September 29, 2016: Commercial blockchain solutions are rapidly being adopted throughout banking and financial markets, dramatically faster than initially expected, finds a new IBM study. Fifteen per cent of banks and 14 per cent of financial market institutions interviewed intend to implement full-scale, commercial blockchain solutions in 2017. Mass adoption isn’t that far behind with roughly 65 per cent of banks expecting to have blockchain solutions in production in the next three years.

The new IBM study, “Leading the Pack in Blockchain: Banking Trailblazers Set the Pace” is based on a survey of 200 global banks. A separate study, “Blockchain Rewires Financial Markets: Trailblazers Take the Lead,” is based on a survey of 200 global financial markets institutions.

Conducted by the IBM Institute for Business Value (IBV), the banking study revealed that more than 70 per cent of trailblazers, or early adopters, are prioritizing blockchain efforts in order to break down current barriers to creating new business models and reaching new markets. These trailblazers are better positioned to defend themselves against all competitors, including those untraditional disruptors like startup non-banks. For financial markets institutions, seven out of 10 trailblazers are focusing their blockchain efforts on four areas: clearing and settlement, wholesale payments, equity and debt issuance, and reference data. 
“There are many advantages to being an early adopter of blockchain technology,” said Likhit Wagle, Global Industry General Manager, IBM Banking and Financial Markets. “To start, first movers are setting business standards and creating new models that will be used by future adopters of blockchain technology. We’re also finding that these early adopters are better able to anticipate disruption, fighting off new competitors along the way.”

Banking Trailblazers

Defying expectations, larger banks are leading the charge to embrace blockchain technology with trailblazers being twice as likely to be large institutions with more than a hundred thousand employees — not small start-ups or FinTech organizations. Additionally, 77 per cent of these larger banks are retail banking organizations.

Trailblazers expect the benefits from blockchain technology to impact several business areas, including reference data (83 per cent), retail payments (80 per cent) and consumer lending (79 per cent). When asked which blockchain-based new business models could emerge, 80 per cent of banks surveyed identified trade finance, corporate lending and reference data as having the greatest potential.

Keys to Success: Banking Trailblazers view blockchains as a means to create new business models and access new markets, yet, outside of early adopters, banks feel there are many barriers to success when adopting blockchain. According to those surveyed, the top barriers to success include regulatory constraints (56 per cent), immature technology (54 per cent) and lack of clear return on investment (52 per cent).

To best extract value from blockchain technology, the IBM study recommends that banks and financial markets institutions answer three questions:

How fast should we move? Trailblazers are setting a fast pace and they will also have an advantage. Mass adopters should look to trailblazers for lessons learned but should be prepared to enter the market as soon as possible, especially as early blockchain initiatives will influence regulations moving forward.

How can we scale across business networks? Once blockchain technology has scaled across multiple participants, they will begin to achieve the kind of network effects that drastically reduce the frictions that curb growth. Early blockchain adopters are already working on the new business and technology standards that will be required for scale. Mass adopters should join them and begin building strong partnerships.

How can we innovate with new revenue models? As new entrants and new business models emerge, banks will be forced to defend current revenue streams or move to where the money will flow next. New revenue models must anticipate the potential for disruption in areas core to the business today and in the future. As the market evolves, blockchain technology will add at least one new revenue stream; the potential to monetize reference data looms large. Banks should factor that into their thinking from the outset.

IBM is rapidly expanding its blockchain consulting services and capabilities, and actively working with clients to understand what it takes to make blockchain ready for business. Through its open source contributions to the Hyperledger Fabric and its blockchain services on IBM Bluemix, developers can easily and quickly develop applications while testing security, availability, and performance of a permissioned blockchain network. IBM is advancing the science of blockchain, helping to remove complexity, and making it more accessible and open. Financial services, supply chains, IoT, risk management, digital rights management and healthcare are some of the areas that are poised for dramatic change using blockchain networks.

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Camille Paldi

February 16,2015: Takaful Investment Portfolios: A Study of the Composition of Takaful Funds in the GCC and Malaysia provides an explanation and analysis of the investments of takaful funds in the GCC and Malaysia between 2002 and 2005 and explores the rationale behind such decisions. In addition, the author discusses and analyses takaful investment trends and developments and depicts the findings through charts, figures, and tables.

This book contains some useful information and statistics regarding three classes of takaful fund investments in the GCC and Malaysia, including equities, sukuk, and real estate over a set period of several years in the early 21st century.  However, I had to sift through a thick maze of academic prose in a prose pajama party and suffer through pages of jargon in order to get to the heart of the useful information contained in the book. Although this information is slightly outdated for industry use, it provides an insightful guide to past trends, which may or may not be indicative of the performance of takaful investments at present or in the future. This book may be highly useful and relevant for university students and academics, and those wishing to get a glimpse of past industry trends.

I have to admit I enjoyed the academic and scholarly discussion of the takaful concept in Chapter Two: Insurance and Islamic Law: An Introduction to Takaful.  There are some interesting references to the Qu’ran and Sunnah as well as to scholars of the past.  However, in a book, I prefer to see more of the author’s original opinion rather than heavy reliance on other authors.  Furthermore, I want to see an explanation of the cited statement as the author is relying on another author to relay his point.

