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Disruptive technology has once again paved the way for a “world first” in the form of the execution of a Sharia-compliant Islamic bond in Abu Dhabi through the use of blockchain technology.
A Sukuk, or Islamic bond, is a financial certificate that is compliant with Sharia law. Because interest cannot be applied on assets as this goes against that law, these bonds have to be specifically structured to still provide a profit. Through the use of blockchain, an innovative bank in Abu Dhabi has executed the first transaction of this nature based on this disruptive technology.
Abu Dhabi Makes History
Emirates News Agency reports that Al Hilal Bank, which is headquartered in the United Arab Emirates (UAE) capital city of Abu Dhabi, collaborated with a range of stakeholders to complete the project. The bank’s Digital Transformation team worked with Jibrel Network, a blockchain-based platform with offices all over the world, including the UAE.
The initiative also involved finTech platforms that are part of the Abu Dhabi Global Market (ADGM). This market aims to foster innovation and financial growth in the city through its global network of partners. The collaboration resulted in blockchain being used in the execution of a secondary market deal worth $500 million.
While the first of its kind, stakeholders hope that these types of transactions will become the norm and have even begun referring to them as Smart Sukuks.
The Future of Sukuks
The CEO of Al Hilal Bank, Alex Coelho, explained what this trailblazing initiative could mean, saying:
We are proud to be the first bank to launch a Smart Blockchain Islamic Sukuk; once again the bank has demonstrated that it has the capabilities of leading in the competitive market of Islamic banking. The advantages of using smart contracts range from safer transactions with robust Shariah compliance, to the unlocking of new opportunities. The partnership between Al Hilal Bank and UAE incubated startup, Jibrel, highlights ADGM’s success in attracting, nurturing and fostering innovation.
Richard Teng, who is the CEO of ADGM, also gave his opinion on what the future might hold, noting:
As an international financial centre and FinTech thought leader, ADGM is proud to play an instrumental role in fostering an ecosystem for cutting-edge technology providers to collaborate with innovative local financial institutions in delivering value across financial markets. We look forward to supporting Al Hilal Bank and Jibrel in the RegLab to build solutions that will bolster and transform the Islamic finance sector.
One of the co-founders of Jibrel, Talal Tabbaa, discussed the impact that this revolutionary technology could have, saying:
We are firm believers that by combining Jibrel’s tried and tested smart contract solutions with the world class industry expertise held by Al Hilal Bank’s Digital Transformation Team, 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.
By using blockchain and smart contract technology, Al Hilal Bank hopes to streamline traditional Sukuk settlement processes. This is essential for the future as this type of asset class is increasing in popularity. Last year saw $97.9 billion worth of Sukuks issued, which is a 50% increase from 2016.
Do you think that Abu Dhabi is setting a Sukuk trend? Will more Middle Eastern banks be following suit? Let us know in the comments below!
Images courtesy of Pixabay and Shutterstock.