Going Digital Enabling Growth through Islamic Finance Innovation

Thank you very much. Asalamu alaikum ladies and gentlemen. Good morning. We are delighted to be here with you today on this panel speaking about a very very important topic when it comes not just Islamic finance but the global financial services industry and that is digital. There's no doubt that digital technology is not just enhancing the way we offer financial services to our customers but fundamentally changing the way financial institutions interact and provide these different services.

We are very privileged to have a distinguished panel of speakers who are representing many different types of institutions whether it is a digital Islamic bank whether it is an Islamic fintech firm whether it is a crypto exchange and we are very much looking forward to hearing their insights and their experience on how digital technology is changing the way they do business in their respective markets. Time is short so without further ado I'll go straight into the panel and Perin I want to start with yourself. I mean of all the institutions represented on stage you know vision bank is the one that most closely resembles what we would consider to be a traditional Islamic bank but obviously you're fundamentally very different from a traditional Islamic bank right being the first digital Islamic bank to be licensed by ADGM um you know what we want to understand is how does digital technology change you know what you do from what traditional Islamic banks do right what does it mean to be digitally first rather than be a bank first and then embrace digital transformation.

Sure, please.

Thanks Ed. Uh thank you first of all thank you very much for inviting me to the second edition of Islamic finance summit and an extremely interesting topic of uh integrating the digital bank and the Islamic bank. You're absolutely right. Uh we are the ADGM's first homegrown category 1 uh digitally enabled corporate Islamic bank. uh over here our endeavor is to have see the impression is largely that you have either the speed or the values.

We believe that we can with our innovative financing solutions, innovative banking solutions, we can actually have uh ethical based banking and that in a very very digital quick manner and that's what we are here for and as you rightly said that we are uh when we started uh no most of the banks have the uh banking and then they put the in it or uh IT guardies later they already have the infrastructure In our case, we consciously believed that in order to be a successful digitally enabled bank, we have to invest in technology. Obviously, that's very intensive and expensive, but that really helps us to be first mover advantage and to deliver the product at a very bright speed and especially in this part of the world wherememes constitute 94% we are catering tomemes and account opening uh takes from months to days which is our biggest USB. So I'll leave it over here but you're absolutely right. We are a digitally enabled Islamic corporate bank.

No that's fantastic and I think you know as rightly mented you know whether it's a compromise between speed or values in your case there is no compromise. You have to deliver on both aspects in in tandem. Janed I want to come to you and obviously you know with what Wahed is doing you know vision bank being a tradition uh you know digital Islamic bank but wahed is you know if I was to describe it an entity that is looking to disrupt traditional Islamic banking right you guys are changing the way that customers save their money you guys are changing the way that customers invest their money how they grow their wealth how critical has digital technology been to the success of Wahid and where where do you see it uh you digital channels leading you going forward.

Thank you. Um so salalamikum everyone so we first uh don't think the concept of Islamic banking makes much sense in in general right so we came up with wahid to try and reinvent Islamic finance saying you know let's not do any money lending let's stick to custody let's stick to assets and none of that would be possible without technology there's no way so technology allows us to fractionalize it allows us to create liquidity on a scale That was never possible before. Previously, if you wanted to make a global investment house for retail, you'd have to set up branches, you know, buy one uh suk at a time, like huge blocks, you know, for portfolios, you'd need over a million dollars. Technology allowed us to fractionalize everything, create platforms where there's almost no marginal cost to distribute. So, today we have, you know, half a million clients.

Uh we have, you know, uh we're past a billion dollars of aum now comfortably. We have our own funds and we think we can 10x this without increasing any cost without any more you know physical presence. So that was never possible before and the entire concept of what we're trying to do with Islamic finance is allow people to live without exposure to you know interest or debt or money lending in general and this entire hypothesis would not be possible without technology. So I would say it is imperative to what we're doing at Wahit or trying to do.

No that that is fantastic. I mean you mentioned the fractionalized component and you know we know from experience that Indonesia UAE whenever markets have introduced fractionalized suk or fractionalized instruments there've been huge intake. I think $2 billion is the Indonesian retail suk $4 billion is the UAE sukwatney uh that's based out of that's based out of Dubai. So I think yeah that that fundamentally changes how customers would engage with that.

