automation of the processes, it's about the confidence that you have to bring inside the Islamic pool management and to provide to the customer whenever you are operating under this model. And this is where I believe and I think AI, which is an embedded like uh also component inside our Islamic banking offering, which will give more accuracy, it will give more transparency, especially whenever we are running a data-driven application inside the application. And uh just to end on this part, so AI it will not replace for sure the ethical or the I would say the religious framework of uh of the Sharia board or the committee inside the bank. It will uh put functional, I would say, power or strengths on the application on how the banks should run the pool management and or the Islamic pool management.

SPEAKER_02 7:34

Rami, uh, which Islamic financing products are supported and how does platform streamline their life cycle? Uh Rajesh, you can also share your input on the same.

SPEAKER_01 7:45

So let me start. So I I'll just uh say that the platform that we are launching now covers the majority of our Islamic product. However, having said that, we also have a roadmap. We will ensure that we keep covering newer products, including trade finance, and treasury. But let Rami, I'll request Rami to give them more details about what we have.

SPEAKER_00 8:07

So, as like mentioned by uh Ray Rajas, so we are looking at the full customer journey, I would call it when it comes to Islamic banking, uh, specifically from the Islamic covert banking and the Islamic accounts. So uh, whenever we are speaking about the Mudaraba or the Wadiah or the Wakala deposits uh from the liability side for any customer, then going to the second fundamental things, the Islamic pool management, which we spoke a little bit about, and of course, uh going to the Islamic financing uh by supporting the majority of the key Islamic products like Murabaha, the Hijarah, the Hijara Guntahaya bit Tamlik, the Estis Plaq, Kart Hassan. So this is like uh I would call it the uh the most important pillars for any Islamic bank. And we have also a very clear like and uh roadmap which is coming in place to cover the Islamic trade partners, Islamic sukuk and treasury, and all of those uh aspects as well.

SPEAKER_01 9:10

And if I can just add to um what Rami said, but what is really more important is how we manage the entire life cycle, right? So everything is connected in our platform from origination to approval to disbursement and servicing within a single configurable flow. And this really helps us and the banks to reduce fragmentation, it speedens up the processing and minimizes manual effort. So the value from a platform is just not about supporting the products, but it is about making the entire customer journey and the customer life cycle efficient, scalable, and easy to manage.

SPEAKER_02 9:51

Thank you so much, Rajesh and Rami, for that insight. Rajesh Saksena, CEO Consumer Banking at Intellect Design Arena, along with Rami Rukus, Vice President, product expert, Islamic banking at intellect design arena.