Blockchain in Islamic Banking

Numerous Islamic financial institutions intend to adopt the blockchain system to deliver the associated benefits. The Organizations of Islamic Cooperation are starting to pay more attention to blockchain technology. It should be no surprise that the government is also expressing interest in cryptocurrencies by integrating blockchain technology into banking and finance. Here is information on blockchain's role in Islamic banking and finance.

The blockchain is a decentralized digital currency that aids in publicly and chronologically documenting transactions. Users will be able to access and validate their data. Bitcoin and other digital currencies are supported by a technology called the blockchain. Blockchain will allow you to transmit money internationally for free or cheaply. The absence of banks and other third-party businesses makes the system more dependable. Blockchain has countless applications, and you can use it to handle any transaction involving money, products, and real estate.

Blockchain from a Shariah Perspective

A mechanism for storing and processing data and transactions is all that blockchain is. It may serve as a substitute method for accounting and record keeping. Since it is only an enabling, technology is neutral from a Shariah standpoint. The use of new software or technology is legal and acceptable. In these situations, permissibility is the default condition.

Remittance

The Islamic community is widespread worldwide and has close ties to relatives and friends. There is interconnection everywhere you go because there are more than a billion Muslims around the globe, and their numbers continue to rise. The worldwide money transfer business was estimated by the World Bank to be valued at over $700 billion in 2020. Allied Market Research predicts that this market will develop at a compound annual growth rate (CAGR) of 3.9% and reach a value of over $930 billion in 2026. Blockchain may be utilized by enabling users to transmit payments over a bridge asset on the blockchain. It may allow more effective wealth transfers through cross-border digital transactions.

Sukuk

The future of Sukuk is in the blockchain. Blockchain has the potential to lower costs and the number of middlemen while increasing transparency of the underlying Sukuk assets and cash flows. Some inefficiencies in the Sukuk value chain may be solved by digitizing Sukuk issuances on the blockchain. The cost of the "middlemen" and agents who act as intermediaries throughout the issuing process might be reduced by the distribution of blockchain-based Sukuk, which would save money for the issuers. This disintermediation should make more efficiency possible, which will lower expenses.

Waqf

Given the sensitivity and potential for misuse, waqf requires solid administration and best practices. A Waqf fund may be effectively managed with the help of transparency. As a result, blockchain technology can significantly aid tracking and visibility to Waqf stakeholders. The information should be obtained as quickly and accurately as possible. Blockchain is the best technology for delivering such information because it offers real-time, shareable, and entirely transparent data kept on an immutable ledger and accessible exclusively to members of a permissioned network. Waqf donations, investments, distributions, and the accompanying financial movements may all be tracked using a blockchain network. Additionally, since all members have access to the same information, Waqf stakeholders can see every aspect of a transaction from beginning to end, enhancing everyone's confidence and creating new opportunities. Waqf blockchain solutions can give authorized participants more visibility throughout the entire waqf value chain.

Shariah governance and Shariah audit

Transparency and information symmetry between the auditee and the Shariah auditor is essential for effective Shariah governance. In an audit, the Shariah compliance of the transactions within a period is evaluated and backed by pertinent, trustworthy, objective, accurate, and verifiable evidence. Blockchain technology presents a chance to simplify the Shariah audit process. Contracts, agreements, purchase orders, invoices, and other supporting documents may be encrypted and securely stored or connected to a blockchain. Auditors might use additional automation, analytics, and machine-learning capabilities with blockchain-enabled digitalization, such as automatically notifying appropriate parties about Shariah compliance problems on a near real-time basis.

Takaful

The introduction of blockchain will strengthen data security and increase confidence amongst the many Takaful stakeholders. Additionally, the availability of a shared, unchangeable ledger would facilitate the quicker and more effective administration of claims by businesses utilizing intelligent contracts. Shared public datasets may enable firms to insure the risk more effectively. Allowing customers to track the process in real-time will reduce uncertainty and lack of transparency while streamlining the claims management process.