Based on reports, an Islamic bank has successfully carried out a Sukuk transaction using Blockchain technology. Sukuk is a financial certificate that is issued in compliance with the Islamic religious law (Sharia). The bank in question is the Al Hilal Bank which is based in United Arab Emirates (UAE).
Islamic Sukuk as One of the Fastest Growing Financial Assets
The Islamic Sukuk has been said to be one of the fastest growing assets. This is a way of generating profit for investors without breaking Muslim laws. In this case, a bank sells an investor a certificate and then uses the money to buy an asset. The asset will be partially owned by the investor and in future, the bank will have to buy back the bond.
In this transaction, the Sukuk settlement was a success due to the collaboration between the bank and Jibrel Network, a UAE-based FinTech. Here, smart contracts were used because of its ability to provide secure and faster transactions. Alex Coelho, CEO of Al Hilal Bank commented that they were the first bank to ever launch a ‘Smart Blockchain Islamic Sukuk’. Therefore, this shows that the bank has the potentials of being a leader in Islamic banking.
Smart Sukuks to Remove Limitations in Islamic Financial Sector
These Smart Sukuks as they are called will remove the limitations that are usually faced by banks when issuing and settling Sukuks. Moreover, the use of Blockchain technology to ensure the compliance to Sharia banking principles will bring about efficiency. It will also help in automating some of the banks’ processes.
In line with that, Talal Tabbaa, Jibrel’s Co-Founder responded that a lot can be achieved by combining Blockchain technology with the expertise of a world-class industry. An achievement would be, the company’s ability to offer Islamic financiers tools that can provide speed and efficiency in transactions.
According to him;
We will be able to provide Islamic financiers with the necessary tools to facilitate Islamic agreements with the same speed, volume and efficiency experienced in conventional finance, and potentially develop new digital asset classes that were previously unimaginable.
Transforming the Islamic Financial Sector With Impacting Solutions
Abu Dhabi Global Markets’ (ADGM), a FinTech platform also facilitated the collaboration between the two industries. The CEO, Richard Teng made comments regarding the initiative. He said that his company was proud to play a role in fostering innovation in financial institutions. Most importantly, bring about solutions that will transform the Islamic banking sector.
Plans have also been made to use Blockchain to ensure secure messaging in Banks. This month, an Indian bank signed an agreement with the Fintech firm, MonetaGO. This will allow the firm to incorporate blockchain technology in its banking processes. The essence of the system is to combat fraud in the country’s financial sector.