With the need to manage efficiency, liquidity and financial risks, treasurers are always on the lookout for new solutions to meet such objectives.
Banks now understand the power of automation and digitisation to help treasurers attain these objectives; possessing a clear idea as to how it can help with their needs for control, visibility and centralisation.
Most Islamic banks, previously not known for their technological agility, are successfully adopting transformational programmes to become industry leaders in the digital era.
Pioneering technology has allowed them to develop new propositions in the areas of payments, collection, liquidity management, FX, trade finance and other areas of the working capital cycle.
Islamic banks need to invest in digital infrastructure to attract market share from their conventional peers
According to a report from the General Council for Islamic Banks and Financial Institutions, Islamic trade finance is estimated to constitute around $186bn out of $4.4 trillion worth of trade finance activity in Muslim-majority countries.
The possibilities for market expansion across segments largely untapped by Islamic banks are therefore huge. Automation and digitisation have made it possible for Islamic banks to prepare themselves to capture such trade finance opportunities.
Historically, Islamic finance structures like murabaha and ijara involved contracts to purchase assets and sell or lease them to clients, which traditionally increased the turnaround time compared to conventional banking. However, through automation and simplification, financing through these structures is now streamlined.
Additionally, Islamic banks can now provide different optionality for financing to suit the needs of customers.
The landscape has become extraordinarily demanding and competitive for banks with the digital revolution that is taking place.
This has resulted in an increased number of solutions and unprecedented innovation, with fintechs and companies seeking to benefit from new technologies such as blockchain, Big Data, application programming interfaces and process automation.
Despite this, corporates these days will only engage with banks that offer advanced solutions. Therefore, Islamic banks need to invest in digital infrastructure to attract market share from their conventional peers.
The adoption of new technologies into trade finance will transform the sector while also providing the greatest opportunity for Islamic finance by helping to lower costs, speed up sharia-compliant transactions and expand operational footprint.
Islamic banks are also expanding their target market, coming up with product suites that cater not only to the needs of local large and small companies, but also multinationals operating across Islamic countries.
Such solutions offer different Islamic structures and financing options for any underlying trade transaction with streamlined and standardised documentation.
They also allow treasurers to view, control and forecast their cash flows across their different accounts and countries, while providing them with risk-mitigation tools.
In ADIB’s experience, there are three clear reasons why companies working in Islamic countries should consider using Islamic banking services:
The outlook for Islamic transaction banking is undoubtedly bright in the context of this new digital era.
It is now up to individual banks to demonstrate their innovation and versatility to tap into this latent potential, and for treasurers to benefit from it.
Haytham El Maayergi is executive vice president, global head of transaction banking at ADIB
This article was taken from the October/November 2018 issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership