KUALA LUMPUR, April 19, 2007 (AFP) - A Malaysian firm and Saudi Arabia's Al Rajhi Bank have created the world's first electronic funds transfer system to comply with Islamic financial principles, company officials said Thursday.
Al Rajhi and e-Kencana, a Malaysian electronic service provider, said they had collaborated on the system, known as the Islamic Payment Switch (IPS), which will be ready by July.
Al Rajhi said its first application would see the issuing of a prepaid or debit card to enable customers to transfer funds between Malaysia and Saudi Arabia.
Al Rajhi Malaysia's chief executive, Ahmed Rehman, said the bank will initially target some 100,000 Malaysians who travel to Mecca every year to perform the holy pilgrimmage.
"This facility will begin from Malaysia to serve the rest of the Muslim nations that have pilgrims travelling to Mecca and Medina," Rehman said at the signing agreement between the two companies.
"The IPS will be fully compliant to the highest sharia standards," he said.
Islamic finance fuses principles of sharia, or Islamic law, and modern banking.
According to sharia, the earning of interest is banned and there should not be links to companies associated with tobacco, alcohol or gambling considered taboo by Muslims.
Under the system, a pilgrim will be able to buy a prepaid card for a set amount of money from Al Rajhi in Malaysia, and it can then be used to withdraw funds from any of its 400 branches or 1,600 teller machines in Saudi Arabia.
Al Rajhi, the world's largest Islamic banking group, first set up operations in Malaysia in 2005, where it has 12 branches and 47 teller machines.
Rehman said migrant workers could also use the system to transfer funds from Saudi Arabia to Malaysia.
The system will be expanded to include other Islamic banks and to cover other Muslim countries, Rehmad said, adding that the payment interchange will have its hub in Malaysia.
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