By James Lawrence - News - 1 month ago

UAE Bank Executes Sharia-Compliant ‘Sukuk’ Via Blockchain

Tuesday, November 27, as reported in the Arabian Times, Al Hilal Bank has executed the world's first blockchain Sukuk transaction. Simply put, this means the first Sharia-compliant bond with blockchain technology has been completed.

Al Hilal Bank is a state-owned financial institution based in the United Arab Emirates, the bank has previously made claims to be the first Islamic bank in the world to leverage blockchain technology. Today the institute, in a secondary market deal, used blockchain tech to resell and settle a portion of a half billion U.S. dollar Sukuk, or Sharia-compliant bond. The bond was issued two months ago and is set to mature in September of 2023.

Taking a deeper dive into exactly what a ‘Sukuk’ is, first you have to understand that Islamic law prohibits traditional Western debt instruments, therefore interest, or ‘riba’, cannot be used for investment. Sukuks, according to Investopedia, were created to circumvent this economic snag in Islamic societies, “sukuks represent aggregate and undivided shares of ownership in a tangible asset as it relates to a specific project or a specific investment activity.” Therefore there is no debt obligation to the bond issuer, Sukuk holders receive a portion of the earnings generated by the asset.

Al Hilal Bank’s CEO, Alex Coelho, said that the technology will improve the security of transactions similar, clearing the way for further digitized “Smart” Islamic Sukuks, “The advantages of using smart contracts range from safer transactions with robust Shariah compliance, to the unlocking of new opportunities.”

According to Arabian Times, the Islamic Sukuk has been one of the fastest growing asset classes in recent years, “with $97.9bn worth of Sukuks issued in 2017 - a 50 percent increase from 2016.” The article suggests that the transactional efficiencies and safety associated with blockchain technology could “significantly reduce the overheads associated with issuing and settling Islamic Sukuks” further accelerating the rapid expansion of the form of investment.

Despite an inauspicious start, the Middle East and Gulf regions have recently been showing a more progression and adaptive attitude to blockchain technology. Earlier this month BNG reported on Espeo Blockchain, an ICO, cryptocurrency, and blockchain arm of consulting firm Espeo Software, choosing Dubai as the location to set up their new office. The company cited the region’s growing interest in blockchain technology and the potential growth of the industry as a result.

BNG also asked earlier this month, Cryptocurrencies in the Islamic World? An article detailing Swiss cryptocurrency firm X8 obtaining an Islamic finance certification and general development in the region in the hope to tap the latent crypto market in Islamic countries.