Blockchain Technology Debuts Sukuk Transactions For Islamic Banking


Al Hilal bank has applied Blockchain technology in executing the world’s first Sukuk transaction. In this particular case, distributed ledger technology was used to facilitate a resale and settlement of an Islamic Sukuk. On Monday, November 26th, the Abu Dhabi-based Sharia complaint bank issued a deal worth US$500 million that will be maturing in September 2023.

As the first Islamic bank to use Blockchain in the trade of Sukuk, Al Hilal is pacesetting a new frontier when more faith-based banks leverage on the immense benefit of DLT.

About Islamic Sukuk

Sukuk is an Arabic name for a financial certificate that is viewed as a legitimate sharia-compliant bond. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) asserts that Sukuk showcases ownership or interest to future or existing assets. This form of financial investments was legitimized in February 1988 by the Fiqh Academy. It has since been growing tremendously and gaining popularity among the Islamic Community and beyond.

The origin of Sukuk was meant to create an alternative to traditional bonds. This is because conventional bonds have the possibility of being used to finance non-Sharia complaint investments such as pork commercial rearing, alcohol production, gambling, Contraceptive production, to mention but a few. Additionally, they charge interests that contravenes Sharia laws.

Sukuk securities or bonds adhere to Sharia precepts such as profit returns rather than interest by only allowing tangible assets to be used as investments. It is important to note that they are, in theory, proof of asset ownership in resemblance to equity. However, like traditional bonds, they expire and the owner ceases to own rights to profit shares.

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Blockchain-Based Sukuk Are Efficient

There are different types of Sukuk such as Istithmar, Musharaka, Istisna, Ijara, Murabaha, etc. depending on the project that Sukuk is financing. Since the Global Islamic Economy Report 2016/17 projected that the asset-based projects were worth more than $324 billion, Blockchain is expected to offer a fool-proof system of managing portfolios. This will consequentially create ‘smart sukuks’ for Al Hilal that are managed in an infrastructure that is transparent, immutable, and reliable.

The Blockchain Platform Was Created In Partnership With A UAE Incubated Startup, Jibrel

Alex Coelho, Al Hilal Bank’s CEO is convinced that the project will make his bank to be competitive in this class of business. Dubbing the product as the ‘Smart Blockchain Islamic Sukuk’, he adds that smart contracts will be employed to ensure that Sharia compliance is beyond reproach. Further, the program that was developed in partnership with a UAE fintech startup, Jibrel, will play an instrumental role in fostering and nurturing innovation. This will then redefine the role of Blockchain technology in the wider Islamic Banking industry with its more than 1.8 billion market and many more prospective users.

This Project Is A Result Of Blockchain Initiatives From The ADGM

The Abu Dhabi Global Markets’ (ADGM) for Fintech Platforms has been fostering vibrant, collaborative, interactive innovations for Blockchain technology in the Gulf region. The Al Hilal/Jibrel Sukuk project is part of the ADGM initiatives according to Richard Teng, the ADGM CEO who hails the role of DLT in bolstering the Islamic financial sector.

On Jibrel’s part, Talal Tabbaa is assuring Sukuk investors with Al Hilal that the new DLT platform is based on tried and tested smart contract features to proffer speed, volume, and efficiency.

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