Abu Dhabi Bank Makes Islamic Blockchain Breakthrough

Al Hilal Bank of the United Arab Emirates has sold an Islamic bond, or ‘sukuk’, using blockchain technology, the first bank to do so. The deal was worth $500 million, and the contract to be redeemed in September 2023.
What is a sukuk?
A sukuk is a bond made halal for Islamic law. A involves a customer loaning money to a company for a pre-arranged length of time and collecting his money back with some interest. This is not allowed in Islamic countries because Sharia law prohibits earning money through interest generated on a debt.

Sukuks were invented to get around this. With this contract, the company uses the customer’s money to purchase an actual commodity, which the customer partly owns. The idea was born in 2000 in Malaysia and sukuks rapidly became popular throughout the Islamic world, according to Investopedia. According to sukuk.com, the sukuk market was worth $97.9 billion in 2017, 50 percent more than in 2016.
The Malaysian government has also been progressively-minded in terms of blockchain technology; in September it set up a team devoted to investigating in the country.
Al Hilal, which operates in the UAE and Kazakhstan, was created by a branch of the former’s government in 2008. One of its products is the ‘Qibla Card’ which has a built-in digital compass that points to Mecca, the ‘Laha Card’ that can be scented with perfume. The blockchain transaction was executed in collaboration with two local fintech firms – Jibrel Network and Abu Dhabi Global Markets.
Al Hilal Bank CEO Alex Coelho said: “We are proud to be the first bank to launch a ‘Smart Blockchain Islamic Sukuk’…The advantages of using smart contracts range from safer transactions with robust Shariah compliance, to the unlocking of new opportunities.”
Facing Mecca
Islamic law imposes on financial practices which often make it difficult to turn a profit, so blockchain has been welcomed in the Arab world as a way of overcoming this problem: “Smart Sukuks will provide transactional efficiencies and significantly reduce the bloated overheads associated with issuing and settling Islamic Sukuks,” says Al Hilal Bank.
Cryptocurrency was by an influential mufti, as long as it is used as for payments and not investment. In September, the signed up to use Ripple, and in November, Islamic authorities l to sell a stablecoin – a cryptocurrency whose value is pegged to something stable – in the Middle East. The firm is called X8 AG, and the cryptocurrency X8C. It is pegged to the value of a mixture of fiat currencies and gold, all managed by a computer programme.
At the beginning of September, Bloomberg reported that Al Hilal Bank had begun merger talks with Abu Dhabi Commercial Bank and Union National Bank of Egypt, two other state-owned entities. Barclays was chosen to advise on the plan.

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