Dubai Islamic Bank (DIB) has become the first Islamic bank to join the Buna cross-border payment platform as part of its digital transformation strategy.
DIB, which is the largest Islamic bank in the United Arab Emirates (UAE), said that Buna integration will allow it to offer new products at affordable prices, including retail and interbank transfers and remittances.
“This platform, which is progressing towards achieving its objectives and has forged alliances with Arab and international trade partners, reinforces DIB’s commitment to be part of strategic initiatives that provide a seamless payment infrastructure,” said Adnan Chilwan, group CEO at DIB.
“Through this partnership, we promise our customers a unique experience by offering modern payments solutions that are aligned to the highest standards of information security and international compliance.”
As a cross-border payment platform for the Arab region, Buna aims to enable financial institutions and central banks to send and receive multi-currency payments safely, quickly and cost-effectively.
Buna offers real-time settlement, 24/7 payment submission and currently supports six currencies, namely the Emirati dirham, Saudi real, Egyptian pound, Jordanian dinar, US dollar and the euro.
The Buna platform is incorporated in the UAE and is operated by the Arab Regional Payments, Clearing and Settlement Organisation (ARPCSO), which is a subsidiary of the Arab Monetary Fund (AMF).
Mehdi Manaa, CEO of Buna, said the arrival of DIB is a milestone for the platform, which had previously lacked Shariah-compliant participant banks.
“Buna caters equally for the needs of different types of financial institutions, including Islamic banks, with its safe, secure and efficient cross-border payment solutions,” said Manaa.
“We look forward to collaborating with DIB and the Islamic banking industry to continue enhancing cross-border payments for individuals and corporates, and jointly contribute to the economic development in the Arab region and beyond.”
Launched in 2020, Buna is already evolving into more than a cross-border clearing and settlement platform for the Arab world.
In 2022 alone, Buna has revealed several plans and partnerships that aim to position the platform as a payments gateway between Arab countries and the rest of the world.
Earlier this month, Buna confirmed that it is planning to launch a foreign exchange (FX) service based on a payment versus payment (PvP) mechanism in the latter half of 2022.
According to the Bank for International Settlements (BIS), PvP aims to protect against principal risk exposure when settling FX trades.
Using PvP protection ensures that only when a payment in one currency is finalised can a payment in another currency be released by its counterparty.
In 2019, the BIS estimated that less than 40 percent of FX settlement trades globally use PvP protection.
As part of the G20 Cross-Border Payments Roadmap, the Committee on Payments and Market Infrastructures (CPMI) is developing proposals for increased PvP adoption by encouraging enhancements to existing PvP arrangements and the design of new public or private sector solutions, such as the one provided by Buna.
Regional payment linkages
In 2022, Buna has made major progress in terms of reaching out to regional payment hubs such as Africa, India and China.
In April, Buna announced that it has signed a memorandum of understanding (MoU) with the African Export-Import Bank (Afreximbank) to promote cross-border payments ties between the Arab countries and Africa.
As part of the agreement, the two parties will aim to build interoperability between Buna and the Pan-African Payment and Settlement System (PAPSS), which is owned by Afreximbank.
As above, Buna said the collaboration aims to raise the standard of cross-border payments between Africa and the Arab region to those set out by the G20 Roadmap.
In March, the AMF signed another MoU with the Jordan Payments And Clearing Company (JoPACC) to facilitate instant payments between Jordan and the rest of the world.
Under the agreement, the AMF and JoPACC, which is owned by the Central Bank of Jordan, will aim to build interoperability between the Buna instant payments service and CliQ, its Jordanian counterpart.
In a statement, Buna said it sees digital remittances and e-commerce payments as the main use cases for the instant payments tie-up.
Also in March, Buna signed a similar MoU with India’s NPCI International Payments Limited (NIPL), once again to facilitate instant payments interoperability.
NIPL is the international arm of the National Payments Corporation of India (NPCI), which owns and operates the world’s largest instant payments system, India’s Unified Payments Interface (UPI).
Buna is also working with China’s UnionPay International both on interoperability and on instant payments pricing.
In February, UnionPay and the Central Bank of Tunisia hosted a workshop on instant payments pricing for low to mid-value cross-border payments.
“Our pricing for the cross-border instant payment service complements the benefits of the various use cases that our services support, and which include personal remittances, digital commerce, bill payments, and corporate disbursements,” said Buna CEO Manaa.
“It puts additional emphasis on the value proposition that Buna brings to the financial community in the Arab region and beyond.”
From TIPS to Buna in 15 seconds
The workshop followed a highly-publicised joint experiment between the Banca d’Italia and the Arab Regional Payments, Clearing and Settlement Organisation (ARPCSO) in September 2021.
For the first time, the experiment demonstrated that multi-currency interoperability could be achieved between Buna and Europe’s TARGET Instant Payment Settlement (TIPS).
The experiment simulated the payment of €1 by a current account holder of Banca Intesa Sanpaolo to a customer of Jordan Ahli Bank, who received the money in Jordanian dinars.
During the experiment, a number of cross-currency transactions were settled in both TIPS and Buna’s instant payment service.
Intesa Sanpaolo’s TIPS account was debited in euros, and Jordan Ahli Bank’s Buna account was credited in dinars.
The average end-to-end response time for these transactions was approximately 15 seconds.