OTHMAN ABDULLAH
CEO, ISLAMIC BANKING SILVERLAKE
Many enthusiasts believe that Bitcoin and other cryptocurrencies are paerfect substitutes for the traditional forms of money and payments methods. What are your views on this? How can this impact the Islamic financial services industry?
Let me first define money, currency and cryptocurrency. Money is anything that is acceptable and can function as a medium of exchange and store of value but must possess these characteristics: divisible, portable, acceptable, scarce, durable and stable in value. Currency is a system of money in common use, usually in a particular nation. Cryptocurrency, on the other hand, is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions.
Going by the above definitions, cryptocurrency lacks some of the prerequisite elements of traditional forms of money. What’s more, in recent years, cryptocurrency has been used as a speculative asset rather than a medium of exchange. This being the case, I don’t see how Bitcoin and other cryptocurrencies can be perfect substitutes for the traditional forms of money and payment methods.
However, in the digital age cryptocurrencies can be good alternative currencies and payment methods. Cryptocurrencies have tremendous potential especially due to their transparency and decentralized nature. With Facebook expected to launch its Libra stablecoin next year, cryptocurrency may become a more acceptable medium of exchange considering the billions of active Facebook users.
Islamic financial services industry can greatly benefit from the innovation of stablecoin. With stablecoin, the cryptocurrency is backed by a stable asset, which can be Shari’a-compliant. Hence, a Shari’a-compliant cryptocurrency backed by Shari’a- compliant assets can be issued and used as a digital asset for the payment of Shari’a-compliant products and services in the digital age.
What are some of the challenges and opportunities in Islamic Fintech and what is being done in terms of increasing the share of Fintech in Islamic banking and finance industry?
Allow me to mention some of the challenges faced by the traditional Islamic financial institutions before answering this question. Being infants relative to most conventional counterparts, Islamic financial institutions or IFIs are generally much smaller and more constrained on budgets and talent pools. Due to this, traditional IFIs lack resources to innovate compared to their more established conventional big brothers.
Fintech companies, on the other hand, are generally leaned on innovation for more efficient financial services and superior customer experiences. However, these companies often lack financial backup to survive. For those that go beyond technological innovations and attempt to operate their businesses as alternative financial services providers, they struggle to gain customers’ trust.
Such challenges faced by traditional IFIs and Fintech companies present huge opportunities for collaborations. There is now greater realisation that collaborations may be the best path to long-term growth for both IFIs and Fintech companies. For traditional IFIs; an established customer base, reputation in trust, knowledge of compliance and regulations and data security are their strong assets. Innovation mindset, agility and an infrastructure built for digital are inherent strengths of Fintech companies. Their collaborations could bring to the market innovative Islamic Fintech solutions that would benefit end consumers. One way to encourage this collaboration is via the open banking concept, which is a new and revolutionary way of using financial data by third-party providers for the benefit of bank account holders.
In terms of efforts in increasing Islamic Fintech’s share in the market, different countries have adopted different approaches such as sandbox, innovation labs, hackathons, co-working space, etc. While the agenda may be for Fintech in general, Islamic Fintech would be able to take advantage of these programmes. It is also encouraging to see Islamic finance conferences and seminars increasingly covering more and more Fintech-related initiatives and this has indirectly spurred more Fintech innovation in the Islamic finance space.
You are involved with implementing the Silverlake Integrated Islamic Banking System (SIIBS) in Malaysia, Indonesia, Thailand and numerous other countries. What products and services have you provided, and what is the success of this system as a Shari’a banking solution?
Silverlake provides end-to-end IT solutions for the financial services industry. In fact, at Silverlake, we differentiate ourselves as a group of companies that create technologies for the digital economy based on computing principles that are grounded on mathematical models. Silverlake’s founder and executive chairman is very much a mathematician at heart and therefore everything that we do in Silverlake must be based on some mathematical principles.
Although Silverlake started 30 years ago with a simple system to support basic banking products, we are now a company that provides full-fledged banking systems for both conventional and Islamic banks. Typical system requirements for Islamic commercial banks include Customer Information File (CIF), Deposit (Saving Account, Current Account and Term Deposit), Financing (Personal, Mortgage, Term, Business, Cashline) Trade Financing, Treasury, Debit Card, Credit Card, ATM, General Ledger, Remittances and Payment as well as Reporting system. In addition, delivery channels such as Branch Delivery, Mobile Banking, Internet Banking and Self-Service Terminals (ATM, Cash Deposit and Cheque Deposit Machine) are also required.
