- A halal blockchain credit system is being developed by a blockchain company and an Islamic bank
- Samsung-backed Blocko is providing the technology for the Islamic Development Bank Group
- Banks and consumers will both benefit from the collaboration
A Sharia-compliant blockchain credit platform is in the works after a linkup between blockchain company Blocko and the research arm of the Islamic Development Bank Group (IsDB). Samsung-backed Blocko has teamed up with the Islamic Research and Training Institute (IRTI) to develop a blockchain-based smart credit management system that will be compliant with Sharia law, allowing the world’s two billion Muslims access to a cutting edge credit process.
Halal Blockchain Loan Management Through Blockchain
The collaboration between IRTI and Blocko is part of the blockchain company’s E24P initiative, a recently-launched technology group focused on delivering blockchain solutions across the Middle East, Southeast Asia, and Africa. IsDB’s involvement showcases its commitment to enable greater financial inclusion, alleviate poverty in the region, and accelerate the development of the Islamic finance industry.
Sharia law prohibits banks from penalizing borrowers who default on loan payments or pay late with additional interest. This has resulted in a system where borrowers are still charged for these infractions but the fees are donated to charity.
However, with banks not directly benefiting and borrowers seeing the fines as acts of benevolence, neither side is particularly incentivized to do their bit in the collection and distribution process. The new system includes an incentive mechanism to encourage early repayment and is only feasible through blockchain technology.
Smart Credit Management System Accelerates Credit Checks
The smart credit management system being developed by IRTI and E24P will utilize the Aergo hybrid blockchain technology developed by Blocko to execute smart contracts, enabling both Islamic banks and other financial institutions to perform credit assessments in an autonomous and integrated way while maintaining transparency, security and privacy for all parties.
Whether or not cryptocurrency is halal has been hotly debated since its rise in 2017, with some scholars coming out in favor of it and others arguing that it does not comply with Sharia law. In 2018 the First Islamic Crypto Exchange launched in the UAE, the first certified halal blockchain exchange, but crypto fever has really yet to take off in the Muslim world.