For example, in Chapter Two, the author writes: “Moreover, it is also claimed that commercial insurance leads to negligence (Moghaizel, 1991), murder (Al-Sayed, 1986; Hassan, 1979), and is exploitative of people’s needs (Mawlawi, 1996), and that the control of government may fall to powerful insurance companies (Abdu, 1987). I would like to see some kind of original and authentic explanation of this statement from the viewpoint of the author. For instance, how does commercial insurance lead to negligence, murder, and exploitation and provide some examples.

Camille Paldi is CEO of Franco-American Alliance for Islamic Finance

Furthermore, why and how would control of government fall into the hands of powerful insurance companies and what then would these insurance companies do with the government under their reigns? In addition, it is always an interesting scenario to witness secular, trained academics incorporating religion into their work. The religious references are presented in quite a secular and neutral manner, which makes the book quite easy to understand and digest by religious, non-religious and atheist alike.

Chapter Three contains a comprehensive academic explanation of the various takaful models. In addition, in this chapter, the author explains the differences between takaful, commercial, and mutual insurance and trends and developments in the takaful industry. The entirety of Chapter 4 discusses research methodology, which is geared for academic institutions and academics rather than the industry and practitioners.

Chapter Five on Exploring Investment Behaviors and Investment Portfolios of Takaful Operating Companies in the GCC and Malaysia is where I finally found the hidden treasure. The chapter is full of interesting factoids and figures, analysis and comparisons regarding the investment of takaful funds in equities, sukuk and real estate in the years 2002-2005.  However, this information may or may not be indicative of present and/or future trends as we are now in 2015, 10 years past the period of this study. It is, however, interesting information and may be used in the realm of academics or to see the results of takaful investments in three asset classes in the years 2002-2005. This book may also provide a rough idea on how to perform a feasibility study at the inception of a takaful company in a particular jurisdiction or area of the world or serve as a guide in conducting another similar academic study regarding takaful fund investments.

Although Chapter Six: Locating the Differences Between Actual and Desired Investment Portfolios contains some interesting discussion about the actual and desired investment portfolios of the GCC and Malaysia, I found that much of this chapter could be skim read and probably should have been deleted from the book. In Chapter Seven: Contextualizing the Findings, the only pertinent information includes the discussion on how takaful funds manage their liquidity and the figures for return on investment for the GCC and Malaysian Takaful Funds for the period 2002-2005. I felt like I spotted an oasis after traversing for days through a wild desert sandstorm of verbiage when approaching Chapter Eight: Conclusions and Recommendations.

Chapter Eight: Conclusions and Recommendations provides recommendations for regulatory authorities, takaful operating companies, and Islamic banks/windows. Actually, I found the conclusions and recommendations quite interesting and highly useful especially in regards to whom should be making the investment decisions and the need for more legislation and regulation of the takaful industry in the UAE and globally. Aside from recommendations, the author also explains the research limitations in conducting this study.

The author states that focusing the research only on the initial period of the takaful industry during the years 2002-2005 could, perhaps, be considered a shortcoming.  Furthermore, the author explains that another limitation may lie in the sample size that was chosen.  The author says that the sample is so small – less than 30 companies – that the parametric statistical tests could not be used in this study.  Second, even for use of nonparametric statistical tests, the small number of takaful companies operating in Malaysia limited the author to performing a comparison between the GCC and Malaysia. This can be seen where the author tried to study the differences between levels of actual and desired investment portfolios between the GCC and Malaysia. The author was not able to adopt the Wilcoxon Signed-Rank Test for Malaysian companies.

Despite these and other limitations, overall, the book contains some valuable information. However, is it worth traversing through the pages of academic verbiage to find the hidden treasure? I felt like I was in the TV program Lost while reading this book, sailing on an ocean of words, which just kept taking me around in a circular whirlpool of lost time and space to the same place.

If you have a preference for the lengthy, verbose academic presentation style, are skilled in pinpointing a needle in a haystack, have a lot of time on your hands and are seeking the results of a study conducted from 2002-2005 examining the results of takaful fund investments in real estate, equities and sukuk in the GCC and Malaysia, I recommend this book for you.

The study may also reveal gaps in the asset classes for the takaful industry. After conducting a thorough analysis of the investments of takaful funds of the GCC and Malaysia from 2002-2005, the author concludes that the study shows that convergence is expected in the investment behaviors of takaful companies in the GCC and Malaysia once the primary and secondary markets for sukuk develop in the GCC and an international regulatory framework is practiced.  This book is quite useful for students and academics in the field of insurance, finance, Islamic finance and Islamic insurance or takaful, as it is a comprehensive, analytic, and comparative academic study of takaful investment portfolios in the GCC and Malaysia from 2002-2005 complete with a chapter on literature review and the questionnaire and interview used to conduct the study.

Also Read:

Islamic insurance: The next global trend

The dispute resolution conundrum of the Islamic finance industry

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