As an established IT solution provider, we have all of these components, which have been successfully implemented and now running in our customers’ sites in various parts of the world. When we started looking into Shari’a banking requirements back in 1994, we consulted Islamic finance experts to understand the fundamentals of Islamic banking and finance to ensure that our system is designed in such a way that it could evolve together with Islamic finance products and services. Based on our rigorous study, we observed that most of the components in our banking solutions are readily usable for Islamic banking except for deposit, financing, trade finance, treasury and credit card modules.
There are distinct differences between conventional and Islamic deposit, financing, trade finance, treasury and credit cards. The Islamic instruments for these types of products are governed by the underlying Shari’a concept and contracts. Therefore, there are some peculiarities to ensure that they are Shari’a-compliant. In addition, there are additional components unique to Islamic banking due to the profit-sharing contracts between customers and banks. Islamic banks need to have a mechanism to keep track of various pools of funds from their shareholders, depositors and profit-sharing investors. These are important so that Islamic banks are able to compute the rate of returns and distribute profits due to their depositors and investors.
As the IT solution provider for Islamic financial institutions, we have to fully understand all the requirements and make sure that the system we provide would enable the Islamic banks we serve to operate efficiently, comply with regulatory and Shari’a requirements, be able to provide superior customer experience and speedily bring to market new products and services.
The success of the Shari’a banking system that we provide could be measured by the number of Islamic banks using our solutions. We can proudly claim that 70% of Islamic financial transactions in Malaysia, on a daily basis, is enabled by Silverlake Integrated Islamic Banking System (SIIBS). We are now in the process of implementing SIIBS in another Islamic bank in Malaysia that is expected to go live next year. By then, we will be enabling about 80% of Islamic financial transactions in the country. Of course, we are also enabling some Islamic financial transactions in a few other countries as well such as Brunei, Indonesia, Singapore, Bangladesh and the UAE.
You were named as the ‘Upcoming Personality in Islamic Finance’ in 2017, and have received Global Islamic Finance Awards (GIFA) on behalf of Silverlake. How have these achievements contributed to your company’s further success and your own career?
I am proud to share that Silverlake has been recognised as the Best Islamic Finance Solution Provider at the Global Islamic Finance Awards for four years in a row — 2016 in Jakarta, 2017 in Astana, 2018 in Sarajevo and 2019 in Cape Town. It is always nice to receive an international recognition either for your own achievement or on behalf of the company. The aura of an award ceremony such as GIFA is so positive that it motivates you to strive to achieve more. The networking during the gala dinner not only provides you with the exposure of witnessing achievements of other industry players but is also a great platform to connect with them.
For my own career, the Upcoming Personality award has helped me gain more international recognition. It looks impressive on my CV too. At the company level, it is one of the success stories that we always share in marketing materials and presentations to impress our prospective customers. Normally when I share my pictures receiving GIFA awards during my sales presentations to Islamic financial institutions, the audience are generally impressed. It definitely helps in giving more credentials to Silverlake as a premier IT solution provider.
What are the short-term and long-term plans of Silverlake in the Islamic financial services industry?
As an IT solution provider and the partner of choice to more than 300 financial institutions globally, we have to be on top of the technology trends. We need to know which ones are real and which ones are just hypes. We have to apply these technologies into our Fintech solutions that brings value to our customers especially as the world of banking is now fraught with major disruptions such as changing customer needs, changing landscape, competitions from alternative financial service providers and open banking API ecosystems initiatives.
Our customers have high expectations on us to enable their operating model automation, merger & acquisitions as well as regionalization. They demand adaptive, scalable, agile, secured, dynamic and consistent IT solutions. We need to help our customers achieve their visions to optimize technology investment, gear up for digital banking and embrace collaboration in the world of open banking.
Our short-term plans are to work with our existing customers on some quick wins approach to enable them for digital banking. For the longer-term, we are positioning our Straight Through Banking (STB) Platform with a competency to drive our customers to win the race to digitalization through a robust digital frontier, expandable and intelligent core system.
Silverlake STB is a synergistic piece combining the best of all components to deliver a single, powerful and scalable solution for our customers’ business requirements. We will not only focus on banking and finance but also plan to provide a more holistic solution that covers the Shari’a ecosystem services such as Zakat, Waqf and Sadaqah, not only on the collection side but also the distribution part, where most of the issues are associated with.
What is machine learning and how can it be implemented in the Islamic financial services industry for the development and growth of Shari’a-compliant services?
