Disruptive technological force like Blockchain, AI (Artificial Intelligence) has always fuelled the Financial Sector and especially Dubai, UAE is the hub to reckon with it. Especially at this hour when Dubai-based Islamic Fintech has issued the First,all exclusive Islamic Bond issued through the Blockchain technology.
According to the rating agency Moody’s Investor Services, the optimum utilization for the blockchain technology, especially in Sukuk Market, is expected to boost up the upward trend as witnessed in the Islamic Bond Market, that is proving as the best bet for issuers of conventional bonds to easily tap in the surplus liquidity generated in the Islamic Finance tertiary thus, acting as the primary foundation for a strong Sukuk Market.
The Ratings Agency also revealed that with the proper utilization of the fintech technological advancement, it could lead in a short time for the Islamic Bonds to be more economical and also make it available throughout at time of its issue. All this could happen, thanks to the issuance of the first-ever Sukuk on an open-source blockchain with the support of Dubai-based Islamic Fintech start-up Wethaq the previous month.
The Agency as well as stated in its report that the “Fintech Sukuks will fuel in the standardization drive, cost efficiency and timely expansion drive in the Sukuk Market, that in turn powers in all the Islamic banks’ profitability during the long run.”
Moody’s also stated that with the optimum channelizing and streamlining of the Blockchain technology it can support in reduction of the costs and make the process swifter as well as in the elimination of the overall redundancies that in turn would get narrowed down the yield gap with conventional banks. The other reason it would prove beneficial is that it will mitigate risk as well as slow down the time gap and in turn reduce the cost involved which is higher in terms of issuance of Sukuk Bonds.
Wethaq in turn has partnered in with enterprise blockchain software firm R3 that is the perfect platform for issuance of Sukuk bonds, carried out under jurisdiction of the Dubai Financial Services Authority. This blockchain platform is built on solid R3’s Corda Enterprise software whose primary focus is on improvising the market infrastructure for actively supporting the issuance and trading of Sukuk securities making it in turn easily accessible by digitizing the costly and lengthy manual issuance process.
The rating agency also validated a point that “due to the higher cost, complexity that is generally bonded to the issuance of Sukuk has proved a major drawback as it has driven away the issuers, that includes sovereigns, corporates and financial institutions issuing the conventional bonds, that has thus resulted in creation of a huge gap between global bond issuance versus Sukuk issuance volumes.”
Moody’s Investor Agency groups rival compatriots S&P Global, stated that the total Sukuk bond issuance for the previous year was valued at around $5.8 trillion. Sukuk market, however, is specifically remains confined to a particular tertiary that includes core Islamic finance markets of the Gulf Co-operation Council (GCC), Malaysia, Indonesia,and Turkey. The overall net Sukuk Issuance is valued at around $130 billion (Dh477.4bn) in 2019, up by 6 percent from $123 billion in 2018.
