World first digital sukuk targets Bitcoin generation

Funds from the sukuk will be passed to an Indonesian microfinance institution, which will then use it to finance budding micro-entrepreneurs. (Supplied)
Updated 09 October 2018
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World first digital sukuk targets Bitcoin generation

  • Blossom Finance hopes its pioneering products can enable retail investors to benefit from the kinds of gains usually only enjoyed by institutions and the ultra-wealthy
  • After creating their user account, members will be able to view various projects (new and old) on the Blossom portal that are funded by digital sukuks

BARCELONA: Later this year, what purports to the world’s first digital sukuk will launch, bringing Sharia-compliant social impact investing to the masses.
Blossom Finance — an Indonesia-based, US-owned and regulated company that’s guided by one of the Gulf’s most renowned experts in Islamic finance — hopes its pioneering products can enable retail investors to benefit from the kinds of gains usually only enjoyed by institutions and the ultra-wealthy.
Digital sukuk can also help steer Islamic finance back toward a higher purpose of supporting the communities in which it operates.
“Islamic finance has yet to realize its true value proposition. Most of it is built on replicating conventional finance, which may be a necessary step but isn’t particularly benefitting society,” said Khalid Howladar, chief strategy and risk officer at Blossom Finance.
“Maybe one person can’t change the world, but I saw within Blossom the scope to help take Islamic Finance to the next level and to support a more investment-based — versus debt-based — economy.
“The core premise of Blossom is to be an active social impact investing platform that will use digital sukuk to raise funds from platform members worldwide.”
 So, how will the company’s digital sukuk work?
There is no paper. Everything is online and digital at blossomfinance.com. After creating their user account, members will be able to view various projects (new and old) on the Blossom portal that are funded by digital sukuks. They can invest in any of these sukuk and trade them online.
Blossom’s debut digital sukuk will launch before year-end and aims to return around 8-10 percent over its one-year duration. However, unlike the bulk of the global sukuk market, this will be a genuine profit-sharing instrument with variable — not fixed — returns.
With potential investors from Chile to New Zealand registering their interest in the sukuk, Blossom hopes to raise around $500,000 to $1 million. The proceeds will be passed to an Indonesian microfinance institution, which will then use it to finance budding micro-entrepreneurs.
“We would rather the sukuk be relatively short in order to reduce the risk, at least at the outset,” said Howladar, who is also managing director and founder of Dubai’s Acreditus, a boutique risk, ratings, regulatory and Islamic finance advisory practice.
“It will also help instil good practices in the microfinance institution as — for the first sukuk — they need the money back after the year. The microfinance institution can then finance the entrepreneurs again providing all requirements are met.”
A second sukuk, which will be written on an Ethereum blockchain and is slated to launch in the first half of 2019, will also be focused on Indonesia’s microfinance industry. Blossom may then issue a digital sukuk to fund a recycling firm that’s found an innovative way to safely dispose of plastic and medical waste, with plastic residue used to lay roads. A fourth potential project is for an asset-backed sukuk that would fund a hospital expansion.
Previously, the administrative requirements — such as taking customer details, allocating unique and unforgeable reference numbers and distributing profits – would have required an expensive corporate and technology infrastructure to support the sukuk.
“As a result, your investment sizes would have to be tens if not hundreds of thousands of dollars per person, because you needed scale to make it work,” said Howladar, who was formerly Moody’s Global Head of Islamic Finance and GCC Banks.
As profit-sharing instruments, the sukuk do not provide guaranteed returns of profit or capital, but that added risk is reflected in the higher potential profits to be made from investing. The minimum investment size will vary according to the sukuk and will start from around $100 for blockchain-based sukuk, while for the first digital sukuk it will likely be about $5,000 reflecting the current real-world onboarding costs.
“Only when we are fully operational can we use tech to bring the subscription threshold down,” said Howladar.
“Hopefully Blossom’s platform can help democratize the investment process so that you don’t need to have a brokerage account or access to a ‘Swiss’ private bank to invest your money in markets that over the long term generate returns that are typically more than bank deposits.”
The sukuk will have an Indonesian counterparty bank that can receive investors’ funds.


Gulf defense spending ‘to top $110bn by 2023’

Updated 15 February 2019
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Gulf defense spending ‘to top $110bn by 2023’

  • Saudi Arabia and UAE initiatives ‘driving forward industrial defense capabilities’
  • Budgets are increasing as countries pursue modernization of equipment and expansion of their current capabilities

LONDON: Defense spending by Gulf Arab states is expected to rise to more than $110 billion by 2023, driven partly by localized military initiatives by Saudi Arabia and the UAE, a report has found.

Budgets are increasing as countries pursue the modernization of equipment and expansion of their current capabilities, according to a report by analytics firm Jane’s by IHS Markit.

Military expenditure in the Gulf will increase from $82.33 billion in 2013 to an estimated $103.01 billion in 2019, and is forecast to continue trending upward to $110.86 billion in 2023.

“Falling energy revenues between 2014 and 2016 led to some major procurement projects being delayed as governments reigned in budget deficits,” said Charles Forrester, senior defense industry analyst at Jane’s.

“However, defense was generally protected from the worst of the spending cuts due to regional security concerns and budgets are now growing again.”

Major deals in the region have included Eurofighter Typhoon purchases by countries including Saudi Arabia and Kuwait.

Saudi Arabia is also looking to “localize” 50 percent of total government military spending in the Kingdom by 2030, and in 2017 announced the launch of the state-owned military industrial company Saudi Arabia Military Industries.

Forrester said such moves will boost the ability for Gulf countries to start exporting, rather than purely importing defense equipment.

“Within the defense sector, the establishment of Saudi Arabia Military Industries (SAMI) in 2017 and consolidation of the UAE’s defense industrial base through the creation of Emirates Defense Industries Company (EDIC) in 2014 have helped consolidate and drive forward industrial defense capabilities,” he said.

“This has happened as the countries focus on improving the quality of the defense technological work packages they undertake through offset, as well as increasing their ability to begin exporting defense equipment.”

Regional countries are also considering the use of “disruptive technologies” such as artificial intelligence in defense, Forrester said.

Meanwhile, it emerged on Friday that worldwide outlays on weapons and defense rose 1.8 percent to more than $1.67 trillion in 2018.

The US was responsible for almost half that increase, according to “The Military Balance” report released at the Munich Security Conference and quoted by Reuters.

Western powers were concerned about Russia’s upgrades of air bases and air defense systems in Crimea, the report said, but added that “China perhaps represents even more of a challenge, as it introduces yet more advanced military systems and is engaged in a strategy to improve its forces’ ability to operate at distance from the homeland.”