Islamic Financial System Gears Up To Blockchain Technology
An Indonesian firm is working on a platform that will issue Sukuk bonds through blockchain technology.
Islamic Financial System To Get First Blockchain Technology
The world continues to explore the possibilities of blockchain. The Islamic financial system is now gearing up towards blockchain. The Islamic financial sector is small due to factors like geography and history. A report by Reuters indicates that blockchain technology will be used to issue the Sukuk bonds which can be spread to the over one billion Muslims.
The Islamic financial system has remained confined within the Arab Gulf and some parts of Asia. The system which has been around for centuries is characterized by some admirable initiatives.
Currently, the Islamic Development Bank with headquarters in Saudi Arabia is focusing on the Sukuk bond. The bond has ties to the Islamic model of waqf, which can be either a charitable endowment or usufruct state held property maintained under Islamic guidelines. In rolling out the bond, the bank will partner with ISRA. Once complete, the bank plans to release Sukuk worth $200 million under different projects. The remaining funds will be channelled towards the waqf assets. The development was confirmed by ISRA research boss Said Bouheraoua
In early October, Indonesia also released another waqf with ties to Sukuk. In general, such projects have positive intentions but in the end, they do not gain a lot. The financial world has a perception of waqf being tied to real estate. It’s worth is projected to be around $1 trillion. However, management has been an issue since the outcomes are not all commensurate to the size of the portfolios.
The potential held by Sukuk can be unlocked by the blockchain technology. The technology can address some shortcomings witnessed over the years. To spearhead the project is Blossom Finance from Indonesia. The firm is working on Sukuk that will be backed by blockchain technology. Under the project, money will be remitted into a smaller social project within the country that is largely comprised of Muslims.
Blossom Finance head of strategy Khalid Howladar stated that the project will be a little bit smaller than a normal Sukuk offering. With blockchain technology, the cost of insurance will be reduced, while at the same time attracting more investors from diverse places. Howladar stated that with technology more customers can be recruited in a cheap manner.
Howladar added that blockchain technology will provide profit sharing. According to advertisements, the profits stand at 10%. He noted that it is the beginning of Blossom Finance's deployment of blockchain technology.