"Halal chain" Islamic Coin attracts attention, what is the mystery of Islamic finance?

Author: The Dark Side of the Moon, PANews

Recently, the Sharia-compliant blockchain project Islamic Coin announced that it has received a high investment of US$200 million. Combined with the US$200 million in financing it will receive in 2022, its total financing amount has reached a record-breaking US$400 million. The project has also been aggressively promoted to Islamic regions such as the United Arab Emirates, where Twitter users are heavily advertised. According to the official website, the consultants for the project include several royal family members of Abu Dhabi and Dubai, as well as experts in Islamic finance.

Islamic Coin is built on the Haqq blockchain, and due to its adherence to Islamic financial rules, it cannot use conventional means such as interest. Instead, it will invest 10% of the token issuance in Evergreen DAO to support Islamic charity. Although the Haqq blockchain does not require that it must be a halal project to be used, it needs to comply with Islamic guidelines and be voted by the community to obtain the certification mark. (For the specific operating mechanism of the project, please refer to the PANews article: Another $200 million financing, what exactly is Islamic Coin?)

What are the Islamic financial laws emphasized by Islamic Coin, and how are they different from contemporary financial laws? In this article, PANews will briefly introduce some Islamic finance-related knowledge to help readers and entrepreneurs explore the possibility of following Islamic laws in the field of cryptocurrency.

Ban interest, allow investment to share profits

Before entering the definition and discussion of Islamic finance, lay the groundwork for the relevant knowledge of Islam and Sharia law, and finally go deep into Islamic finance. Islam is widely distributed all over the world. As of 2020, there are about 1.9 billion Muslims (Islamic believers) in the world, accounting for 25% of the global population.

There are two major sects of Muslims, the most mainstream is Sunni, which accounts for 70%-80% of the share, representing countries such as Saudi Arabia, while the smaller number is called Shia, which accounts for 10%-15% of the share, representing The country is Iran. In addition to these two major sects, there are some smaller religions, such as the Ibad sect represented by Oman, which is currently the third largest sect, but in fact, there are many small sects, even in Within Sunnis and Shiites, more refined sects can also be divided. For example, what Saudi Arabia believes in is actually the Wahhabi sect in Sunnis, which is the mandatory belief of all members of the royal family. state religion.

In addition to following the Koran, these factions actually have different cognitions on the specific Islamic law. Take the Islamic Coin claiming to be in line with the Islamic law as an example. In fact, the Islamic law can also be understood as the Sharia law (Sharia). ), which is closer to what we call “law”, rather than more specific subdivided concepts such as criminal law and civil law.

Since there is no complete consistency between Islam and the so-called Islamic law, the major Islamic countries in the world will conduct a certain degree of consultation to determine a financial standard that can be used in Islam.

Islamic finance, in a narrow sense, refers to banks as the main body, and its main feature is to operate in accordance with Islamic law. Muslim countries have both Islamic banks and modern banks such as Europe and the United States. For example, there are Dubai Islamic Bank (Dubai Islamic Bank) and HSBC in Dubai.

In addition, Sukuk, Islamic insurance and Islamic funds are also being developed, but on a significantly smaller scale than Islamic banks. It should be noted here that the operation mode of the sovereign wealth funds of the oil-rich countries in the Middle East is completely Western-style, and cannot be included in the Islamic financial system because of its large scale.

According to the principles of Sharia law, all Islamic finance products will have the following in common:

• Absolutely no interest. Even if it is deposited in an Islamic bank, it cannot receive income in the name of interest.
• Profit sharing mechanism. Unlike the aversion to interest, Islamic finance allows income to be earned through investments.
• Mainly physical assets. Financial products need to be based on physical objects, so gold is the most popular investment product.
• Speculation is strictly prohibited. Mainly for restrictions on gambling, options, derivatives, etc.
• Sharia law is the foundational principle. But in fact, because the Sharia law itself lacks consensus and standards, it needs to be established in practice.

