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Reimagining Islamic Financing Via Composable And Fintech Solution

Nisa Ismail, CEO of Sedania As Salam Capital Sdn Bhd (Part of SedNisa Ismail, CEO of Sedania As Salam Capital Sdn Bhd (Part of Sedania Innovator Berhad)

Composable fintech is more than just the latest tech buzzword. Cloud-based APIs have slowly mushroomed even in the relatively rigid banking ecosystem, and the results have been promising. It only takes 8 months now to build an online bank from scratch that is secure, tailor-made, and can handle more banking activity than even a physical bank’s biggest branch.

And now composable finance is where we must build the backbone of our future.

Composable finance breaks down all the behind-the-scenes processes into small parts, which are then upgraded using industry 5.0 technology to be mostly automated, self-learning, and highly user-friendly even for the most inexperienced client.

Financial institutions now have the freedom to assemble any fully customised product they would like to launch (almost) immediately, making product creation cheaper and quicker to market.

The appeal of composable banking is obvious in this post-pandemic world. And with an economic recession just around the corner, it is crucial that we play our part in creating a financial ecosystem that is compassionate to the everyday Malaysian’s struggles.

As wallets begin to tighten in the upcoming global recession, finance institutions must rise to the challenge and help as many underserved Malaysians weather through the upcoming storm intact.

This means launching products that are innovative, user-friendly, and answer the pain points of a diverse group of Malaysians of different ages, races, income brackets, and needs. These products need to be launched quickly, but they need to be robust.

Composable finance and Islamic finance can work together in harmony

When it comes to banking that’s grounded, resilient and fair towards all parties involved, Islamic finance has a lot to offer.

Interest and speculation are forbidden in Islamic finance, which translates to financing deals that are more clear cut—everyone knows what money is being transferred from the start, and when.

Despite the economic downturn due to the pandemic, Malaysia’s Islamic finance industry has come out on top two years in a row now on the Islamic Finance Development Indicator (IFDI) 2021. This means that we’re doing something right here to have fared as we did during the pandemic.

But just like conventional banking, Islamic finance must become more agile and innovative in the face of a looming economic recession.

The variety of Islamic finance concepts like ijarah (leasing), mudharabah (profit sharing), musyarakah (partnership) can be a lot to wrap your head around, but in my experience, each is also very clear-cut. What is allowed and not allowed is stated very clearly within Shariah-backed financing— anything that seems confusing can be easily clarified with our own Shariah Advisory Board.

The clarity of the rules we operate in actually allows for a lot of flexibility.

Our champion product, the Straight Through Processing API Platform, exemplifies this point perfectly.

How Sedania Does It

In a conventional mortgage, interest rates are not fixed because it’s based on the base lending rate (BLR) determined by Bank Negara Malaysia (BNM). BLR rates rise and fall, so some consumers don’t actually know how much BLR they’ll have to pay by the end of a typical 30-year mortgage.

The Tawarruq process is one way to create a more compassionate financing ecosystem. For example, in the process of buying and selling a house, the customer would purchase a commodity (like gold) as an underlying asset from the financial institution, which is then sold for cash to a party other than the original seller.

But the paperwork and process for Tawarruq is understandably complicated, so at Sedania we have created the As-Sidq, a digital Tawarruq trading platform, a cloud-based solution that helps to digitise this trading process in an instantaneous, secure, anytime brokerage of digital commodities. We utilize prepaid telecommunication airtime credit as the traded commodity for customers, which offers high liquidity that is perfect for this sort of transaction.

But we can always take things one step further. With next-generation digital banking, we partnered up with our technology partners Mambu and Crealogix. Mambu is the world’s leading SaaS banking platform that empowers tech-forward financial institutions to design and service nearly any type of financial product. While Crealogix on the other hand, is a Swiss FinTech Top 100 company, that aims to create a more conversational environment and can help financial institutions to accelerate the success of their digital initiatives.

Mambu as the core banking provider allows banks and financial institutions to choose which digital solutions they want based on their current business needs and Crealogix as the digital banking hub provides a comprehensive architecture for the open banking of the future – online, mobile, or in direct contact. The hub combines the latest technology in digital banking with modules for proactive customer support. In contrast to other suppliers, this solution is open and allows all systems to be integrated seamlessly. This enables financial institutes to easily integrate innovators and innovations using the API-based architecture and makes them well equipped for the banking requirements thus promoting a better user experience. 

A lack of transparency has caused a surge of mistrust for lending institutions, so Crealogix has also assisted us in enabling timely alerts and notifications to help with client communication and education.

It is not enough to push for Islamic finance just for the sake of it, and it is not enough to just automate existing products either. A combination of Islamic Finance, composable banking, and some innovative drive might just be what we need to unlock a Malaysia that is more resilient against economic ups and downs.

We don’t believe in creating another product that already exists in a saturated market. So we focus our efforts on driving value. As long as we provide a valuable service, the product will push itself really, reaching a much larger audience that is untapped, uninterested and has big potential.

Nisa Ismail, CEO of Sedania As Salam Capital Sdn Bhd

The views expressed are those of the writer and do not necessarily reflect those of Bank Negara Malaysia, the organiser of MyFintech Week 2022.

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