Islamic banks could benefit from digital banking

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Kuala Lumpur

Industry experts are supporting Bank Negara Malaysia’s (BNM) plan to issue five digital banking licences for both conventional and Islamic banking, as the financial sector is seen to benefit from the move. Digital banking is the way to go, although it’s too early to foretell any significant impact on traditional lenders, Islamic finance expert Prof Dr Obiyathulla Ismath Bacha said.
“If you are a non-bank entity trying to come in, it is going to require quite a bit of capital. “(But) this is definitely moving in the right direction — pushing banks towards more digitalisation,” he told The Malaysian Reserve recently. Lenders would do well in embracing digitalisation as having access to customer data allows banks to mine data, employ data algorithms and so forth, he added. While challenges lie ahead, there are also opportunities for growth, particularly in small personal loans, albeit on a “very restrictive, basic, standardised, commodity-type financing basis”.
“That is where digital banking can go in for the time being, not in the other businesses, and small and medium enterprises loans,” Obiyathulla said.In the meantime, digital banking remains an unknown area. Its depth and breadth have yet to be determined, but the likes of Amazon.com Inc have made good use of the available resources, using artificial intelligence and data mining algorithms. There is much cross-selling that can be done, which is where the potential for big money is, Obiyathulla stated. “I’m told that is something many of the potential digital bank players are looking to tap into,” he said.
The entry barriers into banking industries appear to have been gradually lowered, paving the way for more intense competition going forward, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said.—Agencies