Balancing innovation with compliance
Customers continue to seek the most convenient ethical banking solutions
The Central Bank of the UAE (CBUAE) says that in 2022, the Islamic finance industry continued its upward trajectory, growing by an additional 11% to reach AED16.5tn.
In the last five years, the industry has expanded by 69%, and over the past decade, it has surged by 163%.
The Islamic banking sector – consisting of Islamic banks and sharia-compliant windows of conventional banks – currently accounts for 23% of the UAE’s total banking assets, having grown by 16% over the past five years.
Today, Islamic banks offer products that match those of conventional banks and are adopting new technologies to enhance services.
These initiatives include online banking services, contactless payments and the use of artificial intelligence (AI) technologies.
The current regulatory scope for Islamic financial institutions covers several different areas of the industry in the UAE, including Islamic banking, Islamic finance companies, takaful insurance companies and asset managers, along with sukuk (Islamic bonds) and Islamic funds.
“We strive to replicate every product offered by conventional banks, adapting it into a sharia-compliant solution to ensure our Islamic clients have access to the same modern banking services,” said Abbas Usofi, vice president and head of Islamic product management at Mashreq.
This allows Islamic banks to serve clients looking for both ethical banking and modern convenience.
“Some clients want to bank with leading financial institutions but prefer to do so under Islamic principles,” Usofi said during the Mashreq MEED Exclusive Business Leaders Roundtable in September, which brought together industry leaders to discuss the dynamic payments landscape.
Some companies also have mandates to keep a portion of their financial dealings, typically 10%-20%, within Islamic banking. This makes it essential for institutions to offer sharia-compliant options without compromising on quality or service.
Islamic banks, like their conventional counterparts, have been quick to seamlessly adopt digital payments, such as mobile wallets and instant payment systems.
These services do not face the same complexities as lending products under sharia law, Usofi explained.
Payments, remittances and trade finance can be digitised easily, helping banks stay competitive.
According to the UAE Islamic Finance Report, initiatives such as online finance, contactless payments, chat support and social media engagement are driving the digital transformation in Islamic banks in the region.
These banks have also upgraded automated teller machines (ATMs) and cash deposit machines (CDMs), leading to a surge in mobile and online transactions. Adoption of mobile wallets has significantly increased, aligning Islamic banking with global digital trends.
“At the end of the day, it is all about providing clients with the freedom to choose their preferred banking partner based on their values and preferences,” said Usofi.
“Mashreq Al-Islami, operating as a window, plays a crucial role in ensuring that these capabilities are made available to clients, thereby promoting financial inclusivity and empowering individuals to make informed financial decisions.”
AI is another technology that could enhance Islamic banking.
“Corporate clients appreciate seamless transactions, and we recognise the need to reduce call-backs for payment verification to enhance their overall experience,” said Usofi. “We are constantly exploring ways to improve efficiency and streamline processes.”
AI can help by learning a client’s transaction patterns and flagging any unusual payments for verification. This would reduce the number of unnecessary checks while maintaining security and compliance.
Islamic banks are also leveraging the technology to facilitate seamless account openings for users. For instance, Mashreq has introduced electronic facial recognition technology to facilitate the onboarding of large corporate clients. This has led to the account opening process for UAE-based wholesale clients becoming fully digital and 100% paperless.
One of the key advantages Islamic windows of multinational banks like Mashreq have is the ability to leverage existing systems.
Mashreq uses its conventional cash management infrastructure for its Islamic-banking clients as well. “We use our systems, sales teams and experience of global transaction banking teams to support them,” said Usofi.
This allows the banks to offer a seamless digital experience while adhering to sharia guidelines.
Mashreq’s Neo Corp platform, which serves as an integrated online banking solution for corporate clients, streamlines payments and cash management. Similarly, its digital corporate onboarding system simplifies account setup, using optical character recognition to reduce manual data entry.
These digital solutions ensure faster, more secure and sharia-compliant services that meet the growing needs of corporate clients.
Islamic banks are in a strong position to meet these demands. The rollout of digital platforms ill only enhance Islamic banking’s capabilities, offering clients a wider range of services. “Nothing is stopping us from offering these digital solutions through our Islamic window,” Usofi concluded.
The future of Islamic banking is digital. Banks that can integrate new technologies while maintaining sharia-compliance will be well-positioned for success. By adopting AI, integrated payment systems and modern digital platforms, Islamic banks in the UAE are poised to lead the global market in ethical, digital-first banking solutions.