Cena I want to bring you into the conversation as well.

Thank you.

And you know when we think about digitalization sometime we always think about digitizing an existing process right but digital technology creates a lot more than that and particularly disruptive technologies like blockchain have created entirely new asset classes for investors. the digital assets that increasingly are becoming important and across the spectrum of investors whether it's mass market whether it's affluent whether it's institutional everybody is looking at how to allocate a portion of their wealth to the u you know digital asset space so from your perspective how how has accessibility to this asset class changed and how does digital technology enable you to access more customers to make it a seamless experience experience for those who want or have an interest in investing in these digital assets.

Yeah, very good question. Thank you so much and hello everybody. Um, so what it was when we created the company actually in 2017 2018. It's exactly we wanted to build the bridge from the best performing asset class like the digital assets and bring them in a wrapper like a compliant regulated transparent rapper but everybody knows for goes like very institutional. So we decided at that time to create some in Europe we call it ETP around outside of Europe we call it a ETF and we brought that actually to the exchanges the traditional exchanges that everybody has access in a regulated way and can buy that and uh by doing so actually I figured because it's now a while I'm in the industry um it really gave a shift actually from the early stage tech people, you know, like the techie people would go into digitals.

Now it's even not about should we buy it or should we get involved in it, it's shifted to kind of how should we go into this asset class. So it was really a shift from that and what we also do is um we have even um Shahira compliance um ETFs like our Bitcoin for example and Bitcoin um gold ETF. So we see a high demand also in the cheesy sea region because it's a population which is actually quite young. 70% for example in in Saudi I was really um mindb blown by this number but I've read that 70% of the Saudi people are under 35 years old and 25% of the population in Wii is even under 25 years old. And of course the younger people they really like tech.

So we wanted really not only to create something for younger people that's not what I'm saying but we wanted to really create something for everybody even institutional grade. No, thank you very much. And I think that you know one of the things that you highlighted is it's no longer why but how we make that investment because that is changing and the shift I think we can all in some capacity relate where once upon a time digital assets were only restricted to techie as you said techy individuals who knew how to gain access to that. Today it's being streamlined for everybody even you know uh nontech oriented individuals to be able to invest in that. You mentioned the Sharia compliant ETF.

I'm going to come back to that because I do have a question on that. But before I do, I want to jump to Janeed again. And Janeed, when we think of Islamic finance, one of the primary drivers of Islamic finance is to serve the unbanked or underbanked, right? To address this challenge of financial inclusion. Now, fortunately for us in the GCC, it's not as significant, although there are pockets of, you know, demographics that are, you know, uh, underbanked to a great extent.

And internationally when we look at Islamic markets it's a major challenge of financial inclusion right so how has technology facilitated this objective of Islamic finance to make everyone inclusive and specifically from Wahit's case who operates in different markets what has been your experience in different markets and getting customers on boarded that may not have been fully banked before [clears throat]

that's a great question so you know one of the main goals of Islamic finance is circulating and redistributing wealth right so until you could say technology adoption which is relatively recent I'd say in the past 10 years in financial services before then you had two distinct classes you you have the wealthy the rich people who have access to all the asset classes right they can buy properties for example most people 80 90% could not afford a single property right their money's in the bank money's in the bank in fiat currency it's depleting away with inflation banks are ripping everyone off right creating inequality so what what do you do so with technology adoption you now have almost leveled the playing field right so you have retail with products you know like uh Cena's company anyone can access these institutional assets with any amount you have ETFs you have ETPs you have all the apps and that is a huge factor in the growth of Islamic finance even if it's not within the Islamic finance industry because Islamic finance really pushes for that redistribution you know for that inclusion and accessibility technology has allowed that to happen. Now for us with Wahed, we launched in Malaysia a few years ago and we had over 50% of our clients coming from rural areas and classified as B40, the bottom 40% of society who in Malaysia, the bumi, like the Malay population. And everyone, including the government, is mind blown by this. It's it's like where did they come from? like we've been trying to get them into the financial system for so long like how are they all your clients?

