A consortium of Saudi commercial entities are banding together to set up a fully-fledged digital Islamic bank, one of the first in the region, anchoring the GCC’s largest economy as one of the most influential Shariah financial markets in the world as the Kingdom maintains its steely determination to achieve its 2030 Vision. Not much is known about this consortium except that technology company Al Moammar Information Systems Company (MIS) will be a founding shareholder. MIS will be contributing SAR25 million (US$6.66 million) to the proposed Shariah digital bank’s capital.
The formation of this Islamic challenger bank is still in the early stages. “Therefore, it is not currently possible to accurately determine the financial impact and its history, as this is related to the completion of obtaining the approvals and requirements established by the official authorities,” MIS disclosed.
Should the virtual bank materialize, it will join Gulf International Bank (GIB)’s standalone digital arm, meem, as another digital-only provider of Shariah banking services to the Saudi market. The formation of the digital bank consortium follows new regulations issued by the Saudi Central Bank only a year ago. While the regulator has yet to grant any digital banking licenses, the rules however have attracted a number of applicants including two banking incumbents and a new player. Telco giant Saudi Telecom Company is also eyeing skin in the game; at the end of last year, it confirmed it will inject SAR802 million into its Saudi Digital Payments Company (STC Pay) should its subsidiary secure a digital banking license, although it made no mention whether the virtual bank would be Islamic or conventional.
Permitting digital banks is a natural next step in Saudi Arabia’s aggressive digitalization strategy as the region embarks on a competitive digital and fintech race. The widening of the financial community to include digital banks is expected to enhance the Kingdom’s financial services sector which currently consists of 12 local banks, a third of which operates in full compliance with Shariah law, while the rest on an Islamic banking window basis.
Neo or digital banks are increasingly becoming a mainstay in the global financial industry. They are however still a rarity within the Shariah banking realm. A handful of Islamic digital banking start-ups have entered the space, but only a couple are fully operational such as Germany’s Insha and GIB’s meem.