Adopting blockchain would give significant advantages to the sukuk, or Sharia-compliant bond, industry, Moody’s Investors Service said on Wednesday.
Blockchain has the ability to reduce costs, and increase efficiency, transparency, and oversight. “These features could have significant benefits for the sukuk industry,” said Moody’s.
The agency’s reasoning is that the cost and time needed to issue a sukuk is currently greater than that of a conventional bond.
“Issuing a sukuk generally includes complex legal documentation, unlike a conventional bond issuance, and this – in addition to the relative complexity of the instruments’ structures – may be inhibiting new actors from issuing sukuk,” Moody’s added.
Moody’s comments were made in the context of Dubai-based fintech startup Wethaq’s partnership agreement with Corda, an open-source blockchain platform, on August 28. Wethaq aims to improve market infrastructure to support sukuk issuance and trading, making it more easily accessible and manageable.
Moody’s noted that this is a credit positive for the Islamic finance industry.
The agency expects total sukuk issuance to be around $130 billion in 2019, a six percent increase from 2018. Issuance will remain concentrated in core Islamic finance markets, including the GCC, Malaysia, Indonesia and Turkey.