What is ‘Sukuk’?
A sukuk is defined by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) as securities of equal domination representing individual ownership interests in a portfolio of eligible existing or future assets. This legal instrument was developed as an alternative to conventional bonds which are not yet acceptable among many Muslims it is to pay interest and may finance businesses involved in non-Shariah compliant activities like gambling, alcohol, pork, etc. However, Sukuk have been developed and structured to comply with Sharia (or Islamic law) by “paying profit and not interest”. Sukuk securities can be represented as ownership in such businesses or asset which pays back profit in return which is in compliable with and allowed in the Islamic law.
Blockchain for Sukuk transaction
Blockchain technology was used by Al Hilal Bank to complete a secondary market deal in the Bank’s USD500m Senior Sukuk which have a maturity period ending in September 2023. This marks the first time to find blockchain being used for a Sukuk transaction. Islamic Sukuks, as per reports, seems to be a successful asset class growing at a rapid rate with USD97.9 billion worth of Sukuks issued last year, which depicts almost a 50 percent jump prior to the last year Sukuk value. The bank aims to completely upgrade the Sukuk market with the help of blockchain technology, providing new opportunities and ideas to develop innovative digitized Islamic Sukuks or Smart Sukuks.
Abu Dhabi Global Market’s Support
Al Hilal Bank’s CEO, Alex Coelho is feeling joyful of such a great event happening and comments that they are at top pride witnessing the Bank launching a “Smart Blockchain Islamic Sukuk“. He also mentions the advantages of using smart contracts ranging from safer transactions with robust Shariah compliance, exploring new innovative ways. ADGM’s (Abu Dhabi Global Market) deep interest can be seen from the partnership between Al Hilal Bank and UAE startup, Jibrel. This initiative funneled into the collaboration of Al Hilal Bank Digital Transformation team and Jibrel Network. ADGM played a vital role in fostering and providing an ecosystem for top-class technology providers to come together with innovative local Financial Institutions spread the value across financial markets. ADGM CEO looks forward to further build solutions for the collab leading to a complete transformation of the Islamic finance sector.
Incubating Jibrel, UAE based Start-up
Jibrel is the trusted blockchain development partner for industry leaders, as well as governments and regulators, across the globe. The blockchain based startup offers various products like Jibrel Wallet and Jibrel Cash. They offer stable coins tethered to currencies, commodities, and bonds, as standard ERC-20 tokens, on the Ethereum blockchain. Jibrel Co-Founder, Talal Tabbaa, highlighted that they strongly believe that their tested smart contract solutions should go very well with the world-class industry expertise held by Al Hilal Bank’s Digital Transformation Team. Smart Sukuks is expected to provide efficient transactions and help significantly lower the bloated overheads linked with issuing and settling Islamic Sukuks.
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