And turns out also a fun fact unfortunately um the more poor the population like the lower income demographic they tend to care more about Sharia compliance and it seems like the wealthy people care care less and that's one of our findings. So now they finally have access to keep their money in line with their faith and not only that if you look at the returns they're earning now it is in line if not better than the ultra high net worths who have their money at the private bank and this was never possible for so this is pushing that entire mandate of Islamic finance of our religion for allowing that you know equality stopping the inequality spread and the redistribution of wealth with investment. So I think huge factor.

No, I think uh very inspirational story and kudos to Wahit for this. Um I remember very well once upon a time you know property was considered as the only avenue for an ordinary individual to attain any kind of wealth in their life and all aspirations were around obtaining property which was obviously as you said very restrictive and you know providing access to all asset classes to individuals at a retail level not having to compromise on their values I think you know has uh you know is the way that Islamic finance theoretically always proped promoted itself and it's great to see people like wah who confirming the hypothesis by you know attracting those customers. Um you mentioned share your compliance. I will come back on that as well because I want to ask Cena about that particularly who you know is not as familiar. So we'd love to get her points on that.

But before that uh Ravine I want to come to you right when we think about digital banking or when we think about digital technology enabling banking it's very easy to understand how it benefits ordinary customers retail customers right I have a smartphone everyone has smartphone we can access banking services on our smartphone right what may not be as clear for everyone is how do digital technologies help corporate banking right now vision bank being a bank that specializes and focuses on corporates focus onmemes in particular um you know which may not get the same type of banking services that you know the larger corporates get from your perspective how does digital banking or how do digital technologies enable you to serve the needs of those customers to address their pain points and help uplift them from a banking perspective

quite an interesting question it's very close to my heart actually uh because all of us know that it has uh uh pervaded in every part of life and especially in the banking the retail uh but corporate bastion remains unconquered that is very very clear uh because of the one is the reluctance of adoption and second I can tell you about the credit part of it uh most of the times the retail bank loan dispersal is very very scorecard driven but in case of a corporate banking the large loan distribution the chief risk officer wants it to be uh more of a subjective uh assessment now at vision bank we take pride Not only I won't say uh the only bank but I think we are the first bank to have digitized the mudar the murabha deposit taking just to take you a little bit uh for uniniti uninitiated uh in case of Islamic banking everything has to be backed by a commodity contract. So sometime it becomes cumbersome for a for a person who is doing the Islamic banking he has to sign lot of papers. In our case he just goes onto the uh our his portal he books a contract everything at the back end is automatically executed seamlessly from our uh technology provider. So all Muraba contract bala contracts commodity contracts are get gets executed on its own. one second is I think most of the time corporate banking involves because there is a fatka declaration there's a CRS declaration in a way that is digitized but not to that extent uh person on the corporate side has to take a print out sign it off those declaration then again uploaded in our case we have digitized and we take pride in that the full uh fatka and CRS journey also third very very important what we have done which is very very time consuming for corporates is suppose a corporate comes to ADGM it sets up the shop it gives us all its variable what's the uh certificate of incorporation what is certificate incumbency and once he comes to the bank to open the account we are asked the same question but here we have done seamless integration with the registration authority of ADGM and DIC where we pull the data automatically so there is no duplication for the customer he just has to put his uh client registration number so all these factors put together uh puts it in a very very uh envirious position where we are able to onboard the customer end to end digital journey.

It's not it's breaking anywhere whether it's onboarding or it's actually execution of the contract. So that's what we have been doing.

No, I think that that sounds fantastic and um as as you mentioned not just digitizing the process but connectivity with you know institutions like ADGM like DIC and others can help automate and verify. So, so not just in terms of you know simplifying the paperwork but also from a risk perspective the verification process also gets addressed. I think that is fantastic and obviously the digitization of you know what we remember as being very very manual driven Islamic contracts and whatnot uh will greatly uh aid the operational challenges of any institution not just uh corporate.

May I also ask a question for you? So you would you bank actually also offer something like an ETF from uh digital assets later on?

Uh that is so what we are doing uh Cena we are launching the bank in a phased manner. Uh in the first phase we are in the liability mobilization second phase will be financing and third will be then the fee based which will be the ETF actually.

So we speak we will speak later.

Absolutely. Absolutely.

It's on the horizon.

It's one of the most important asset classes for sure and it's a fee based income. Yes.