Machine learning is an application of Artificial Intelligence or AI that provides systems with the ability to automatically learn and improve from experience without being explicitly programmed. Machine learning focuses on the development of computer programmes that can access data and use it to learn for themselves. In the financial services industry, machine learning could be applied to credit decisioning, risk assessment, fraud prevention and process automation. An example of the application in Islamic financial services industry is Shari’a-compliant robo-advisor that uses neural network machine learning technology to pick stocks from the Shari’a-compliant S&P500 Index.
Machine learning could also be used to improve Shari’a screening process. The AI will learn the selection behaviour of Shari’a scholars and screen through company data for any anomalies. This will significantly improve the Shari’a screening process, which will lead to the discovery of more investable Shari’a-compliant instruments in the market.
These are just a few examples. The potentials of machine learning applications in the Islamic finance industry are huge. Machine learning could be applied to innovations that may improve IFIs general processes efficiencies and customer experiences as well as innovations in Shari’a-compliant products and services.
SDGs are the talk of this decade. What in your view can be the role of Fintech, more specifically Islamic Fintech in achieving the SDGs?
The SDGs are the blueprints to achieve a more sustainable future for all. As these SDGs are very much in line with the objectives of Shari’a, Islamic finance and Islamic Fintech can play crucial roles in supporting the implementation of SDGs’ agenda.
There are a few areas where Islamic Fintech could contribute towards achieving SDGs. A very obvious one is Islamic crowdfunding platform. It is a more flexible avenue for fundraising especially for those who do not have the privilege of getting financing from traditional banks due to lack of credit history. Crowdfunding has also been proven to promote financial inclusion.
Talking about financial inclusion, it is estimated that about 3 billion people globally have little or no access to financial tools that could potentially improve their lives. Most adults in emerging economies do not have a bank account or even a financing facility. Some do not even have valid identifications. Consequently, credit information coverage is low, thus limiting their chances in getting funding from traditional financial institutions.
The concept of Islamic social funds (Waqf, Zakat and Sadaqah) has been there to assist the destitute. However, various issues have been associated with the management of such funds. There need to be a mechanism for productive uses of these funds in order for the generationally poor to be financially inclusive. Otherwise, they will be trapped in the vicious circle of poverty forever.
An electronic payment system could address this issue. Through collaboration with IFIs, Islamic social fund bodies could distribute funds electronically to the beneficiaries. In this case, social smart card concept could be deployed. The beneficiaries of social funds can be registered and issued with a smart card, which is an electronic identity document with an integrated payment functionality. As IFIs issue the smart card, a bank account linked to the card is created.
The social funds could then be credited into the bank accounts linked to the social cards. The utilization of the funds can then be controlled by the usage of the cards. For example, funds for the poor can be utilized for the purposes of buying basic foodstuffs such as rice, flour, bread, cooking oil etc. The beneficiaries can use smart cards when purchasing such food items at participating merchants only. The social smart card with an integrated payment facility could address the issues associated with cash distribution of Islamic social funds. It provides the means to control the recipients of the funds (validated by the biometric identification embedded in the card) and control the money spent by limiting the cards acceptance at participating merchants.
Most importantly, the mechanism will create data that monitors the programme, tracks funds movement and provides transparency. More sophisticated data mining that employs the latest technology, such as Artificial Intelligence, could also help future planning and more efficient management of Islamic social funds. On the beneficiaries’ part, the usage of the smart card over the electronic payment ecosystems will leave a digital footprint, which could be extracted for credit scoring purposes thus enabling them to apply for micro- financing facility from financial institutions.
Silverlake Axis has been recognised as GIFA Best Islamic Finance Solutions Provider 2019 for the fourth time in a row. What has been the success factor behind this achievement and how do you propose to continue in the future?
The main success factor is our commitment to what we do. We have 100% success track-record in implementing our solutions for our customers and we take pride in that. We provide end to end IT solutions for our customers and most of these components such as the core system and the delivery channels are mission-critical. Migrating from old core systems to new ones is akin to doing heart transplants on human bodies. It requires specialized expertise and sufficient experience to ensure success.
We are very experienced in what we are doing. It is a known fact that when banks decide to give us the job to replace or renew their core systems, they are assured that the job will be done successfully. We will deploy all necessary resources to get it done. Not to say that it is smooth sailing all the time but our three decades of experience has prepared us with proven methodology and hard-earned experiences to face the challenges.
In addition, we are not only committed but also very passionate about our work. Our people go the extra mile to understand the business requirements and propose workable solutions to our customers. When it comes to project implementations, our people are ever willing to put in the extra hours required to meet the project timeline.
