Global IF Industry – Digital Banking and ESG Developments

Islamic Digital Finance Revolution in the OIC Countries Continues in a Fragmented Way with Advances in CBDCs, Digital Payments Including ‘Buy Now Pay Later’ Platforms, and ESG Offerings

The digital finance revolution in the OIC countries and in the Islamic finance industry continues, albeit in a fragmented way. The emphasis judging by developments in September 2021 seems to be central bank digital currencies (CBDCs), e-platforms for consumer finance, and capital market products promoting ESG values.

Regarding CBDCs, the Central Bank of Turkey (CBRT) is the latest regulator to research the potential benefits of introducing a digital Turkish lira to complement the existing payments infrastructure.
“As part of the Central Bank Digital Turkish Lira Research and Development (R&D) Project,” confirmed the CBRT, “the process that started with the completion of the proof of concept now moves on to the next stage with the participation of technology stakeholders.” Accordingly, the CBRT in September 2021 signed bilateral MoUs with defence technology industry giants, ASELSAN, HAVELSAN and TÜBİTAK-BİLGEM, and established the “Digital Turkish Lira Collaboration Platform”.
The CBRT aims to develop a prototype “Digital Turkish Lira Network” and run limited closed-circuit pilot tests with its technology stakeholders. Based on the results of those tests, the CBRT will unveil advanced phases of the pilot study that will reflect a broader participation. The CBRT also plans to carry out tests that may diversify the coverage of the Digital Turkish Lira R&D Project into areas such as blockchain technology, the use of distributed ledgers in payment systems, and integration with instant payment systems.
The CBRT says that it has made no final decision regarding the issuance of the digital Turkish lira. All research is carried out as per the principles of experimental R&D activities. “After capacity measurements of different technological alternatives are completed and the architectural setups are finalized, the CBRT will decide whether the existing technologies can meet the economic, legal and financial requirements of the digital Turkish lira,” the central bank added.
The results of the first phase will be announced in 2022 after the tests are completed.
In Islamic electronic consumer finance, Abu Dhabi Islamic Bank (ADIB) has partnered with Spotii, a digital payments provider, to launch the first virtual ‘Buy Now Pay Later’ prepaid card in the UAE.

According to ADIB, “customers will be able to make in-store and online purchases with merchants and spread out the cost of their purchases across flexible installment payment options with zero financing rates, no hidden fees, and additional costs.”

‘Buy Now Pay Later’ is witnessing significant growth globally, and the UAE is a key market driving this evolution in the MENA region. The rapid digital adoption has accelerated the need to provide new innovative solutions to both merchants and consumers alike. Philip King, ADIB’s Global Head of Retail Banking is confident that “the growth of the e-commerce industry is set to continue at full speed as consumers demand more convenience and immediacy in their shopping experiences. Through our partnership with Spotii, we want to address the demands and expectations of our customers who want the flexibility to spread payments over time. Through this buy-now, pay-later solution, we also want to support customers who don’t have credit cards or those who want a cheaper alternative does not charge them additional fees or financing costs.”

Other digital ‘innovations’ launched by ADIB include the ADIB Wealth portal; the Al Ghaf Paperless Programme, an initiative aimed at eliminating paper usage at branches through digital banking solutions; and a partnership with DenekB, a UAE based FinTech company, that is part of Visa’s Fintech Fast Track Programme, to expand payment options consumers in the UAE.

The wealth portal makes ADIB the first Islamic bank in the UAE to provide a multi-channel platform that allows customers convenient and transparent access to their investments. The Al Ghaf programme on the other hand is part of ADIB’s environmental and sustainable business strategy and reinforces its “commitment to reduce carbon footprint as well as enhance our customer experience and ensure further security and efficiency in banking operations. Set to conclude by the end of 2022, the first phase of implementing Al Ghaf paperless strategy will see ADIB minimising the consumption of more than 2 million sheets of paper across ADIB’s branches by the end of 2021.”