So it's good for me

of course. [laughter] So just on that ETF point, Cena, I want to come to you because you know you mentioned that you have launched the cherry compliant ETF, Bitcoin and gold. Um for those of us who are in the industry and very deep in the industry, you know, whenever a new product is launched, the biggest issue is always is it Sharia compliance, right? And every market, every scholar has a different view, they have different perspectives and it takes many years till the matter is settled and you know there's broad acceptability, right? I would love to get your take as somebody who operates out of Switzerland who is you know a little bit distanced from Islamic finance when you launched your Sharia compliant ETFs.

What was the experience of launching it? How was the engagement with the scholars institutions that verified it? And most importantly what was the reaction from customers who are Sharia sensitive who then bought into that?

Excellent. So first I have to say maybe we offer over 60 different ETFs worldwide which we are the leaders worldwide for this industry and um we are not only operating in Switzerland where is our headquarter we are also listed in Europe everywhere also in NASDAQ Dubai like I mentioned already like for the our Shahira compliant products but also Australia and Brazil and soon also at a very great spot here at GTCC. I can't say too much because uh stay tuned. But um it's it's in fact yes coming back a little bit more to your question how the customers act. Actually I must say because I'm very close to the um to the end customers they are very very grateful that um a wrap up like we are giving is existing.

So it's physically backed. All the ETFs are physically backed which is extremely important for Shahira compliant right that they get actually the upside potential from the underlying and they just they won't have a rapper which is secured which is yeah regulated which gives them a good feeling that they know they did their due diligence. They want to have something they trust actually because trust is something when we invest in asset class if it is digital or something else is a key element. You only invest actually what you have trust and what you know and coming maybe also something I could explain a little bit when I started about six years ago in our company. I told my colleagues because I was one of the earliest colleagues in our company.

We can forget about selling our products because until people will buy something in the digital space people need to understand what they're buying. So we have in in house our own research team and we give out actually around the globe a lot of really great insightful research and we offer even some educational sessions. I was just this week um in the region here was with some sovereign funds and they actually and also reporters they're super interested also to get a high level um educational session because before you go in a rapper or what any kind of product or whatever you invest you want to be sure you understand what you're doing because sometimes you have even responsibility for your clients it's maybe not for yourself sure everybody can buy it but it's a big responsibility so I think before you buy something it's important to understand what you're doing and understand the asset class because not Bitcoin is not Ethereum Ethereum is like not Solana XRP Ripple you might have heard his name sui and so on we need to understand what we're doing right and that's why we offer so many different products some of the people some of the investors like this the other one like that some of them want to have index or top five crypto basket a top 10 crypto basket etc we offer them all

no I I think uh that's that's a very very important point um particularly as you mentioned about the research creating awareness the education because when we look at Islamic finance in any new market you know the institutions that invest in education awareness building training and creating familiarity with their products are the ones that succeed the most right this has been uh apparent in the industry and it also tags into the points earlier mentioned about trust about being aligned to the values of the individual customers and so on. No, I think that that is great. I'm mindful of the time. We don't have too much more, but I would like to ask a question to all three panelists and maybe restrict your answers to two minutes each. And that is when we think about digital transformation, digital technology.

You know, many people say we're at just at the starting point. We're at the cusp of it, right? Technology is going to change the way we operate in the future very much. And you know it's always difficult to make projections of the future but I would like to ask you and then maybe Cena we can start with yourself and then run down the table

when you look ahead you know let's say 5 years from now 10 years from now how do you see the industry changing right how do you see the way customers interact with institutions the way institutions operate the tools that utilized how is that going to change in the next 5 to 10 years

it's one of my favorite questions by the way thank you so much for uh asking So I like I said already in my speech before like that the really the conversation shifted from not should we but more like how should we but I give you because I like personal stories real time stories. For example one of my um of our employees she was looking for a house in uh Switzerland and she was in Switzerland when you buy a house you need to have a paper which shows like you have no depths you have enough um enough asset in the background etc. So she was going online because she's quite young and bit wanted to apply for this paper and actually the funny part is there was a little sign from Ethereum on this platform and she was like hm what is that right and she called the IT service from this platform we speak about real estate by the way not about crypto now and they explained to her actually that they have in the back like on the on the the on as a platform Ethereum platform because it's for security reason and smart contract that they when she does have this paper that the people know it's not a fake paper. It's something really real existing. And why I'm telling you this story is because I find this interesting.

