A state-owned financial institution in the United Arab Emirates, Al Hilal Bank, has made history by becoming the world’s first Islamic bank to execute a Sukuk (Sharia-compliant bond) transaction on a blockchain.
In a secondary market deal, Al Hilal Bank used blockchain technology to resell and settle a portion of a US$0.5 billion Sukuk issued two months ago and scheduled to mature in September 2023. According to the CEO of Al Hilal Bank, Alex Coelho, integrating DLT into Sukuk deals will make the transactions safer while ensuring compliance with Islamic law.
“The advantages of using smart contracts range from safer transactions with robust Shariah compliance, to the unlocking of new opportunities,” said Coelho in a statement.
Additionally, smart Sukuks will enhance efficiency during transactions and cut the overhead costs that are incurred during issuance and settlement.
World Bank’s US$73 million bond
While Al Hilal is reportedly the first Islamic bank to execute a Sharia-compliant bond transaction on the blockchain, it is not the first time that a regular bond has been settled on a blockchain. In late August, the World Bank settled a two-year bond worth US$73 million on the Ethereum network.
The Bretton Woods institution picked Australia’s largest bank, Commonwealth Bank of Australia, as the sole arranger of the bond which was dubbed BONDI – Blockchain Operated New Debt Instrument. The World Bank issued the bond, which was priced at a 2.251% yield, with a view of raising funds from public investors and investing in development activities in emerging nations.
Austria’s Bond Auction
Less than two months ago, Austria raised more than one billion euros in a bond auction whose notarization took place on the blockchain. According to Austrian special-purpose bank, Oesterreichische Kontrollbank AG, the use of blockchain technology enhanced the security of the transaction and consequently engendered confidence in the bond auction process.
“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, as CCN reported at the time.
Earlier this year, Russian banking giant Sberbank and telecommunications firm MTS transacted the country’s first commercial bond on the blockchain. The bond worth approximately US$12 million was placed on a proprietary blockchain platform that based on Hyperledger Fabric, a DLT application associated with the Linux Foundation-led Hyperledger consortium.