Islamic banking faces dual compliance challenge, says Intellect CEO Rajesh Saxena

Islamic finance assets are soaring, prompting Intellect Design Arena to launch its eMACH.ai platform for Islamic banking.  Driven by demographics and digital adoption, the sector attracts global interest.  The new platform tackles legacy tech issues, offering Shariah compliance and scalability for banks aiming to meet growing demand and regulatory needs efficiently.

With global Islamic finance assets touching an estimated $3.98 trillion in 2024, financial technology firm Intellect Design Arena Limited is stepping up its focus on the fast-growing Islamic banking segment, announcing the launch of its purpose-built eMACH.ai Islamic Banking platform.

Islamic banking accounts for nearly two-thirds of global Islamic finance assets, with growth being driven by a combination of demographic expansion across the Middle East, North Africa, and Asia, increasing retail participation, and accelerating digital adoption. The sector is also witnessing rising interest from customers outside Muslim-majority markets as ethical, asset-backed finance gains wider acceptance.

Rajesh Saxena, CEO, Intellect Consumer Banking, said to ETLegalWorld, “Islamic banking remains the dominant pillar of the Islamic finance industry, representing roughly two-thirds of total assets globally, which stood at approximately $3.98 trillion in 2024.”

He said demand is being driven by a large and growing Muslim population, particularly across the Middle East, North Africa, and Asia, along with rapid digital transformation led by mobile banking, AI, and cloud-native platforms.

Saxena said the interest-free, asset-backed model is increasingly attracting non-Muslim investors, while more than 60% of participation continues to be retail-led. He added that adoption is steadily expanding beyond Muslim-majority countries into Europe, Africa, and parts of the Asia-Pacific.

Announcing the launch, Saxena said the industry has been constrained by outdated technology architectures. “The Islamic finance industry has long been underserved by rigid, monolithic architecture that struggles to provide Shariah integrity, flexibility, and scalability,” he said.

According to the company, most existing Islamic banking systems rely on legacy cores with superficial Shariah overlays, resulting in operational complexity, slower innovation cycles, and compliance challenges—particularly as banks attempt to digitise products such as Murabaha, Ijarah, Musharakah, and Tawarruq.

Compliance and operational complexity

Islamic banking institutions face the dual challenge of meeting conventional banking regulations while also complying with Shariah principles, which can vary by jurisdiction and scholarly interpretation. Product structures often require multiple contracts and specialised accounting treatments, making automation and straight-through processing difficult.

Saxena told ETLegalWorld, “Islamic banking faces unique challenges as it must satisfy both standard financial regulations and Sharia law.”

He explains that Shariah principles can vary across jurisdictions and scholarly interpretations. He said the lack of standardisation remains a key challenge, often leading to inconsistent product approvals even within the same country.

Saxena said the transactions, such as Murabaha, Ijara, and Musharaka, require multiple contracts and more complex structuring than conventional loans.

He added that banks face operational and technical integration challenges while digitising, due to the absence of standardised fintech frameworks for Islamic finance, compounded by a shortage of professionals skilled in both modern banking and Sharia law.

Scaling with speed

Intellect said the platform is designed to help banks address both regulatory and growth requirements without extensive customisation. Its composable structure allows banks to deploy either a full Islamic core or specific standalone modules.

Highlighting implementation efficiency, Saxena said, “By leveraging composable functionality and a certified full capability, we empower bankers to move past operational complexities with ease of setup and extensibility.”

He added that the platform is built to integrate seamlessly with existing systems. “This isn’t just a digital layer; our platform ensures seamless integration with existing systems and 6–9 months of implementation time, finally resolving the friction between high-growth financial aspirations and the operational complexities of Shariah compliance,” he said.

With over 60% of Islamic banking participation coming from retail customers and demand expanding beyond traditional markets, Intellect said it sees strong interest from both full-fledged Islamic banks and conventional lenders looking to launch or scale Islamic banking offerings.