Al Hilal Bank, a state-owned Islamic financial institution in the United Arab Emirates has created history by becoming the world’s very first Islamic bank to execute a Sukuk (a Sharia-compliant bond) transaction on a blockchain.
The Islamic bank has used blockchain technology in a secondary market deal to resell and settle a portion of $500 million Sukuk issued two months ago and scheduled to mature in September 2023.
“The advantages of using smart contracts range from safer transactions with robust Shariah compliance to the unlocking of new opportunities. Integrating DLT into Sukuk deals will make the transactions safer while ensuring compliance with Islamic laws,” said Alex Coelho, CEO of Al Hilal Bank in a statement.
Additionally, use of smart Sukuks will enhance the efficiency during transactions and cut down the overhead costs efficiently that incur during insurance and settlement. While Al Hilal may be the first bank to execute a Sharia-compliant bond on the blockchain, several other financial institutions have used blockchain to settle transactions in the past.
In August this year, World Bank settled a two year bond of $73 million on Ethereum network. Also, The Bretton Woods institution selected Commonwealth Bank of Australia as the sole arranger of BONDI – Blockchain Operated New Debt Instrument. The World Bank issued the bond which was priced at a 2.251% yield.
Less than two months have passed when Austria raised more than €1 billion in a bond auction notarized on the blockchain. According to Oesterreichische Kontrollbank AG, the Austria-based special purpose bank, blockchain technology enhances the security of the transaction and consequently builds confidence.
“Blockchain technology offers great potential for increasing efficiency and ensuring the quality of bank processes. Therefore, we have been dealing with this topic intensively for some time now and have already tested several prototypes. Starting the real operation on behalf of OeBFA is a pleasing and logical next step,” an executive at Oesterreichische Kontrollbank AG, Angelika Sommer-Hemetsberger, said.
Earlier this year, Sberbank, a Russian bank and MTS, a telecommunications company transacted Russia’s first commercial bond on the blockchain worth $12 million. A proprietary blockchain platform based on Hyperledger Fabric was used for the transaction. It is a DLT application associated with the Linux Foundation.