What’s trending now?
Islamic institutions are turning to blockchain technology and digital currency as a means of managing financial transactions. This has led to the emergence of halal cryptocurrency, which is defined as non-speculative currency backed by inherently valuable resources.
“In order to become sharia–compliant, block chain and cryptocurrencies should be something tangible, recognisable, create value, non-speculative and should have pure economic value.”
M.Kabir Hassan – Professor of Finance, University of New Orleans
Why is it important?
Sharia law is the legal system followed by many Muslims across the world. It can be viewed as a ‘code of conduct’ indicating the do’s and don’ts for the Muslim demographic. The introduction of digital currencies has resulted in discussions on whether or not digital currency can or should be used by the Muslim community. At first it was decided that cryptocurrencies were haram (not permissible) under sharia law, as their use was seen as an act of usury i.e. the lending of money at extremely high interest rates which is not permitted in Islam.
However, in 2018, an Indonesian-based Islamic scholar Mufi Muhanmad Abu Baka published a report titled ‘Is Blockchain Halal or Haram: A Sharia Analysis’. In the report, Baka states that cryptocurrencies are halal if they are used in a specific way.
“Crypto traders should not purchase cryptocurrencies for investment purposes. Rather it is advisable to use cryptocurrency networks as a payment system as some networks provide greater advantage over conventional systems.”
The acceptance of halal cryptocurrencies has seen digital coin companies and financial institutions develop offerings linked to physical assets and certified as valid by Islamic advisors. One company that’s done this successfully is OneGram, based in the UAE. Each OneGram coin is backed by a gram of physical gold that is stored in a vault. The Stellar platform and its cryptocurrency, XLM is the world’s sixth largest digital currency with a market capitalisation of $5.62 billion.
Blockchain
As a means of preventing fraud, blockchain technology has been extensively employed in the vast Halal market. Hexa Research estimates that the market will be worth US $12.4 trillion by 2024, with the financial sector amounting to 43% of the total. Among other uses, financial institutions are adopting blockchain to ensure increased transparency. In 2017 Emirates Islamic became the first Islamic bank to test blockchain technology by integrating it into its cheque-based payment system.
The Grand View Research 2018 report predicts that the Halal food market will total $739.95 billion by 2025. With this prospect in mind, serial entrepreneur Azman Ivan Tan believes that putting the Halal food market on blockchain would be a good management approach to prevent incidents of fraud. Well-publicised examples of this were the labelling of non-approved meat as halal in 2011 by South African meat distributor Orion and the delisting of the Muslim Judicial Council Halal Trust in Malaysia in 2016 after it failed an independent audit of its testing procedures.
The butterfly effect
In 2018, ADAB Solutions based in the UAE announced plans to launch the First Islamic Crypto Exchange. The organisation aims to have a turnover of $4.4 billion per month with over a million users within a year of launching. ADAB Solutions expects to reach an audience of 1.9 million by 2022 .
Blockchain
Islamic financial institutions and banks are turning to blockchain to execute complex transactions, as well as to drive innovation in the industry. In 2018, the UAE-based AI Hilal Bank was the first to complete a sukuk transaction, a sharia-compliant bond, using blockchain at the Abu Dhabi Global Market financial centre. The IDB Islamic Research and Training Institute and fintech firm Ateon from Riyadh and Settle Mint from Dubai are working on creating sharia-compliant smart blockchain contracts. The aim is to automate the entire contractual process for Islamic financial institutions.
The Islamic Corporation for the Development of the Private Sector has partnered with Tunisian company iFin Tech Solution to develop blockchain products to solve liquidity management challenges and commodity transactions. This will include inter- banking relations between conventional and Islamic banks to maintain sharia – compliance.
Companies such as HalalChain and Halal Guide enables consumers to trace and track halal products through the use of blockchain. While Te-Food, a farm-to-table food traceability company has partnered with Halal Trial to track halal goods. Halal Trial is the first company to expand to all global halal food markets and provide traceability and quality verification services.
Pioneers
The Shackle Lane Mosque in London is said to be the world’s first mosque to accept Bitcoin donations after cryptocurrency was declared halal. The mosque aimed to raise at least 10,000 euros in cryptocurrency donations over Ramadan in 2018 through Bitcoin and Ethereum.
In the Middle East, the UAE has created a bitcoin exchange called BitOasis . The exchange offers services such as Bitcoin Wallet and is available in Qatar, Kuwait, Bahrain and Saudi Arabia.
Global Hotspot
Dubai: the country has accepted the blockchain tech company Jibrel Network into its Innovation Testing License programme (ITL). The company is said to be leading the way in integrating blockchain technology with traditional assets.
In 2018, Malaysia launched its Halal Industry Master Plan 2.0 (2018 -2030). As part of the initiative, the country plans to use blockchain technology to control agricultural production in the country.
By Khumo Theko
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Image source: Vin JD/Jay Deep
