Return to site

The Future Of Banking: Blockchain May Be The Sukuk Industry's Missing Link

Article by SPGlobal

S&P Global Ratings believes blockchain and smart contract protocols could change the global sukuk industry for the better. They can increase the transparency of cash flows and the underlying assets, while enhancing investors' decision-making through a greater supply of information. These technologies could also pave the way for more robust Sharia and financial auditing of sukuk after issuance, thereby reducing the risk of default because of non-Sharia compliance.

To date, only a handful of financial institutions have used blockchain to issue conventional bonds and none to issue sukuk. Some market participants argue that blockchain was created a decade ago, but has not had much impact on the financial system. However, in our view, this technology and the increasing prevalence of peer-to-peer services are opening up opportunities for small innovative market participants to challenge established financial groups.

We have long believed that, at the very least, blockchain presents an opportunity for financial institutions to minimize costs by streamlining back-office operations, shortening clearing and settlement times, facilitating payments, and even generating new revenue streams (see "The Future Of Banking: Blockchain Can Reshape The Financial System," published Oct. 26, 2016, on RatingsDirect). Since blockchain technology enables the creation of a shared digital transaction ledger, banks can use it in their payment, trade finance, money transfer, and post-trade services. Having a real-time, standardized view of transaction data without needing multiple reconciliations would remove many of the inefficiencies that hinder the financial system, and could reduce costs
considerably.
A few small bond issuances have reportedly involved cryptocurrencies and the public Ethereum blockchain. Only Telefonica Deutschland and the World Bank have reportedly used blockchain to issue conventional bonds, the former to issue a €50 million debenture bond that was part of a €200 million offering placed in January 2018. The World Bank's use of the technology was for a two-year A$110 million offering in August 2018 that was created, allocated, transferred, and managed through its lifecycle via a distributed ledger. According to the bank, investors showed a strong appetite for the transaction, including official institutions, fund managers, and banks. So how might sukuk issuance benefit from blockchain?

Read the article on finyear.com

All Posts
×

Almost done…

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

OKSubscriptions powered by Strikingly