Going forward we will definitely leverage on our decades of collective intelligence and commitments of our people but at the same time adapt to the changes. Our Chairman gave a piece of advice in one of our management meetings asking us to hold on to the following principles:
‘It is not the strongest nor the most intelligent of the species that survives but the most adaptable’ by Charles Darwin/ Megginson and ‘We are what we repeatedly do, excellence, therefore, is not an act, but a habit’ by Aristotle/Durrant.
As a CEO how do you motivate your team? Please share with our readers some of the leadership secrets and your personal leadership approach.
My job scope in Silverlake is not limited to Islamic banking and finance. I am also a subject matter expert for Silverlake’s core banking system and a pre-sales consultant for Silverlake Straight Through Banking Platform. As far as the CEO role is concerned, I am lucky that I am responsible for Silverlake’s Islamic banking related activities only. We have a group CEO that oversees the overall company management. My Islamic banking team is quite small relative to the overall size of the company because we leverage on a common pool of resources within the group.
Hence, this structure allows me to be more involved in projects development with greater details. I work very closely with my small team and we get support from the group in almost everything that we do. I treat my team members as friends. I listen to them, share my ideas and give them constructive feedback.
My notion of a boss or a superior in any organisation is someone that your subordinates can approach whenever they need help or advice in carrying out their duties. This is how I want my boss to be, someone that I can go to when I need help or guidance. However, I don’t expect my boss to prescribe solutions with details. I am looking for direction and guidance so that I have some flexibilities to apply my own creativity in my work. This is my approach to leading my team.
To be such a superior, you have to know what your subordinates are doing to a certain degree. Therefore, you cannot just delegate and not spend time to understand the nitty-gritty of what is going on. Else, you will not be able to advise them when they come for help. Most importantly, I try to be a good role model. I don’t expect them to listen to me just because I am their boss, rather I would like to earn their respect so that they willingly follow me. My boss of 22 years, the Chairman of Silverlake Group, once advised me; you cannot autocratically command people but you should logically lead them.
Who has inspired you the most and how? How has this inspiration developed you?
I am generally inspired by all successful people especially those that have made some kind of impact in a particular industry or the society as a whole. For example, I am very inspired by the current Prime Minister of Malaysia, Tun Dr. Mahathir Mohammad. I believe he has made a big impact on Malaysia. It was during his previous terms as the country’s premier that the people are now are enjoying significant benefits from the development and economic growth.
Those days Malaysians were known in the international arena for having a respectful leader. I still remember a conversation I had with a stranger from India who attended the same university as me in the US. When he learned that I was from Malaysia, he said, “oh you have a great leader, very good for your country”. It was indeed a proud moment for me.
I am also inspired by my boss, Mr. Goh Peng Ooi, the founder and Executive Chairman of Silverlake Group. He build Silverlake in 1989 from the ground up and now we are a global company with more than 5,000 employees. I joined Silverlake in 1997 when it was still quite small and I can proudly say that I have grown with the company. The fact that I have stayed this long is because I admire his vision and forward-looking approach in ensuring that Silverlake continues to be relevant and successful.
In the Islamic finance Industry, I admire Datuk Dr. Mohd Daud Bakar, a well-known academician-turned-businessman. I respect his farsightedness in applying Shari’a principles into contemporary issues to allow innovation of Islamic financial products and services. I am also inspired by Professor Dr. Mohd Azmi Omar, the current CEO and President of INCEIF. I have known him since the beginning of Silverlake’s involvement in providing IT solutions to Islamic financial institutions as we used to consult him regularly. When I decided to pursue my Master’s degree in Islamic banking and finance, I approached him to be my thesis supervisor. While Professor Azmi spent a lot of his time as an academician and “administrator” of Islamic finance training and higher education institutions, he has been actively involved in a number of consultation work to develop Islamic banking and finance master plans for a few countries.
I was so inspired by them that I wanted to find my own way to make an impact in the Islamic finance industry. Coming from a technical background, I would always find myself embroiled in conflict with the business people because business and technical people would speak in different jargons. That’s when I decided to complement my technical knowledge with Islamic finance business knowledge so that I could be the bridge between technical and business people. After a while, I realized that I was quite good at it and people started listening to me and seeking my advice.
Once I was able to create an impact at work, I wanted to contribute more to the Islamic finance industry by creating an even bigger impact. So, I started penning my thoughts and ideas on Islamic financial technology through publication as well as sharing them in public forums, conferences and seminars.
