IT in Islamic Banking – A Malaysian Perspective
By Microlink Systems

The Malaysian banking core software market is defined by the number of financial institutions in existence in the country, which currently stands at 35 commercial banks. In addition to this there are 12 Islamic banks, 10 merchant banks and five development financial institutions. Based on this figure there are potentially 60 institutions that may purchase core banking software. For conventional banking core software, most foreign banks have their own software systems in place.

Islamic banking core software
As at the end of 2005, 11.3% of Malaysia's total banking assets were classified as Islamic. Bank Negara Malaysia has set a target of increasing this to 20% of total banking assets by 2010. Currently, many financial institutions who offer Islamic banking services do not use true Islamic banking solutions. This essentially means that their current systems do not include all the necessary features to implement Islamic banking, with manual adjustments still being required.

Eventually, as Islamic banking assets account for a larger proportion of total banking assets, they will have to upgrade their systems. Islamic banks are not the only financial institutions involved in Islamic banking, as other financial institutions also offer Islamic banking services through the “Islamic Banking Scheme.”

Currently, the Islamic banking software space in Malaysia is divided between three companies, namely Silverlake, Infopro and Microlink. Microlink has the largest market share of Malaysian companies, with seven installed sites locally and two overseas within South-East Asia.

As much as 80% of Microlink Solutions' business comes from Islamic banking, an area the company chose to penetrate in 1996 when the Islamic banking industry was still in its infancy.

Riding on its Islamic banking solutions, the company has made inroads into foreign markets. The company already has a presence in North Africa, Indonesia, Brunei and Thailand. Forays into the Indonesian and Middle Eastern markets should lend a boost to the company's earnings.

The company's target markets are Malaysia, Indonesia and the Middle East. In Indonesia last year, Islamic banking accounted for only 3% of the banking business, whereas in the Middle East, it accounts for around 33%. Thus, there is still very much room for growth.

Overview of Microlink's flagship product, MiBS
The group's core products and services are packaged under the brand name MiBS. MiBS allows automation of core-processing functions such as deposits/investments, loans/financing, treasury and customer information for both conventional and Islamic banking.

MiBS has software modules to support the various functional areas of Islamic banking, retail banking, corporate banking, wholesale banking, co-operative banking, development and infrastructure financing, investment, electronic delivery channels, as well as support software modules such as accounting, executive functions, risk management and systems maintenance.

Developed specifically with the banking and finance industry in mind, MiBS provides users with the flexibility of defining the attributes, operating methods and utilization of the products offered. The beauty here is that the group's suite of applications can be implemented independently of the hardware and software that supports it (meaning cost savings), or integrated with existing modules. MiBS's Islamic banking modules consist of:

(i) Al Wadiah Savings Account.

(ii) Al Wadiah Current Account.

(iii) Al Mudharabah Investment.

(iv) AITAB Financing.

(v) Al Ijarah Leasing and Islamic Financing.

(vi) Support concepts such as Istisnah, Murabahah, Bai Bithaman Ajil and Ar-Rahnu pawn-brokering (these concepts are difficult to implement on a conventional banking core).

Component analysis of Microlink's Islamic banking solution