The status quo of the Islamic financial market, Crypto started to infiltrate

In practice, a broad consensus and standard has been formed on gold trading, which is also the hottest target for global Muslim investment. The “AAOIFI Sharia Gold Standard” was issued in 2016 by the World Gold Council and AAOIFI (Islamic Financial Institutions Accounting and audit organization) jointly developed. The standard has the following five most important principles:

1. Gold must be traded in spot (hand to counterparty);
2. Gold holdings may be in physical or constructive form;
3. In the case of presumptive holding, the gold must be fully allocated;
4. Allocation can be made by T+0 settlement or receipt of a certificate/confirmation of title to the designated bullion;
5. Allows for joint ownership where each partner has an undivided beneficial interest in the trust.

Moreover, the standard has been recognized by the Shariah Council, an organization composed of 20 scholars from many countries around the world, which indicates that the standard has a fairly high level in theory.

• In addition to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) mentioned above, international standards bodies for Islamic finance include the Islamic Financial Services Board (IFSB) and the International Institute for Islamic Financial Markets (IIFM).

The current practice of Islamic finance is highly concentrated in the banking industry. It is difficult to say that there is a truly successful product in the practice of cryptocurrency, but like other financial products, as long as it can comply with Islamic law, it means that the market is huge.

From the classification of subdivisions, Islamic finance can be divided into Islamic banks, Islamic insurance, Islamic bonds, Islamic funds and; other Islamic financial institutions (OIFI), such as cryptocurrencies.

In terms of market value and scale, there are two imbalances. The first is that Islamic finance is mainly concentrated in the banking industry, with a total value of about 2 trillion, accounting for nearly 70%, and other parts account for a very small proportion; The banking industry only accounts for about 6% of the global banking market share.

This is mainly because Islamic banks cannot absorb depositor assets with high interest rates, nor can they engage in speculative activities and set foot in the derivatives market. Although it limits its importance in the global banking industry, it brings extremely high security , The main investment targets of the Islamic banking industry are real estate, leases and other tangible assets, which are extremely resistant to pressure.

And geographically, due to the oil wealth effect of the Gulf countries, the six GCC countries (GCC, Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman, and Bahrain) are also regions with the largest proportion of assets, but their population accounts for less in the Islamic world. Not high, the scale of 35 million is basically contracted by Saudi Arabia.

As of 2019, Islamic financial assets in the GCC reached US$1,253 billion, accounting for 44% of total assets, followed by other regions in the Middle East and North Africa (MENA) with a total of US$755 billion, accounting for 26.3%, and Southeast Asia accounted for 24% (Malaysia and Indonesia ), Europe, Asia, America and Africa accounted for a very small proportion.

In addition to traditional Islamic finance, various new financial technology products including cryptocurrencies are also gradually penetrating the Muslim world. In principle, most of these innovations belong to other Islamic financial institutions (OIFI), while Bitcoin and crypto Coins or behaviors such as currency trading have also been thriving on being hit.

If it goes well, Islamic Coin will be the first Shariah-compliant cryptocurrency issued as a self-proclaimed $400 million blockchain, whose currency price is entirely determined by the market to be Shariah-compliant, and available globally. Muslims use it, which is also good for the current cryptocurrency market that is in urgent need of expanding users.

It should be noted that blockchain projects can only operate in the Islamic world if they do not fully comply with the Islamic law. Taking Ripple as an example, the Saudi Monetary Authority (SAMA) is also actively connecting with it, and there are also domestic commercial banks participating in the Ripple enterprise. Level network to explore usage scenarios in cross-border remittances.

In addition, Dubai is also actively attracting various cryptocurrency companies to settle in. For example, Binance has opened an office in Dubai. For details, please refer to the previous article of PANews: Qingquan in the desert, the ambitions and challenges of blockchain in Dubai.

Conclusion

Islamic Coin has attracted the attention of the market with its dual selling points of high financing and compliance with Islamic law. Taking this opportunity, this article is dedicated to introducing the relevant knowledge of Islamic finance to Chinese readers, at least as far as rich countries in the Middle East are concerned, their attitudes towards blockchain It is not completely closed and prohibited, but more about examining the opportunities in it. Even if it does not fully comply with Islamic law, you can also find cooperation points in other fields.