MONEY &

BANKING
7. EMERGING ISSUES IN
BANKING

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Emerging issues in Banking
As competition grows steeper in the Banking industry, so
are banks evolving and innovating to have a competitive
edge. Some of the latest emerging trends in banking are;

1) Introduction of Mobile Banking in the sector.

2) The rise of Agency Banking to bring services closer to

the door step

3) Introduction of Islamic Banking Operations to expand

the market

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Emerging issues in Banking ..

1. Mobile Banking
This trend of continued reliance on mobile devices to execute
monetary transactions is steadily gaining momentum.

The terms Mobile Phone banking and mobile banking (M-

Banking) are used interchangeably. The term M-Banking is used
to denote the access to banking services and facilities offered
by financial institutions such as account-based savings, payment
transactions and other products by use of an electronic mobile
device.

Mobile banking has yielded a multiple effect on the number of

solutions available to clients. This is in addition to more
efficient transactional environment and the high substitution of
banking points.
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Some of the features / uses of Mobile Banking

1) Balance Enquiry
2) Pay store Account
3) Bill payment
4) Money Transfer
5) Cash Deposit
6) Cash withdrawal
7) Airtime purchase

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Benefits of Mobile Banking

1) Reduced transactional costs

2) Increased convenience
3) High Reliability
4) Low entry costs
5) Ease to subscribe
6) Multiple access points
7) Cashless transactions

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Agency Banking

A banking agent is a retail or private enterprise outlet

contracted by a financial institution or a mobile
network operator to process clients transactions.

Rather than a Bank official, it is the owner or an

employee of the retail outlet who conducts the
transaction and lets clients deposit, withdraw, and
transfer funds, pay their bills, inquire about an
account balance, or receive bank service benefits or a
direct deposit from their employer.

Banking agents can be pharmacy outlets, supermarkets,

convenience stores, lottery outlets, post offices, Mpesa
shops, a Kiosk etc
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Benefits of Agency Banking
1) Reduces the pressure in the Banks facilities as customers may access most of the
services from the agents
2) It gives the bank additional footprint in areas where the bank does not have a
representation.
3) Those outlets can be a source of more customers through opening new accounts.
4) Huge savings on cost of construction of bank premises and leasing costs
when banks are using the Agency premises,
5) Cutting cost on human resource (the banks do not have to employ new staff to
manage agency outlets and the cost of training of agents are very minimal),
6) Savings on cost of additional equipment like furniture and computers
7) Additional delivery channels hence easier to tap more deposits and transaction
best income
8) Finally agent cost will most certainly be passed to consumers

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Islamic Banking
What is Islamic Banking? - It is interest free Asset Backed banking governed by the
principles of Islamic Shariah . Islamic Banking basic principles are:
a) Interest Free ( Riba )
b) Transactions
c) Risk Sharing
d) Shariah approved activities
e) Sanctity of contracts
The basis of Islamic Banking or Non-conventional Banking is the Islamic law, which is
also known as the Islamic Shariah.
The central ruling body is the International Islamic Fiqh Academy (IIFA)
The underlying principles of the modern Islamic banking and finance industry include:
a) The prohibition of interest and excessive risk in all transactions
b) The permissibility of lawful sales without one party taking advantage
of another
c) Islamic entrepreneurship where only halal and fair investment is
permissible.
The Primary source of Shariah is the Muslims Holy Quran with most of the transactions
teaching drawn from the trading practices (Sunnah) of the Prophet Muhammad (Peace Be
Upon Him)
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Islamic (non-conventional) Banking Model

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Islamic Banking

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Islamic Banking

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Islamic Banking

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Islamic Banking

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Islamic Banking

MUSHARAKAH
This is also known as al-sharikah which literally means;
a) Intermingling of properties whereby one cannot be differentiated from the
other.
b) Shared properties where one can not be distinguished from the other

However, in banking business terms it technically means;

An agreement between two or more parties to combine their assets, labor or
liability for purpose of making profit.
It is basically a profit and loss sharing partnership where the ratio on which to
distribute the profit / loss is predetermined and mutually pre-agreed.
Each partner may dissolve the partnership as long as they give ample notice
period.
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Islamic Banking

Application of Musharakah
1) Project financing
2) Import / Export Financing
3) Working capital financing
4) Saving / Current / Investment account
5) Interbank lending / Borrowing
6) Securitization
7) Sukuk or Islamic bond

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 Islamic Banking

IJARAH
a) Transferring of usufruct not ownership
To another person for an agreed price, at an agreed consideration.

a) Subject of lease
Valuable, Identified and Quantified

a) Consumable things cannot be leased out

Anything which cannot be used without consuming cannot be leased out; e.g.,
money, wheat etc.

a) All Liabilities of ownership are borne by lessor

Corpus of leased property remains in the ownership of the seller.

a) Period of lease
Must be determined in clear terms at the time of contract

a) Lease for specific purpose only

If no specific purpose is identified in the agreement, then it can be used for
any purpose for which it is used in normal course
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Islamic Banking..

Features of Ijarah
In Ijarah, leasing should not be interest-based loan or replacing interest
with rent, rather it should comply with all of the following conditions of
Islamic leasing:
1. The commencement of lease
Unlike the contract of sale, the agreement of Ijarah can be effected for a future
date. Hence, it is different from Murabaha.
2. Rent should be charged after the delivery of the leased asset to the lessee
and not from the day the price has been paid. If the supplier has delayed the
delivery after receiving the full price, the lessee should not be liable for the rent of
the period of delay.
3. Different relations of the parties
There are two separate relations between the institution and the client: one of an
agent and the other of a lessee.

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Islamic Banking..

Difference between Murabahah and leasing

A Murabahah attributed to a future date is invalid in Shariah. But

leasing can be attributed to a future date

A Murabaha can not be transacted on a future date as the sale would be

executed simultaneously after taking delivery from the supplier and
seller would never bear its risk which Shariah does not permit . But in
leasing it is permissible, because in leasing the asset remains under the
risk and ownership of the lessor throughout the leasing period.

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 Islamic Banking..
Advantages of Islamic (non-conventional) over conventional banking
1) Islamic banking is a safer mode of banking in a market that is hit with constant
interest fluctuations since it is based on predetermined profit sharing.
2) It is resilient to market changes
3) Customers are assured of compensation in some instance where the bank failed to
guide appropriately.
4) Customers are able to predict loan end-date and plan for installments repayment as
there is no price changes in between.
5) It is affordable form of banking as there are no interest charges on accounts or
facilities.
6) The funds borrowed from Islamic banks cannot be used in harmful activities such as
Wars, Terror, Alcoholism, Narcotics, Prostitution etc
7) It is never affected by interest rate capping since dealing with Interest is haram.

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 QUESTIONS?

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