Faysal Islamic Bank of Bahrain (FIBB) is once again proving that it is at the forefront of innovation in the Islamic banking sector. FIBB, who in the early 1980's pioneered the Murabaha (cost-plus financing) syndication which is now an internationally-accepted mode of financing, has now developed the first software system designed exclusively for Islamic finance. Senior Vice President of FIBB, Anwar Lutfullah in Manama, here charts the development of Islamic Banking System (IBS), an automated software system, which has already been successfully marketed by the bank s wholly-owned subsidiary. Advanced Technologies and Services (ATS) WLL to several Islamic and conventional financial institutions.

The development of a fully integrat­ed software system which would enable Islamic financial institutions to handle day-to-day operations with opti­mum efficiency has been a major draw­back facing the Islamic banking sector over the last decade. As an alternative to Conventional financing, it was vital that the sector kept up with the latest technological innovations, demanded by modern banking.

Other drawbacks which the nascent Islamic finance movement were faced with included, no readily available Islamic banking products, the lack of adequate operating procedures, no accounting standards for Islamic bank­ing, a lack of qualified and trained personnel, and a dearth in applied research and development (R&D).

At the time, few Islamic banks were able to meet these challenges head on. One exception, albeit selectively, was FIBB, which pioneered the innovative Murabaha syndication. FIBB was incorporated as a wholly-owned off-shore Islamic financial institution in Bahrain during the early eighties by the Geneva-based Dar Al Maal Islami (DMI) Trust. Since then, DMI has sold a 47 per cent stake in the bank and FIBB has been authorized by the Bahrain Monetary Agency to open an on-shore branch in to serve the local and expatriate communities.

Teething Problems

FIBB initially confronted all the teething problems that a bank is normally confronted with, trying to gear itself up for Islamic banking operations back in 1982. The bank was faced with the task of proving itself and the concept of Islamic profit-and-loss (PLS) banking in an adverse and skeptical environment. It was no doubt an uphill task for the management of the bank.

In the field of banking technology, FIBB's Information Technology (IT) department was delegated the task of finding the best system suited to the bank's automation needs. The IT department initially searched the market for an automated banking system which would satisfy the bank's operating requirements. Since, the concept of Islamic banking was still relatively new, the IT department did not succeed in finding the right system which catered for existing needs and proposed future growth. Most of the available systems were targeted towards conventional banking and the use of these systems would have been an obstacle to the future development and growth of Islamic banking operations and products.

The bank's management subsequent­ly decided to undertake the in-house development of an automated Islamic Banking System (IBS). Because of the lack of such a system in the sector, it was decided to develop an application which could be marketed to other Islamic banks and investment companies.

It was important to develop the IBS on modern up-to-date lines, applying the latest technology and development techniques. FIBB's IT department's strength lay with a selective group of professional staff who were dedicated to and proficient with the principles of Islamic banking. They not only under­stood the products, but also the underly­ing Shariah principles, operations and accounting procedures. On-going education and training ensured that the staff were always kept up-to-date in informa­tion technology and banking issues.

Today, IBS is a reality. It is an on-line and real-time Islamic banking system providing its own security controls. IBS design is modular, and is fully parameterized. As such it can be tailored to the requirements of an individual bank looking for a system that can be adapted to a wide variety of different Islamic banking environments. The modules are tightly integrated and pass informa­tion between each other and the General Ledger. The system supports multi-currency operations and provides a facility to manage two parallel self-balancing General Ledgers (Corporate and Off-Balance Sheet).

IBS also has an important additional feature which keeps track of source funds used for Islamic investments. This allows IBS to account for product and individual customer profitability based on investment returns. Since the system is real time and generates auto­matic accounting transactions, it elimi­nates the preparation of any manual Debit/Credit vouchers/tickets.

IBS currently offers the following modules:

• Parameter

• Retail banking

• General ledger

• Murabaha

• Mudaraba

• Ijara

• Private Investment Portfolio

• Foreign Exchange Dealing and Accounting

• Documentary Credit Module

• Credit and Marketing Module

• Fixed Assets Module

• Safe Deposit Lockers Module

• Automatic Teller Machine (ATM) Interface

• Telebanking/Voice Response Interface

• Signature Verification Interface

KEEPING PACE

The key to success for any Islamic bank­ing system is for it to be able to keep pace with the development of new Islamic products. Islamic banking is under going continuous change and updating. New products are being introduced and existing products are enhanced. New accounting standards are being promulgated. Achievement of optimum operational efficiencies dic­tate the pace of upgrading banking automation. The modular design adopt­ed for IBS allows it to meet all such challenges in the minimum possible time and with great ease.

The fact that IBS is easy to use and implement has enhanced its marketing potential. The system has been designed to be simple to operate in a branch where no computer personnel are present. The system can be tailored and implemented in a matter of weeks. Since IBS is a proven application (being used by FIBB and other DMI subsidiaries), once it is implemented, operations are almost entirely free of errors.

IBS has been continually developed and upgraded in the light of new prod­ucts, changing market conditions and regulations in various countries. As such it provides a grapevine of rich and practical experience in the field of Islamic banking automation. The latest features to the system include; Interface to Imaging, Signature Verification; Teller Terminals (retail banking); Automatic Teller Machines (ATM); and Voice Response. As a means of safeguarding the hardware and software investment of banks choosing to implement IBS, the system has been designed to be very flexible, allowing it to be supported on more than 400 hardware platforms. IBS can take real advantage of Open System Technology and can be implemented on various Operating Systems (OS) including UNIX and the PC-based OS.

FIBB recently started marketing IBS through its newly established wholly-owned subsidiary, Advanced Technologies and Services WLL (ATS), based in Bahrain. ATS was incorporated late last year and is responsible for the marketing, development and support activities of IBS. To date IBS is licensed to four Islamic financial institutions and a conventional bank.

IBS is a cost effective system, devel­oped to support Islamic banking opera­tions, optimising the bank's efficiency and service delivery capabilities in dif­ferent countries and environments.