Her husband did exactly the same and he even didn't sign see this Ethereum sign. So he just took actually crypto ethereum platform and that side and got this paper. So what I wanted to say with my statement is I think the future will be we use something and we even don't know that we use for example something like crypto because if you use like you chat GBT are you really sure what is going in the background I don't think so you just want to use it in a nice way and have something which you can apply I think that's the future that we use it on a daily basis and we don't care about the underlying about the the platform form.

No, I think that's a fantastic example that really illustrates how this disruptive technology actually has use cases that are being utilized in the market and like you said, I I feel that as well. We will have all of these technological tools and we are not going to be concerned about the back end of how it operates but it's going to make things simplified and it's going to make verification much stronger going ahead. Uh Pervine the same question for you. when you look ahead 5 years 10 years from now how do you see the market and landscape changing from what it is today? So I I think the biggest problem right now the problem statement right now is we are talking uh so much of exotic stuff ETF cryptocurrencies and all that but the biggest problem is the opening of all bank account and especially for a corporate there are 94%memes over here who really find it difficult for next uh it takes 3 to 6 months for any uh bank anyme to open a corporate account uh with a bank and with a very strong AML guidelines KYC guidelines become extremely difficult and in In this part of the world we are 55 banks uh competing for the same pie.

What what we believe that if we can uh crack open this issue of opening the bank account with very very seamlessly we can be like Nvidia is for the AI let these guys make the whole exotic stuff but banking opening of bank account will be done by me. So that's where we would look at we look ourselves to be that if you're able to crack this uh puzzle of seamlessly opening a bank account any account any exotic derivative stuff any ETF any crypto any bitcoin all those currencies require a bank account and that's what we believe that we can open that we can fill that gap that is the biggest differentiating factor for us so if I that's what I believe I'll be focusing only a very simple thing which is open a bank Now that's a very very interesting insight. Um and I don't think that you know many people realize that even today you know hundreds of years since the modern financial system has been set up something as simple as opening a bank account for a corporate you know entity where you know you have owners you have sources of funds you have operations is not as simple as people expect and before we move to the exotic stuff you know as you said we need to get the bases in order and hopefully technology will help to unlock these persistent challenges that have been there for a very long time. Janed, uh, one minute left. It's very brief, but I'll leave the last word to you.

Do you mean the Islamic finance industry like

I mean globally in, you know, from your perspective and I know you're an optimist in terms of, you know, [laughter] seeing change in the industry in a best case scenario, how do you think the industry is going?

My best case scenario,

your best case, your vision for the future.

I would say for the Islamic finance industry and the way I see it going is the entire concept of a bank will go away in the next 10 years. So people will be keeping their money at custodians and you know asset platforms. Uh because back in the day you had to keep it at a bank, you had to keep it at a lending institution, you had to keep it in fiat currency. Uh not for long. Uh so I and I also inshallah hope you know that this will happen.

Uh and the entire concept of Islamic banking should go away in the next 10 years. Inshallah.

Sorry. May I just ask again? You said in the next 10 years banking will go away.

Islamic in Islamic finance. Yeah. No, no. Conventional for sure. Money lending the conventional thing.

So, we go back to the old days of all our wealth being kept in gold custodians. Yeah. Whatever asset you want. Take your pick. Nice and safe, clean.

You can

finally finally it has to be exchanged. It can't be bought in a system, right?

No way. We are launching a digital bank lending tomorrow. You can with liquidity with technology. We're doing it right. Debit cards, IND numbers, transfers, but everything's a national.

If that vision is achieved, I have no doubt Wah will play a role in in in

We're doing it. We'll try our best.

I think uh I have I have a strong reservation on that because uh as a [laughter] banker

as a banker absolutely because most of the central bank are issuing their own CBDC, right?

Yeah. But capital markets regulators are fine. Yeah.

Fair enough. So that's fine. I I think they are

I think this is the age-old debate between banking and that but what is clear to see is that whichever direction the industry goes is going to fundamentally change from where it is today. Ladies and gentlemen, we're out of time. Please join me in giving a round of applause to my speakers for the panel.