On November 17, Dubai-based blockchain fintech Wethaq issued its first pilot Sukuk on its securities market platform for Islamic capital markets. The Dubai Financial Services Authority (DFSA) supervised the issuance of the Sukuk. The company did not disclose the amount raised in the deal.
A Sukuk is a type of Islamic financial instrument which is interest-free and represents the ownership of an underlying asset, service or investment. A Sukuk is based on asset financing, compared to a conventional bond based on debt financing. Just like traditional bonds, there are several parties involved in the issuance of Sukuk.
Wethaq’s solution is built on R3’s Corda blockchain. Ledger Insights previously explored the partnership between R3 and Wethaq for blockchain Islamic finance. The platform integrates SWIFT’s payment and settlement functionality allowing investors to use traditional methods to invest in blockchain Sukuks.
For the pilot Sukuk, Al Ghurair Investments LLC acted as the issuer, advised by Mashreqbank PSC acting as the lead arranger, Clifford Chance as legal counsel and the Dubai Islamic Economy Development Centre as a mentor.
The decentralized platform automated the roles of a registrar, CSD, trustee-delegate, paying agent, calculation agent and transfer agent.
“We are one step closer to releasing our infrastructure to the market and facilitating the Islamic capital market to reach its 4x growth potential,” said Mohammed Alsehli, CEO of Wethaq.
With a Sukuk, the financing is achieved by the investor providing money often to fund an asset. The asset is rented out or leased with the income going to the investors. It does not work like a conventional bond where the investor receives a fixed amount of money on maturity. Instead, part of the income is from a capital gain (or loss) if the underlying asset appreciates by maturity.
Last year, Abu Dhabi’s Al Hilal Bank executed a Sukuk transaction using blockchain. And in October, Indonesia’s BMT Bina Ummah raised 710 million rupiahs ($50,000) through a blockchain Sukuk issuance using the SmartSukuk platform from Blossom Finance.