DenekB has a platform which features digital prepaid solutions that will allow customers to conduct cashless money transfers, as well contactless payments delivering a quick and safe customer experience. Through this partnership, says ADIB, registered DenekB account holders, will also be able to conduct contactless and frictionless payments using secure Near Field Technology (NFC) as well as QR Code.

In Saudi Arabia, Tabby, one of the leading ‘Buy Now Pay Later’ provider in the region, has appointed the Bahrain-based Shariyah Review Bureau (SRB) to ensure its payment solutions offered in Saudi Arabia are in line with Sharia’a principles.

Tabby’s online solution is based on deferred payments (Instalment Sale) which is offered to online and offline stores and merchants in Saudi Arabia and the UAE. According to Abdulaziz Saja, General Manager of Tabby, KSA, “our solution integrates seamlessly with reputable merchant stores allowing their customers to shop conveniently with interest-free instalments. Our instalment plan is independently certified by SRB with annual Sharia’a audits in place to ensure ongoing Sharia’a compliance.”

Since its inception last year, Tabby has partnered up with over +3,000 global brands and small businesses, to gain loyal customers by offering easy and flexible payments online and in-store.

Yasser S. Dahlawi Founder and CEO of SRB stressed that “in the past few years we have seen ‘Buy now Pay Later’ services emerging in the region with an objective to serve the consumer base by encouraging them to shop online while not paying interest or use credit-cards. The pandemic has certainly brought new financial products in line with consumers buying behaviour.”
In Kazakhstan, Tayyab, the country’s first Islamic fintech in partnership with Bank RBK and the VISA payment system, launched the first digital Islamic debit card which according to the promoters attracted 6,500 customers in the first few weeks of operations. The services are currently free of charge, except transfers to other banks.
One of Tayyab’s institutional investors is Dubai Fintech Ventures and the Sharia’a adviser and auditor for the venture is Bahrain’s SRB. Customer card balances are not used to generate interest income, and interest is not charged on them. The card can be issued by installing the mobile application Tayyab in Apple Store or Play Market. Instant transfers and contactless payments can be made immediately worldwide using Apple pay and Samsung pay wallets. The option of a plastic VISA card is also available and transactions can be done in four currencies – Kazakhstan KZT, USD, EUR, RUB, and card holders can withdraw cash at any ATM in the world.
In the ESG space Saudi Arabia’s SEDCO Capital and Switzerland’s Lombard Odier have launched an ESG-focused Sharia’a-compliant fund, SC LO Global ESG Equities Fund, to invest in developed market equities.

Moody’s in a recent survey of fund managers in the GCC forecast strong growth over the next year supported by growing demand for Islamic products and ESG investment. Global investors are increasingly driven by environmental, social and governance-related factors. The estimated US$2.2 trillion Islamic finance industry sees ESG complementary to Maqasid Al-Sharia’a principles on social and sustainable investing.

The Arab Petroleum Investments Corporation (APICORP), the energy-focused multilateral development bank, also unveiled its new ESG policy framework in support its energy transition strategy in its member countries.
APICORP plans to allocate US$1 billion towards green energy projects and sustainable energy companies over the next two years, particularly in the MENA region, with a view to concomitantly measure the ESG footprint of all its assets by end of 2023 through active engagement with its stakeholders. Currently, green assets comprise more than 13% of the multilateral development bank’s overall portfolio – equal to around US$550 million in loans and direct investments, a figure which has more than quadrupled over the past 5 years.
APICORP, a regular user of Islamic finance over the years, launched its Trust Certificate Issuance (Sukuk) Programme through its trustee special purpose vehicle, APICORP Sukuk Limited incorporated in the Cayman Islands in September 2021. Fitch Ratings has assigned a rating of ‘AA(EXP)’ to the Programme. APICORP plans to issue Sukuk, including ESG and Green Sukuk issuances under the Programme, in line with its new ESG policy framework.

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