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In this Showcase, Paul Nilsen, our Commercial Director, speaks with Islamic Finance News about barriers to entry for digital banks and the growth of Islamic finance in Africa.
Digital banking is being rapidly adopted in established markets across the world, but Africa stands out as a beacon of opportunity for digital enablers. With the ability to enrich existing banks’ access to more customers across more segments, digital Islamic banking is yet to see traction across the continent.
1. What is the digital banking landscape in Africa?
Africa has gotten stuck with a lot of legacy systems and in-house development, which hurts collaboration. The opportunity lies in the unbanked population – the only way to really bring anybody out of poverty is to get them to start transacting.
Banks traditionally don’t collaborate or hold the hands of their competitors, because that’s always been the culture. Historically, competitive edge, bureaucracy and red tape has always kept banks separate. I think COVID has definitely given banks a big kick, where every single boardroom is now talking about how their bank can go digital, because they’re seeing that nobody wants to enter the banking halls anymore.
“Are we going to expand into a digital arm to speed up our digitization journey? Or are we going to open up a totally separate digital bank to start afresh on our digital journey?” The fortunate thing is that African banks don’t have to go backwards, they can immediately go to the latest technologies and either start afresh at a lot less than they would’ve if they had to go back to heavier legacy systems. They can sort out their front ends and while expanding on their front ends, look at how they can digitize their backend.
Discussions about digitization within the Islamic space are already taking place in Nigeria, and deploying technology can enable the market to reach out to tens of millions of customers across the country, and that’s just in Nigeria. There’s so much potential, and so much of it is untapped. Bringing in these digital platforms and transforming into digital can definitely change the landscape of Africa with all the financial inclusion models, and bring banking to all those that need it the most.
2. What are the barriers to Digital Banking in the Islamic Finance space?
Fear. There’s a massive population that’s underserved by typical banking. I think the fear of moving with these cumbersome legacy systems is a massive barrier to entry across the continent. But technology has done a lot to remove these barriers to entry.
People are starting to open their eyes and see that with the digitization aspect they can actually start looking at it from an Islamic point of view as well. To go digital, they can now consolidate their efforts with Codebase Technologies, and digitally transform their conventional and Islamic solutions.
Ethiopia, fortunately, is moving even faster now. The government has issued 5 or 6 fully Islamic banking licenses – because of massive growth in the interest-free banking space. And the establishment of fully-licensed Islamic banks in Ethiopia. I think they’re going to be carbon-copied across the continent.
Countries across the continent, Nigeria specifically, are ready and waiting for a solution that not only exceeds market needs, but also redefines them. Fortunately for us – having the first fully digital Sharia-compliant core banking system – we are in a lot of conversations with banks to now try and help them move into that space.
3. Is Codebase Technologies the only player in region that has that depth of knowledge in the Islamic space? Are there other larger legacy players that are able to leverage their experience to also cover the Islamic banking space?
All the legacy players have updated their conventional cores, but what’s clear is that when you’re trying to move your conventional core to an interest free model there are a lot of problems, especially from the Sharia compliance side.
One of the major pitfalls is profit distribution. We, at Codebase Technologies, are in a fortunate position because we came from Islamic banking, then wrote a separate conventional side. Being fully digital, it’s a lot more seamless, and time-to-market is a lot quicker.
We are definitely in a very good space from a digital Islamic arena, and I think that’s where a lot of people are going to be moving now, because you don’t have to go backwards and look at the whole cumbersome legacy system and try and tweak it so that it becomes an Islamic product.
4. How is Codebase Technologies addressing digital banking in the continent?
Presence, mainly. We have the experience and the capability. And due to our size, we have the agility to work with as many banks and financial institutions as possible. We’ve got go-to-market strategies in place that allow us to focus on the Islamic and interest-free space across the continent.
Awareness is crucial. First, get people to understand where we come from – where we built the Islamic platform from, why we’ve won phenomenal awards for our Islamic platform. Engage with the banks that are looking to go fully Islamic.
Also, our focus is very much on the unbanked and unserved. These are the people who need banking the most. Making it affordable to expand digital banking offerings to all that want to play in that space.
From an Islamic perspective, all those that aren’t being served in the interest-free realm of ethical banking is a glaring market segment staring us in the face. Nobody’s run to it because they’re afraid of implementing an additional core system alongside their legacy system. They think they can’t go digital, and have to install another one to move into the Islamic space.
To them, we say very plainly: Just because you’re in Africa doesn’t mean you have to go backwards and start where all these other banks started 20 or 30 years ago. You can start right here, right now, with an open API technology infrastructure that lets you phase out legacy systems slowly.
You can bring third party applications into Nigerian banks very rapidly, deploy them, and go fully Islamic in 4.5 months. We’ve done it outside of Africa, so people will not only start realizing it’s possible, but that its not an expensive, heavy, cumbersome process. It’s a total game changer.
Tagged:
- africa, digital islamic finance, market insights
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Paul Nilsen, Commercial Director
Strategic business leader who has scaled local and international platforms managing teams and creating sustainable recurring revenue streams.
