Islamic Development Bank Plans Blockchain Based Financial Inclusion

| October 20 , 2017 , 17:01 IST

The research arm of the Jeddah based Islamic Development Bank intends to use blockchain technology in order to develop sharia-compliant products, aiming to support financial inclusion efforts across its member countries.

The Islamic Development Bank is an international Islamic financial institution and comprises of 57 member countries from the ‘Organisation of Islamic Cooperation’. Saudi Arabia is the major shareholder of the bank owning more than a quarter of the shares. Its arm Islamic Research & Training Institute signed an agreement with local firm Ateon and Belgium-based SettleMint, with the first stage to focus on a technical feasibility study.

The agreement is the latest effort to combine blockchain technology to tap demand from Muslim investors, with firms from Indonesia to Canada having already received sharia-compliant certification for their products.

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Involvement of the IDB, a multilateral development institution, could also encourage other fintech firms to incorporate Islamic finance to tap markets across the Middle East, Asia, and Africa.

Blockchain involves a shared electronic ledger that allows all parties to track information through a secure network, removing the need for third-party verification.

Islamic finance follows religious principles such as a ban on gambling and outright speculation, but until now the sector has focused on traditional retail banking services. Financial experts say Islamic banking and blockchain is a match made in heaven. Dubai had recently unveiled its National Blockchain strategy. Dubai is looking to integrate its whole government using blockchain technology to increase efficiency, transparency, and transform its economy.

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“We want to make Dubai the first blockchain-powered government in the world by 2020,” Aisha Bin Bishr, director general of Smart Dubai, noted. This blockchain strategy has led to the creation of emCash, the emirates’ first state-sponsored crypto-currency. EmCash will act as a seamless payment method for everyday payments, reducing settlement times, costs, and increasing flexibility and security.

The IDB said such features would allow for instantaneous clearing and settlement of transactions and asset exchanges while helping eliminate counterparty risk.

The Islamic Development Bank (IDB) had recently signed agreements worth $804 million with seven countries in Africa and Latin America in order to help boost their economies. The agreements came on the sidelines of the annual meetings of the World Bank Group and the International Monetary Fund in Washington, covering several infrastructure projects in the areas of energy, housing, agriculture and water supply.