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Blockchain Bonds

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29 November 2018
John Dwyer

Code Drives Capital & Compliance

Smart Blockchain Islamic Sukuk

Abu Dhabi-headquartered Al Hilal Bank settled a $500 million Islamic bond on a blockchain.

The bond will be shariah-compliant (or a sukuk) and matures in September 2023.

Al Hilal Bank’s 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 unlocking new opportunities.”

This news is interesting on several levels.

Firstly, this new technology gives issuers greater control over the issuance process through smart contracts and increased levels of automation.

Automation is inevitably cheaper, with faster settlement times, with transparency, and high levels of auditability.

Cultural & Regional Nuances

There are also cultural and regional nuances which are relevant and Blockchain code drives compliance and capital flow.

In our recent report, Asset Backed Tokens Part I, we stated the following:

Blockchains are new mini-economies bound together by a specific set of rules which can be tailored to any opportunity, market, or region.

As an example, the Middle East has cultural, linguistic, policy, and religious nuances unlike any other region. Sharia-compliant investment funds have been available for some time.

However, they can require considerable effort to implement to ensure absolute compliance with the comprehensive set of rules guided by Sharia principles.

The programmable nature of securities tokens makes it much easier to ensure compliance with a user experience which is linguistically and culturally tailored.

Emerging Market Leap Forward

The suite of benefits of blockchain technology are changing the structure of financial markets.

It is no surprise that countries and regions around the world who have been on the fringes of the legacy financial system are embracing these benefits at a rapid pace.

Blockchain can mitigate concerns regarding nefarious practices and corruption which limit the flow of capital to emerging markets and increase its cost.

Access to capital and liquidity on fungible terms with the West is one of the big promises of this technology.