How can the Islamic finance industry use digital transformation to simplify processes, reduce risk and enhance liquidity management?
- Islamic finance has become part of the mainstream global financial markets, and accordingly needs to improve and simplify its operations.
- The current complex money market operations used by Islamic banks is a manual process throughout the whole process, causing inefficiencies and errors.
- Islamic Deal Connect (IDC) from Refinitiv provides users with an automated post-trade workflow solution that supports the end-to-end process of Islamic money market transactions.
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As the Islamic finance industry has evolved, it has become part of the global financial markets. And as any other financial industry, the Islamic money market is considered a cornerstone component within this system. Consequently, it has become essential to simplify and advance its operations.
With volatility becoming the new norm, Islamic banking is facing challenges that range from virtual working and the urgent need for technological solutions, to the complexity of the LIBOR transition and other expected regulatory requirements.
These threats create operational risks for Islamic banks in their day-to-day activities and overall liquidity management.
Complex challenges facing Islamic finance
Currently, with the prohibition of interest-based transactions, the money market operations across Islamic banks and/or conventional banks trading Islamic finance products are currently complex procedures.
These procedures include three-way counterparty agreements between liquidity providers, underlying commodity providing brokers and liquidity takers.
This complex process is currently manually operated from ideation/RFQ stages all the way to clearance through multiple individuals, including traders, middle- and back-office staff, brokers and operations.
Potentially one money market transaction can have up to seven different manual touchpoints of data entry and validation through four different platforms/systems. This causes inefficiencies and errors.
Refinitiv, an LSEG business, offers various Islamic finance solutions, addressing key industry challenges and transforming them into growth opportunities.
Our Islamic finance business provides market intelligence and customised solutions to enable institutions to unlock their potential and explore strategic growth opportunities. One of our key products is Islamic Deal Connect (IDC).
How can Islamic Deal Connect help?
Islamic Deal Connect (IDC) is a post-trade solution for Islamic deals providing post-trade workflow automation capabilities and using straight through processing, in conjunction with Refinitiv Conversational Dealing.
The Islamic Deal Connect provides a fully automated system integration capability between multiple counterparties to support the end-to-end process of Islamic money market transactions. IDC automates ticket creation from Refinitiv FX Trading (FXT) platform, including Refinitiv Dealing, and integrates across middle- or back-office TMS and Broker Order Management Systems (OMS).
IDC provides a simplified process, automated ticket capture and sharing along with straight through processing (STP) for post-trade workflows to enable trading efficiency, decreases cost per transaction and helps lower total cost of ownership (TCO).
Through IDC, Refinitiv is looking to help clients streamline the post-trade process of Islamic deals conducted through Refinitiv Conversational Dealing and integrate multiple broker systems within a single flexible STP environment, minimising manual activities and operational risk.