Return to site

Optimising Financial Products: The Blockchain Opportunity, Islamic Finance & Non-Traditional Sectors

· Knabu Banking

We were recently asked to talk about capital markets, Islamic finance and how Sukuk will be impacted by Blockchain.

To begin with, there are wider problems in financial services that need to be tackled- not just in the context of Islamic finance and Sukuk. This is why we set up Knabu in the first place:

  • Global financial flows are riddled with friction and are sub-optimal

  • Closed access remains a problem

  • New technologies are enabling access and new opportunities -but they are nascent and still being developed

  • as financial services evolve towards digital services, the existing systems present barriers which means customers cannot benefit from new technologies

Last Decade of P2P transactions

Over the last decade, there is increasing prevalence of P2P services. They open up opportunities for small innovators to challenge established financial groups. At the same time, new technologies have also emerged.

For example, blockchain technology’s time-stamping, immutability and trustless features allow us to:

(a) minimize costs by streamlining back-office operations,

(b) shorten clearing and settlement transaction times,

(c) facilitate faster and cheaper payments, and

(c) generate new revenue streams

Access, Transparency and Sukuk

A Sukuk is an Islamic financial certificate. It is one of the most commonly used instruments in Islamic finance and referred to a ‘Sharia compliant’ bond.

Basic Sukuk Structure

Some of the main differences between a Sukuk and a conventional bond are:

What are the Challenges and the Blockchain opportunity?

When we look at capital markets, we see the private placement market riddled with huge inefficiencies. There are long settlement delays, many intermediaries (underwriters, custodians etc), silos of data, inability to access investors, protracted stages of pre-issuance, issuance and settlement.

Also, Sukuk at this time is mainly government controlled across the world. These are bureaucratic slow-moving entities that are not quick to adopt new technologies.

In the context of Sukuk, blockchain technology can streamline the intermediaries in the supply chain, provide visibility end-to-end to reduce risk of Sharia non-compliance. In Sukuk, the technology can open up access to holders. While Sukuk cash flows can become more visible and transparent, blockchain technology can also simplify the tracking of underlying assets.

At Knabu, we focus on enabling access to the underbanked and underserved. 

If you want early access to our products and services or if you want to partner with us as we build our clearing bank, please contact us at [email protected]

All Posts

Almost done…

We just sent you an email. Please click the link in the email to confirm your subscription!